The coming end of 150 years of the USA as the largest economy

Note: GDP is log-transformed!

Most projections usually predict that China will be the largest economy by the year 2030. This got me thinking: when exactly did the USA surpass other nations? I knew it was in the 19th century, but I wasn’t sure exactly when.

GDP estimates are always somewhat dicey, and they were even more so in the past. But the above plot* is representative of what you can find online: the USA became #1 in the decade or so after the Civil War. What surprised me is that the nation it surpassed was China! Around 1880 the USA overtook China, and around 2030 China will overtake the USA. That’s 150 years of American singular economic dominance. Curiously, for a period India was #3, just as it will be in 2030 (though its GDP will be far lower than #2 USA by most estimates).

I am aware that on a per capita basis America will be the most affluent large society in the world for decades beyond the point when its economy is not the largest. My only observation is that we are living to see the end of a particular phase in world history.

One aspect of this that I wonder about is that it is a fact that to some extent in the late 19th and early 20th century America refused to take over the role of the world’s preeminent power from the United Kingdom long after it had become the most consequential economic force. To be frank, it was clear in the early 20th century that the UK was simply longer up to the task, and arguably a great deal of suffering might have been alleviated if the United States had stepped into its natural role earlier. Now I wouldn’t be surprised if the inverse occurred in the second quarter of the 21st century: the USA, like Britain, continues to play the role of hyperpower hegemon longer after it’s able to carry out that role credibly. I hope I’m wrong.

* Data from Barry Ritholtz’s blog.

Imperium did make the least of us richer

After reading the section on Rome in War! What Is It Good For?: Conflict and the Progress of Civilization from Primates to Robots, I realized I had changed my mind over the past 10 years on the issue of differences in wealth in the past. Following the treatment in A Farewell to Alms: A Brief Economic History of the World or Contours of the World Economy 1-2030 AD: Essays in Macro-Economic History, I held to the position that before the pre-modern world, and back to the Paleolithic, the vast majority of people had been roughly at the same standard of living at the Malthusian limit.

Basically, a British peasant in 1500 was no more poor or rich than a Japanese peasant in 1500 who was no poorer than a Paleolithic hunter-gatherer who lived in 15,000 BC. The reason being that in the pre-modern world economic growth rates were so slow that population growth always caught up, and the populace was back to immiseration on the Malthusian margin. Yes, there were some differences of detail, but not worth mentioning.

In David Warsh’s Knowledge and the Wealth of Nations there is a great deal of emphasis on economic growth being driven by gains in productivity, which are driven by innovation. This is common sense. We all know that people are wealthier and healthier because of technological growth and development over the last few hundred years. But there’s another variable: the demographic transition. After all, modern middle-class Westerners could have huge families and spend all their discretionary income raising children. They don’t.

Malthus’ logic was actually right. He even understood that productivity gains and efficiency were going to occur. But the iron law of human reproductive fecundity seemed to be an inevitability…until it wasn’t. It is always important to move beyond logic. It seems clear that productivity gains in the pre-modern world were low…but there was variation in consumption and quality of life, even though it was nothing like what we see today.

Books like The Fate of Rome: Climate, Disease, and the End of an Empire and The Fall of Rome: And the End of Civilization have convinced me that the Roman Peace wasn’t simply a propaganda coup. That it wasn’t simply a great con by the elites to steal surplus wealth from the masses and channel it into public works which reflected their glorious and status and secured their immortality in the memory of future generations (though it was that!).

This doesn’t necessarily mean you’d rather be a Roman citizen or subject than a barbarian living beyond the frontiers. That depends on how much you value your life as opposed to your freedom. But whereas 10 years ago I would stay that the attraction of Romanitas was simply a function of elites attempting to capture the best extractive institutional mechanisms, I do think there was a “trickle down” in consumption goods through classical dynamics described in Adam Smith’s Wealth of Nations. Trade, specialization, and peace did bring dividends, both to the high and the low. On the margin being 25% wealthier on a low base may not seem like much to us, but it was probably a lot to them. How much do you value dishware?