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How Far Down?

In response to:

How to Rescue a Drowning Economy from the April 1, 1982 issue

To the Editors:

Your headline in blue, “Lester Thurow: Why the US is Number 10” and the review to which it refers (Thurow on Minding America’s Business: The Decline and Rise of the American Economy by Ira C. Magaziner and Robert B. Reich [NYR, April 1]) are mistaken in their assertions that United States affluence has slipped to tenth place among the industrialized nations of the world. Though the United States economy has grown less rapidly than many others since World War II, careful comparisons indicate that the US GNP per capita is still virtually at the top of the list. A recent in-depth study of thirty-four countries around the world carried out under the auspices of the United Nations and the World Bank leaves no doubt that five of the countries Thurow puts ahead of us—Denmark, West Germany, Belgium, Luxembourg, and the Netherlands—are not, and that far from being tied with us as Thurow says, France is also well behind. More problematical because of limited data are the available comparisons for Switzerland, Sweden, Iceland, and Norway, and therefore the hedging adverb “virtually” in the statement above that we are still “Number 1.” The weight of evidence places these four countries behind the US too but the research underlying this conclusion involves necessarily tenuous anlysis.

The importance of the US’s present standing to the main theses of Thurow and Magaziner-Reich must be judged by readers of the review and the book. However, a proper assessment of “How to Rescue a Drowning Economy” and “Minding America’s Business” requires that the premises they start with be correct.

Robert Summers

University of Pennsylvania

Philadelphia, Pennsylvania

Lester C Thurow replies:

When it comes to America as tied for number 10. I was quoting Reich and Magaziner who were in turn quoting from the Organization for Economic Cooperation and Development. That study was based on per capita GNPs converted into dollars using prevailing exchange rates.

That technique is not adequate if you are trying to measure relative real standards of living since many goods and services are not traded in international markets. That technique is correct, however, if you are trying to measure the competitive international position of the United States since that depends upon our productivity in producing goods and services that are traded in international markets. Magaziner, Reich, and I were concerned with our competitive international position and not with our comparative standard of living.

Professor Summers’s attempts to measure real standards of living are now substantially out of date—being based on data from 1970 and 1975—but more importantly he himself admits in his article that education, health care, and government services are difficult to measure. In his calculations American standards of living look high, for example because land and hence housing are relatively cheap in the United States. What do you do about the fact, however, that male life expectancy in the United States is nineteenth in the world yet America spends almost 10 percent of its GNP on health care—far more than anyone else. If you were to correct for this fact (something not done in the Summers study), you might argue that something more than a 10 percent subtraction should be made from the US standard of living. The correct subtraction would be the amount that the US would have to spend to have an equal life expectancy—a number that might be very large indeed. Not to correct for the higher standards of education, health care, and government services is to substantially underestimate standards of living in northern Europe. Compare the cleanliness of Paris parks versus that of New York parks.

In the end it is unimportant whether the US is number 10 or something slightly different. The fact is that we are falling in the relative ranking and that our current rate of productivity growth is far below that of our competitors. This means that both our competitive position and our relative standard of living are falling. How are we to reverse that situation? Maintaining that we really aren’t number 10 does not solve anything.

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