The Exceptional Economy

From Michael Roberts' blog:

Next week US president Joe Biden finishes his term of office, to be replaced by the Donald. Biden would have been extremely popular with the American public and probably would have run and got a second term as president, if US real GDP had increased by 4.5-5.0% in 2024, and if during the whole of his period of office since end 2020, real GDP had risen 23%; and if per American, real GDP had risen 26% over those four years. And he would have been congratulated if the Covid death rate during the 2020-21 pandemic had been one of the lowest in the world, and the economy avoided the pandemic slump in production.

Above all, he would have been feted if the inflation of prices in goods and services after he came into office was just 3.6% in total over four years. That would have meant that, with wages rising at 4-5% a year, real incomes for average American households would have risen significantly. At the same time, strong growth would have allowed the financing of important new infrastructure spending in the US that could have led to an extensive rail network across the country using super fast trains; and with bridges and roads that did not collapse or crumble along with environmental projects to protect people and homes from fires and floods, and the introduction of cheap electric vehicles and renewables. How Biden would have been popular.

And with extra revenue from strong growth, the Biden administration would have been able to balance the government budget and curb or reduce government debt. And with zero to low inflation, interest rates on borrowing would have been near historic lows, enabling households and companies to afford mortgages and finance investment in new technologies.

And what if US companies had sold a record level of exports of goods and services to the rest of the world, running up a sizeable surplus on trade, despite various tariffs and sanctions against American companies from other trading nations. In running trade surpluses, American banks and companies would have been able to build up foreign exchange reserves and invest in projects abroad, strengthening America’s influence in the world in a beneficial way.

Unfortunately, none of these things happened to the US economy in the four years of Biden’s presidency. Instead these were features of China’s economy. In 2024, China’s real GDP rose about 4.5%, while the US was up 2.7% (faster than anywhere else in the top G7 economies, but still only 60% of China’s growth rate). And throughout Biden’s term, China growth rate outstripped the US.

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Remember, China’s economy has never suffered a decline in national output since 1949. And as John Ross has pointed out, if the Chinese economy continues to grow 4-5% a year over the next ten years, then it will double its GDP – and with a falling population, raise its GDP per person even more; ie more than two and half times as fast as the US.

Why is China exceptional? It is because it is an economy that is planned and led by state-owned companies, so it can ride most obstacles way better than a privately owned system of capitalist production as in the US. (Compare the US COVID death rate at 3544 deaths per million to China’s 85 (latest figures). China’s most important industries are run by SOEs [State Owned Enterprises]: finance, energy, infrastructure, mining, telecommunications, transportation, even some strategic manufacturing. The total capital of companies with some level of state ownership in China is 68% of total capital of all firms (40 million). The vast majority of Chinese companies in the Fortune Global 500 list are SOEs. SOEs generate at least 25% of China’s GDP in the most conservative estimates, and other studies have found them to contribute to 30-40+% of GDP.