Mississippi is richer than France. No, really. The poorest U.S. state now has a higher GDP per person than France, the U.K., Italy, and Spain. How did that happen? Don’t miss this eye-opening episode with George Mason University's Tyler Cowen.
Chapter 1: Why is Mississippi's GDP higher than France's?
GDP per person, that is gross domestic product per person, is nearly double that of Europe. Astonishingly, the GDP per person for Mississippi, which is the poorest state in the U.S., is now higher than that of France, Italy, the U.K., and Spain. Why has the U.S. done so much better economically than other countries? Hi, everyone. I'm Lynne Thoman, and this is Three Takeaways.
On Three Takeaways, I talk with some of the world's best thinkers, business leaders, writers, politicians, newsmakers and scientists. Each episode ends with three key takeaways to help us understand the world and maybe even ourselves a little better. Today, I'm excited to be with Tyler Cowen.
He's a professor at George Mason University and general director of George Mason's Mercatus Center, a university research center that focuses on the market economy. He also writes for The New York Times, Bloomberg, and The Wall Street Journal. In addition, he is the author of numerous books, including his last two books, which are titled Big Business and Talent.
I'm excited to find out why the U.S. economy is so much more dynamic and faster growing than other countries. Welcome, Tyler, and thanks so much for joining Three Takeaways today.
Hello, Lynn. Thank you for having me on.
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Chapter 2: What are the key factors driving U.S. economic success?
It is my pleasure. How do you compare the U.S. to Europe, Japan and other countries?
Well, if we compare the United States to Europe, the tech sector has been a big difference maker. Most of the world's leading tech companies outside of China are in America. The European Union over-regulates its tech sector in numerous ways. It's much harder to have a successful tech company there.
And I think in general, the level of ambition, especially in California, is just much higher in the United States. And the European Union doesn't quite scale. It pretends to be a union. It has a lot of different languages, still a lot of different national regulations, especially for the service sector.
So you're selling into these smaller national markets, whereas United States of America, along with China, is one of the world's two biggest economies.
Is the U.S., especially compared to other countries, a nation of opportunity and prosperity? And if so, why do you think that is?
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Chapter 3: How does the U.S. tech sector compare to Europe?
Well, like other very large countries, the US is many, many things, not all of them good. I think you can say the best parts of the US create more opportunity and more prosperity than any other part of any other country anywhere else. So if you take China as a point of comparison, per capita, China is about as rich as Mexico. And we think of ourselves correctly as much richer than Mexico.
I'm not saying that being born everywhere in the United States gives you great opportunity, but we have so many dynamic cities or states or sectors. We attract world-class immigrants like no other nation. They don't want to go to China. Their opportunities are much more limited in the European Union and their tax is much higher. So they want to come here and we reap all of those gains.
A number I find striking is is that the median household income for a family from India in the U.S., it's $158,000 a year. And those are mostly not wealthy families in India. And they've come here and made really great livings for themselves.
How do policies of the U.S. compare to other countries?
Chapter 4: What role do immigrants play in U.S. prosperity?
Again, it depends which country you're talking about. Taxes here quite simply are lower in most places than in most other countries. So if you're going to be a top earner, you will think about, well, how much of my income do I need to turn over to the government?
Your ability to hire a qualified labor force typically is greater in the most productive parts of the United States than most other parts of the world. We are highly regulated like just about everywhere else. I'm not sure we're better on that score, but I would say when it comes to our tech sector and AI, we're definitely less regulated than the European Union.
And how do you seek creative destruction? And can you start by explaining what it is?
Creative destruction is an economics concept. It comes from the earlier Austrian economist Joseph Schumpeter. Schumpeter pointed out that for capitalism to grow, it has to do away with its older sectors. It has to move on to other things. So if you want your best talent, say, to flow to tech or the service sector, that may well mean that your manufacturing doesn't grow at the same pace it used to.
It may mean your manufacturing employment shrinks, which has been the case in the United States. So the willingness to accept change and loss, I would say the United States is better placed than just about any other country in the world.
Protectionism sounds appealing because it claims to protect workers. How does protectionism work in practice?
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Chapter 5: How do U.S. policies affect economic performance?
Well, protectionism doesn't sound appealing to me. For one thing, it means higher prices for consumers, so it lowers living standards. But economists also put forward the basic insight that your imports and exports pay for each other. So there's a balancing out of trade over the longer run.
And if you tax imports into your own country through a variety of mechanisms, you end up taxing your own exports. And you're also taxing the goods that are the inputs for your exporting firms. So you're hurting your own balance of trade, hurting your own job creation, and leading to a higher rate of inflation for your customers. What's so good about that?
Can you make it more concrete with an example? Say, take something like steel.
Well, let's say you're making tractors in the United States. That's a major sector here and a major export sector. Those tractors rely on a lot of inputs from other countries, including, I think, steel. So if you put a tariff on steel coming into the United States, it's harder and more expensive for us to export tractors.
So what you think you're taking with one hand, you're giving back with the other. And in the meantime, you have higher prices for most things.
If you had to summarize why US economic growth has been so much higher compared to other countries, what would those reasons be?
We have the best talent. We have a relative degree of freedom. We have a tax system that is not confiscatory. We have the largest single market and the best immigrants from the world want to come here. And I think it's an edge. We have 50 different states you can live in. There's just a lot of choice and variety within the country. Many people prefer that.
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Chapter 6: What is creative destruction and why is it important?
The U.S. is highly influential in music, movies, entertainment, and sports. Why do you think that is?
English is the world's language to the extent we have such a thing, but also because we are a nation of immigrants. We're used to the notion that when you make something entertaining, it's supposed to entertain not literally everybody, but more than just, say, a small group of people in Denmark who all went to the same high school together.
There's a generality or universality to a lot of American culture, and it's positive and life affirming and forward looking for the most part. And much of the world likes those things.
Why do creativity and startups flourish in the U.S. ?
They have a pretty favorable regulatory environment. Some of it is just what economists call path dependence. Once you're known for something, other people want to go there and do it, just like Hollywood is known as a center for entertainment, television, cinema. So people go to Hollywood. There's nothing special about the geography. Immigrants again, and just dynamism.
So here is the place where you can think big. If you fail a first time, you're given a second chance. Norms in Europe are quite different from that. The venture capital markets are much better developed here. All of those factors working together.
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Chapter 7: How does protectionism affect the economy?
You have said before that in the U.S., it's more acceptable or even admired to be a loner or to be different or in your words, to be a weirdo. Can you elaborate on that?
Well, we're a big country, again, full of people from all over. So if you're somewhat different, nobody thinks it's so strange. People in general don't necessarily think it's bad. You're given a lot of freedom to operate. Many of our social norms are pretty loose. That's not in all contexts a good thing.
But when it comes to freedom to create, freedom to innovate, daring to think differently, I think just at the sociological level, you have more freedom here than anywhere else on Earth by quite a good margin.
And how would you compare that admiration for nonconformity to some other countries?
Well, I think Japan is a good point of comparison. Japan is a highly admirable society, and it has some remarkable features. You can leave your wallet on a park bench, and it will still be there. Rates of crime, most crime are close to zero. There's no real risk of violence. Those are all virtues of Japanese society. But in part, they come from conformity.
And when it comes to innovation, in most areas, Japan has been and remains far behind the United States. So some of our good features and some of our bad features actually come together. I think overall for us, the mix works.
How would you compare the US, for example, to Germany or Denmark?
Well, I lived in Germany for a while. Germany is very orderly. That's a good feature of the country. Germans are very disciplined. They're quite likely to show up on time. Rebellion there is harder. In German politics, it's quite difficult to truly speak the truth or be very controversial. German politicians always sound reasonable. I'm not sure in all states of the world that is a good thing.
It clearly has its advantages. And what we've seen in Germany is the former manufacturing sector is getting weaker and weaker. And Germany is not really doing anything about that. They've messed up their energy sector. They've been dependent on Russia and China too much. So they've made a lot of mistakes. For all their reasonableness, they don't actually have very good error correction mechanisms.
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Chapter 8: Why do startups and creativity thrive in the U.S.?
Nine of the 10 largest companies in the world by market capitalization are American. Why do you think that is?
Well, we're the largest economy. That claim is slightly complicated because there is China. But per capita, we're the richest economy. And Chinese companies are much less successful exporting abroad than American companies. In part, they have less experience at it. But there's also a lower level of trust. If it is, say, a tech company that will have your personal data.
I think over time, Chinese companies will be as large as the American ones. But right now, our lead there is pretty strong, and it's not going away anytime soon.
Attitudes toward big business are often negative. Why do you think that is, and what would life be like without business?
Well, there's business and there's big business. If you're comparing big business to small business, big business pays higher wages. It gives you better job security. People actually overall are happier working in big businesses. There's more people they can talk to or hang out with.
If the question is, what do we do without business, period, we just really wouldn't have much of anything produced. The Soviet Union tried that experiment. It was very poor. It required a high degree of oppression, no real free speech. So I view big business and this business in general as an American hero. It's maybe the thing in the world we're best at.
And it's a major reason why living in this country is so enjoyable.
And business makes most of the stuff we enjoy and consume, and it also gives most of us jobs.
That's correct. Absolutely. Those of us who don't work for business typically work for institutions that are funded by business, directly or indirectly.
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