America is Number 1 Again; M. Skousen

Economics on Trial MAY 1999 America Is Number 1 Again by Mark Skousen "By the year 2000 Japan may well be enjoying the highest standard of living of any industrialized country." -Economics textbook, 19871 I n 1991, I prepared an advertising campaign for my book Economics on Trial (Irwin). The headline was: "Japan and Germany Win World War III," followed by the subtitle, "Their formula multiplies wealth so rapidly that they will achieve their goal of world dom ination by the year 2000." In this ad, I refer enced the sound economic model that had transformed war-torn Germany and Japan into economic powerhouses in one generation and vulcanized their stock markets. These principles were high savings rates, low taxes on capital and investment, low inflation, bal anced budgets, and free markets. Friedman Sets Me Straight I sent a copy of my ad to the Nobel laureate economist Milton Friedman, who wasted no time debunking it: "This prediction is a bunch of nonsense," he wrote to me. "I will not live long enough to see it falsified, but you will. In the [year 2000] as in 1991, the U.S. standard of living will be higher than the Japanese."

It wasn't long before Professor Friedman was proven right. (He has set me straight on a Mark Skousen (http://www.mskollsen.com; mskousen @aol.com) is an economist at Rollins College, Depart ment ofEconomics, Winter Park, FL 32789, a Forbes columnist, and editor ofForecasts & Strategies. 51 number of occasions.) My prediction of Ger man and Japanese dominance went awry. Not because the market formula for growth is wrong, but because Germany and Japan aban doned their model of success. Germany adopted high-cost labor-union controls, imposed anti-business regulations, and dra matically increased taxes to pay for a unified Germany. Japan exacted substantial tax increases (including a capital gains tax), propped up inefficient banks, and imposed a severe tight money policy in the early 1990s (following an excessive liberal monetary pol icy in the 1980s that created a bubble in real estate and stocks). Japan is still trying to recover from these devastating anti-market measures. Easier money and a higher nation al sales tax haven't helped. If Japan and Ger many want to regain their fast-track status, they need to embrace a healthy dose of sup ply-side tax cuts and deregulation (known as Reaganomics in this country).

Meanwhile, the good 01' USA is rolling right along. The tax increases in the early 1990s are being reversed (long-term capital gains are now taxed at only 20 percent). Cor porations have downsized and labor remains wage-flexible and productive. We lead the world in technology and employment cre ation, among other categories.

52 THE FREEMAN/IDEASON LIBERTY • MAY 1999 Friedman (and others) convinced me to turn bullish on the U.S. economy and stock market in the early 1990s. In January 1995, I made a major prediction in Forecasts & Strategies, arguing that America was on the comeback, and would lead the world in stock market performance. So far it has. How Does the U.S. Rank? Recently I came across a delightful book that confirms my view that America is once again on top of the world: the fourth edition of The Illustrated Book of World Rankings , edit ed and compiled by George Thomas Kurian. 2 Out of some 100 positive listings, the United States received top billing in 33 categories. Among them: • Most powerful nation (based on military manpower and economic capacity), way ahead of number 2 Russia. • Largest gross domestic product (GDP), way ahead of number 2 Japan and number 3 Germany. • World's highest per capita income based on purchasing power parity (though num ber 6 based on exchange rates), ahead of number 2 Switzerland.

• World's biggest exporter and importer, ahead of number 2 Germany and number 3 Japan. • World's leader in retail sales. • Leader in production of electricity, tim ber, and milk. • Number 1 in airline travel, passenger cars, and commercial vehicles. • Primary country of destination based on tourist expenditures. • Number 1 in mail, telephones, faxes, and e-mail addresses. • Tops in number of scientists and engi neers' patents in force, and Nobel Prize winners (three times more than number 2 United Kingdom). • Number 1 in televisions and radios per capita, number of movie theaters, museums, botanical gardens, and zoos. (India produces more films per year, but the United States dominates In movie revenues.) The United States was edged out by Canada for number 1 in the Human Development Index (longevity, educational achievement, and standard of living). Japan is number 3. Lest you think America can do no wrong, the United States is also ranked number 1 in several negative categories: teen pregnancies, divorce rate (among industrial nations), sulfur and carbon emissions and nuclear wastes, AIDS cases, and number of prisoners. How ever, it is way down the list in several crime statistics.

Debunking the Pessimists A new book confirms America's lead in the world. In Myths of Rich and Poor, Michael Cox and Richard AIm highlight a slew of facts demonstrating American prowess and deny ing economic decay since the mid-1970s: real wealth has skyrocketed, the poor have not gotten poorer, corporate downsizing has cre ated jobs, and the trade deficit suggests the United States is the "best place to invest."3 What about the future? Another fascinating book argues that the United States has a monopoly position on future technology. In Probable Tomorrows: How Science and Tech nology Will Transform Our Lives in the Next Twenty Years, Marvin Cetron and Owen L. Davies compile an exhaustive list of possible technological breakthroughs in engineering, manufacturing, computers, communications, energy, space, and medicine, noting which countries are likely to produce these innova tions. 4 The United States was named the like ly choice in 95 percent of the cases.

No wonder so many people from abroad want to come here. Their best alternative: invest in U.S. stocks, businesses, and real estate. [] 1. Richard G. Lipsey, Peter O. Steiner, and Douglas R. Purvis, Economics, 8th ed. (New York: Harper & Row, 1987), p. 735. 2. Sharpe Reference, 1997. 3. See chapter 5, "Still on Top of the World," Myths ofRich and Poor (New York: Basic Books, 1999), pp. 91-108. 4. St. Martin's Press, 1997.