Why is America so rich?

[rukawa]

To me its a pretty interesting question. Burt Folsom has an interesting video where he attempts an answer:

https://www.prageru.com/courses/history/why-america-so-rich

 

I was thinking about this because of the healthcare thread. America spends 17% of its GDP on health and 4% on the military. Basically it throws away 20% of its GDP and yet somehow its still incredibly prosperous and innovative.

 

My belief is that America's success is due to the fact that America represents the largest free trade zone in the entire world with the lowest internal barriers since language, legal system,culture are shared. Thus an idea can migrate from one end of the country to the other easily and the country benefits from the best ideas and abilities of 300 million people.

 

[Paarslaars]

Is America that rich?

 

You're #11 based on GDP per capita.

You're #66 based on GDP per land area.

 

The U.S. is just a big country

Quite a few countries that rank higher spend way more on healthcare.

[Cevian]

The US has a debt of ~$20 Trillion and approx. ~$3.6 Trillion in receipts.

 

At a normal ~3% interest rate this amounts to $600 billion in interest payments only.

 

If you told me my next door neighbour spent 16% of his salary on interest payments only, I would not call him rich.

[Uccmal]

Rukawa,  The question you are asking could fill entire tomes of historical books. 

 

America is rich for a number of reasons and its largely historical, some are positive and some are negative.  Some of the most obvious:

 

1) Huge natural resource base, and great agricultural climate

2) Slavery

3) Sitting out most of two world wars that ravaged the rest of the world giving the US a huge competitive advantage.

4) One of the longest standing democracies with only one minor interruption (civil war)

5) Capitilism - free movement of goods and services

6) Immigration, particularly post world wars. 

7) Good old fashioned protestant work ethic. 

8) Openness in structure to innovation.

 

There are so many factors I could go on and on, some positive, some, not so much. 

 

But the large historical advantages have largely been lost in the last 30 years.  That is why the rest of the world is catching up but it will take a long time.  I have always seen the military as the palatable version of socialism for the US, hence the huge military expenditure.  If you join the military you get great health care, a free education, work for twenty years, and retire to work in the private sector with lifetime healthcare coverage. 

 

And as Paarslaars indicates the Us is not number one.  Being eleven on the GDP per capita list is not terrible, but we all know there is more wealth disparity in the US than every other country at the top of the list. 

 

[clutch]

How could we answer this kind of question without discussing politics? :|

[cwericb]

Americans have always had a rather naive view of themselves in perspective to the rest of the world. One only has to look at the President as an example.

 

Rich? What is rich? Is it strictly monetary? Are you rich if you make a comfortable living, yet a medical emergency could bankrupt you at any time? Are you rich when your murder rate in a single city is multiples of that of whole countries?

[petec]

Slavery is not a factor - if anything the slave states were poorer and had less flexible economies (partly why they lost the war).  Slavery is great for the slaveowners but it does not create broad wealth.

 

What might be more of a factor is the lack of an historical economic structure.  No lords and serfs - everyone arrived equal and got on with it.  Perfect environment for free trade, hard work, and innovation. 

[cwericb]

UCCMAL Your comments on the US military are right on. I also believe that there is a correlation between the end of the draft and the increase in the crime rate in the US, and particularly the rise in gang related activity. At one time the youth in the inner cities were inducted into the military where they found a new family, received excellent training and were given a moral compass.

[Uccmal]

Slavery is not a factor - if anything the slave states were poorer and had less flexible economies (partly why they lost the war).  Slavery is great for the slaveowners but it does not create broad wealth.

 

What might be more of a factor is the lack of an historical economic structure.  No lords and serfs - everyone arrived equal and got on with it.  Perfect environment for free trade, hard work, and innovation.

 

Slavery was a major factor in wealth creation at the top end, and led to fast economic development.  The whole damn civil war was about slavery allowing the south to economically supercede the north. 

 

As to everyone arriving equal: Tell that to the irish who were pressed off the boat in the civil war, Japanese in internment camps, Eurpoean immigrants after WWI, Arrivals at Ellis Island, Black slaves, Jews that couldn't get hired on Wall Street.......

[Uccmal]

UCCMAL Your comments on the US military are right on. I also believe that there is a correlation between the end of the draft and the increase in the crime rate in the US, and particularly the rise in gang related activity. At one time the youth in the inner cities were inducted into the military where they found a new family, received excellent training and were given a moral compass.

 

Never looked at it that deeply.  I am just a poor Canadian who knows more about the US than most Americans.... :-)

[DooDiligence]

Is America that rich?

 

You're #11 based on GDP per capita.

You're #66 based on GDP per land area.

 

The U.S. is just a big country

Quite a few countries that rank higher spend way more on healthcare.

 

Wouldn't this indicate that the health of the citizenry is tied to productivity?

 

(provided the spend is effective...)

[cwericb]

"I am just a poor Canadian who knows more about the US than most Americans.... :-)"

 

Ditto. It is unfortunate that so many Americans don't think outside the box and can't see their country as does the rest of the world.

[Vish_ram]

America is rich, but americans are poor.

 

Top 1% owns 35% of wealth; bottom 60% owns 4% of the wealth. It is like calling a dictator run sub-saharan African country rich, where the dictator has billions stashed in swiss banks and rest of the country are having a hand to mouth existence.

 

Compared to their european counterparts, an average american has a substandard living, lower mobility, poor access to health care, lower life expectancy, higher gun deaths etc.

 

An average american is just an economic slave with little prospect, no upward mobility,  just given a daily dose of American exceptionalism, freedom, guns and religion and gets fucked in every orifice of his body by predatory, rapacious & unbridled capitalism. As an immigrant, I sometimes feel sorry for them. This wont end well in the long run.

[wachtwoord]

They had a free market up until the early 1900s and won many wars (among which the two world wars) in the last century.

[cwericb]

Excuse me, but WWI started in 1914 and the US finally helped mop up in 1917 when it was almost over. WWII started in 1939 and the US didn’t enter until 1941. If memory serves me correctly I believe there were a few other nations involved in both those wars.

 

Now what other wars do you include in “won many wars”? Vietnam? Afghanistan?

[hyten1]

i am no expert, but i question the slavery as positive for wealth (depends on how you define wealth, per capita? net? or just one big number?).

 

if you think about it, there is pretty much slavery (or very close to it) in some shape or form everywhere throughout history in all countries. maybe its net positive for wealth.

 

even if we are not sure if its positive, doesn't this pretty much even out for everyone (pretty much all countries had slavery, some still do)

 

i attribute US's wealth to:

 

democracy, free market, large resource/nation, diversity of people (i can't think of another nation that have all this)

 

Slavery is not a factor - if anything the slave states were poorer and had less flexible economies (partly why they lost the war).  Slavery is great for the slaveowners but it does not create broad wealth.

 

What might be more of a factor is the lack of an historical economic structure.  No lords and serfs - everyone arrived equal and got on with it.  Perfect environment for free trade, hard work, and innovation.

 

Slavery was a major factor in wealth creation at the top end, and led to fast economic development.  The whole damn civil war was about slavery allowing the south to economically supercede the north. 

 

As to everyone arriving equal: Tell that to the irish who were pressed off the boat in the civil war, Japanese in internment camps, Eurpoean immigrants after WWI, Arrivals at Ellis Island, Black slaves, Jews that couldn't get hired on Wall Street.......

[rkbabang]

Excuse me, but WWI started in 1914 and the US finally helped mop up in 1917 when it was almost over. WWII started in 1939 and the US didn’t enter until 1941. If memory serves me correctly I believe there were a few other nations involved in both those wars.

 

Now what other wars do you include in “won many wars”? Vietnam? Afghanistan?

 

I don't know about "won" wars, but the US didn't have cities and infrastructure bombed to the ground in those wars as other countries did.  The US came out with its industrial capacity largely unscathed.  Most of the rest of the industrialized world had to rebuild, but the US didn't.  That is quite a head start into the last half of the 20th century.

 

 

[petec]

Slavery was a major factor in wealth creation at the top end, and led to fast economic development.  The whole damn civil war was about slavery allowing the south to economically supercede the north. 

 

Yes, it created wealth *at the top end* but it also meant a big chunk of the population were disincentivised and unproductive.  If it was such a good system for creating wealth, there's a decent chance the south would have been wealthy enough to beat the north.  In fact, the north's economy dramatically outperformed the south's and was a major factor in winning the war.  Similarly if slavery was an effective economic system great wealth would have been created in feudal Europe; in fact, wealth creation exploded as we moved away from the feudal system.  Slavery is a great system for moving wealth from the poor to the rich; it is not a great system for creating wealth, not compared to free trade.

 

As to everyone arriving equal: Tell that to the irish who were pressed off the boat in the civil war, Japanese in internment camps, Eurpoean immigrants after WWI, Arrivals at Ellis Island, Black slaves, Jews that couldn't get hired on Wall Street.......

 

Ha!  Fair.  Although everything is relative: what I meant was that America didn't start with a feudal system and have to waste centuries persuading the lords to give up their serfs.

[cwericb]

Hold on pete, given the concentration of wealth in the US, one might suggest they have yet to give up their serfs

[rkbabang]

Slavery was a major factor in wealth creation at the top end, and led to fast economic development.  The whole damn civil war was about slavery allowing the south to economically supercede the north. 

 

Yes, it created wealth *at the top end* but it also meant a big chunk of the population were disincentivised and unproductive.  If it was such a good system for creating wealth, there's a decent chance the south would have been wealthy enough to beat the north.  In fact, the north's economy dramatically outperformed the south's and was a major factor in winning the war.  Similarly if slavery was an effective economic system great wealth would have been created in feudal Europe; in fact, wealth creation exploded as we moved away from the feudal system.  Slavery is a great system for moving wealth from the poor to the rich; it is not a great system for creating wealth, not compared to free trade.

 

As to everyone arriving equal: Tell that to the irish who were pressed off the boat in the civil war, Japanese in internment camps, Eurpoean immigrants after WWI, Arrivals at Ellis Island, Black slaves, Jews that couldn't get hired on Wall Street.......

 

Ha!  Fair.  Although everything is relative: what I meant was that America didn't start with a feudal system and have to waste centuries persuading the lords to give up their serfs.

 

The south had an aristocratic class who was land-rich, but it had little industrial capacity compared to the north. Had the civil war not happened and the south was allowed to leave, the mechanization of farming would have devastated the southern economy and done away with slavery anyway.  The southern US is still poorer than the northeast and west coast to this day and the difference would have been even more pronounced had they stayed separate.

 

 

[petec]

Hold on pete, given the concentration of wealth in the US, one might suggest they have yet to give up their serfs

 

No, the trend suggests they are regaining them slowly!

[wachtwoord]

Excuse me, but WWI started in 1914 and the US finally helped mop up in 1917 when it was almost over. WWII started in 1939 and the US didn’t enter until 1941. If memory serves me correctly I believe there were a few other nations involved in both those wars.

 

Now what other wars do you include in “won many wars”? Vietnam? Afghanistan?

 

I know they joined late but they got the spoils anyway (with less effort). Who controlled western Europe after WW2 for instance? Marhall plan anyone? Bombed down Europe was an awesome export destination for many decades, there certainly wasn't a trade deficit.

[CorpRaider]

Answer this and you probably are closer to modeling the long-term impact of brexit on the UK than most.  I think Elon Musk has basically answered this in the past in connection with questions about why he wanted to come to America and start his businesses.

[valueinvesting101]

In your initial post you mentioned:

 

Basically America throws away 20% of its GDP and yet somehow its still incredibly prosperous and innovative.

 

I don't think it is complete throw away. Lot of Americans are employed and providing good services. There are huge externalities such as Internet coming out of DARPA.

 

If you look at last fifty years technology has had huge impact but given unpredictable success rate in technology having US military as buyer (which is not available to lot of countries and companies in the world) is huge advantage too.

 

Even healthcare spending benefits technology advancement and innovation. Improvements in the healthcare are also related to advance in semiconductor.

 

Here is list of largest 30 companies in S&P:

 

Apple Inc

Microsoft Corp

Amazon.com Inc

Facebook Inc

Exxon Mobil Corp

Johnson & Johnson

JPMorgan Chase & Co

Berkshire Hathaway Inc

Alphabet Inc

General Electric Co

Wells Fargo & Co

Bank of America Corp

AT&T Inc

Procter & Gamble Co/The

Chevron Corp

Pfizer Inc

Home Depot Inc/The

Verizon Communications Inc

Comcast Corp

Merck & Co Inc

Philip Morris International Inc

Intel Corp

Visa Inc

Cisco Systems Inc

Coca-Cola Co/The

Citigroup Inc

UnitedHealth Group Inc

PepsiCo Inc

Walt Disney Co/The

 

I guess you can go through the S&P list of companies assigning them 2-3 factors from list of 10 contributing to their success. Analysis over 500 top companies would be good analysis of American strength.

 

 

[Paarslaars]

Is America that rich?

 

You're #11 based on GDP per capita.

You're #66 based on GDP per land area.

 

The U.S. is just a big country

Quite a few countries that rank higher spend way more on healthcare.

 

Wouldn't this indicate that the health of the citizenry is tied to productivity?

 

(provided the spend is effective...)

 

Well you would have to do an actual analysis on the correlation/causation here but I'm sure there are pro's and cons to this.

Do note that in order to pay for that healthcare, most countries have a higher tax rate.  ;)