Why does the United States need urgent economic and political reform? An economic comparison between China, India, and the US reveals the stagnation of the US economy since 2000. The US has engaged in two useless and wasteful wars, and has failed to invest in infrastructure, education, research, health care, etc.The Obama Government is bogged down in a political stalemate with the Republicans, who lost the last two Presidential elections by relatively wide margins. Nevertheless, Republicans use a constitutional system of checks and balances, which was meant to protect political minorities and foster compromise, in order to block many Government initiatives, like the Health Care reform. The numbers below demonstrate that while America is struggling with itself, and Europe tries to fix its structural problems, the world does not stand still. It is transforming rapidly, and the US and Europe are loosing the leadership role that has shaped the second half of the 20th century.

The economic race is not a zero-sum game; everyone benefits from increased efficiency, innovation, more trade, and economic growth. A better world-wide distribution of economic power hopefully leads to a more just and equal world. But the narrowing of the gap between the economic blocks results from the under-performance of Western economies. Stagnation in the US and Europe means that the middle class erodes, and that the younger generation of people faces more uncertainty, and has to work harder in order to achieve what their parents already have. The result is a loss of confidence that fuels economic and political distribution fights, and creates resentment against governments. It deepens the already existing barriers between cultures.

Let’s take a look at the numbers: Fifty years ago, in 1961, the average income in China was $1.51 per day, the average in India was $2.22 per day, and the average in the United States was $47.02 per day 1 Economic growth for India and China did not really begin to emerge until the 1980s. By 1981, China’s economy was about twice what it was in 1961, but India had seen only about a 29% increase in incomes. The U.S. economy had experienced a mix of good and bad times in the 1960s and 1970s, but by 1981, the US had per capita incomes of just under $30,000 per person, about two-thirds of the levels we would achieve in 2011. In comparison, by 1981, neither China’s nor India’s economies had incomes that were even 4% of the U.S. level. Between 1981 and 1991, incomes in China grew by an average of nearly 6% per year in inflation-adjusted terms—a total of about 77% from the start of the decade to the end. In the same period, India’s incomes grew by a total of about 25%, and U.S. incomes grew by about 17.4%. In the period 1991 to 2001, growth in U.S. incomes was about 21%, while in China by 2001, incomes were 91% higher than they had been just a decade earlier. Growth in incomes in India accelerated during this time, averaging about 4.14% annually throughout the decade.

The changes in China were the most remarkable: Between 2001 and 2010, available data suggest that the average income in China grew by more than 125% in inflation-adjusted terms. This represents the fastest period of economic growth over a single decade for any nation in recorded history. Between 2001 and 2010, incomes in India grew by a total of 37.44%, confirming that the Indian miracle was underway. In contrast, in the United States, the first decade of the 21st century was one of the worst periods of economic performance in our history. Average annual per capita income growth in the United States between 2001 and 2010 was about 0.5%; this was truly the lost decade for U.S. economic performance.

Even with these phenomenal achievements in India and China, and many other developing countries, the gaps are still very deep. When we compare GDP for 2012 at purchasing power parity, India has a total GDP of 4.79 trillion US dollars, China has 12.47 trillion, and the US has a GDP of 15.68 trillion dollars. The per capita GDP comparison shows even deeper differences: India has an income of $1489 per year per person, China reaches $6188, and the US has $49965 per person.

The numbers can be interpreted in many different ways; to bridge these economic differences with more growth alone seems impossible to achieve.

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Notes:

  1. These numbers are adjusted for inflation and purchasing power.

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