Mistakes and U.S. Wealth since the 1960s

The golden age of economic superiority enjoyed by the United States has suffered from poor choices that are rarely described with clarity by politicians. In 1960 the U.S. led the world in per capita Gross Domestic Product (GDP), $2,881 for the average citizen, 17% higher than the runner up, New Zealand, and 21% higher than third place Canada -- described today by nationmaster.com.

During the 1960s the U.S. economy was expanding up around 6 percent per year, but the U.S. was not alone in fast GDP growth, and in the middle of the decade the U.S. began sending troops to Vietnam. In 1970, U.S. per capita GDP was only 12.7% ahead of second place Sweden but still 20% ahead of Canada. (Wealth per citizen had not almost doubled since 1960 with inflation counting for some of that increase.)

The U.S. is described as having poured $167 billion into the Vietnam war, estimated at $686 billion in 2008 dollars for the years 1965-75 by Wikipedia. Recession, runaway double-digit inflation and mounting federal debt ravaged the American economy. There was also skyrocketing oil prices in the 1970s. By 1980 there had been a dramatic change in U.S. per capita GDP compared to other countries. The golden age for the U.S. economy had ended. The oil producing country, Qatar, led the world in per capita GDP at $34,152 per person. The U.S. had fallen to 15th place behind the United Arab Emirates, Kuwait, Switzerland, Saudi Arabia, Luxembourg, Sweden, Norway, Iceland, Denmark, France and Belgium. The U.S. at $12,185 per person trailed Switzerland by roughly 30% and Sweden by 22%.

Meanwhile, despite its relative decline, the U.S. government had been paying its bills. In 1981 the newly elected Ronald Reagan faced the the lowest gross national debt since World War II: at around 32.5%. (In 1950 it was around 97%. In January, 2011, it would be around 93%.)

President Reagan ended the recession of 1981-82 and he beat the high inflation he had inherited from the 1970s and its high oil prices. The 1980s GDP growth for the United States hovered around four percent and toward the end of the decade slid to around 2 percent. It was a decade of corporations relocating to Thailand, Malaysia, Mexico, South Korea, Taiwan and China, and there was substantial economic growth in Europe.

By 1990, the mid-term of Reagan's successor, President George Bush Sr., leading Arab oil producing countries had fallen back from their rankings on the per capita GDP list. But there was no return to U.S. economic superiority in per capita GDP. The Vietnam War, which President Reagan and many of his conservative, hawkish colleagues had supported, was not yet overcome economically. It was Switzerland that was in first place, at $35,132 per person. The United States was still behind 34%, down 4% from 1980, and in 10th place at $23,063 just behind Japan. Sweden, by the way, was in third place with $28.296 per person. Canada was behind the U.S. by only 10.4%, having been behind 21% in 1960.

Then came the Clinton years and U.S. leadership in the computer revolution. By the year 2000, the U.S. had climbed back to fourth place, at $34,599, a mere 27% behind Luxembourg, the leader, and still behind Norway and Japan, and 7% behind Norway compared to 15.7% the decade before.

The surge ahead economically didn't last. During the presidency of George W. Bush tax cuts were tried again as a way of increasing investments and incentivizing work. There were the Iraq and Afghan wars, the price tags of which dwarfed original estimates and drifted to more than $2 trillion. Total military spending was modest compared to World War II, which had been 37.8% of GDP. The U.S. was devoting only around 6% of GDP to its wars and fighting terrorism while people were getting by with relatively low taxes and a lot of shopping at the malls. Nevertheless, it was money that U.S. competitors were not spending. And the economic growth during the Bush years was less than sensational at 2.45% in 2003 up to 4.4% in 2005 and at 3.2% and ranking 138th in the world in 2006.

In 2006, Luxembourg still led the world in per capita GDP and Norway was second. The U.S. had fallen from fourth to seventh place, behind Iceland, Ireland, Switzerland and Denmark. The U.S. was now 50% behind Luxembourg, 34% behind Norway.

By 2009, the last year of per capita GDP numbers provided by the CIA World Factbook, it was little Liechtenstein that was in first place. Oil rich Qatar had returned to second, Luxembourg was third and Norway fourth now 20% ahead of the United States, up from its 7% lead in 2000. The U.S. was now behind Singapore and Kuwait. Liechtenstein was benefitting from politicaland financial stability, low taxes and a growing financial services sector.

In GDP not divided by population size the U.S. was second -- more people, more GDP. The European Union was first and China a distant third and 130th in the world in per capita GDP -- the many people in the countryside reducing China's per capita numbers. But China has been growing annually around 9 percent compared to the U.S. which is just now coming out of negative growth -- a recession -- and in the near future is not expected to do better than 3 percent. The Chinese are investing a good percentage of their wealth at home and abroad and placing themselves for leadership in cutting edge technologies. In world ranking in education the U.S. has been falling behing. Technological leadership in the U.S. is falling back. With economic growth at 3 percent and adequate revenue collection the U.S. government could begin to pay down its debt -- as it was doing after World World War II and into the 1960s. Its ability to return to its position as the most wealthy of nations per person is in doubt, but continuing economic growth is likely to continue and with it prosperity for many.