Two megatrends have shaped American life since the 1980s: The rise of China and the hollowing out of American industry.
China’s economic boom prompted a thousand predictions — that it will soon surpass us as an economic power, that the 21st century is going to be a Chinese century, that America is an aging, decadent nation destined for second place.
The hollowing out of American industry fed the sense that capitalism is betraying the middle class. America has a parasitic financial sector, but we don’t make things anymore. Manufacturing jobs got outsourced to China and Mexico, and wages stagnated.
These two trends contributed to the sense that America is in decline — to the angry, gloomy pall that has settled over political life.
But it’s beginning to look as if those two megatrends are reversing.
China does not look like a growing dynamic power, but a troubled, stagnating one. Growth rates are falling. The unemployment rate for those ages 16 to 24 in urban areas is at a demoralizing 21 percent. Private investment is sluggish. A forecast from Bloomberg Economics now projects that the size of the Chinese economy will not successfully surpass the size of the American economy — despite its vastly greater population.
The causes of China’s stagnation are myriad and deep: An overinvestment in real estate, the decline in foreign investment as the state become more menacing, the decline of exports, the demographic doom spiral. Since 2016, the actual number of births in China has fallen by nearly 50 percent.
But the core problems are endemic to the regime: Centralized authoritarian control is incompatible with a wide-open, innovative, free-flowing modern economy. Industrial policy may look good for a short time, but it ossifies. China now has a plethora of zombie corporations, which suck up subsidies without successfully competing in the marketplace. Open information flow is crucial to any nation; when the state suppresses information unflattering to the regime, then everything is bound to sink into mediocrity.
As the Chinese economy deflates, American industry is looking less hollow. America has a net gain of 530,000 manufacturing jobs since January 2017. The manufacturing boom has been torrid of late. Since late 2021, investment in the construction of manufacturing facilities has more than doubled.
Much of that boom is happening in the mountain West, the Upper Midwest and parts of the Southeast. Chips, electric vehicles, renewable energy sources and batteries are being manufactured in places like Michigan, Kentucky, Minnesota and Arizona.
Over the last few years, for example, scads of tech firms have decided to invest in manufacturing plants in formerly rust belt Ohio: Intel ($20 billion), Amazon ($7.8 billion), Google ($3.7 billion). According to a Hoover Institution study, Ohio in 2020 attracted almost 14 times more new capital projects per capita than California.
In short, capital, construction and manufacturing are flowing back into many places that have taken their hits. Since 2011, according to the Federal Reserve Bank of San Francisco, wage growth has “accelerated more for high school graduates than for college graduates.”
What lessons are we to draw from these two ongoing turnarounds? The first is that there’s a lot of resilience and dynamism in America’s brand of broadly free market capitalism. As I’ve noted before, in 1990 the European and American gross domestic products per capita were nearly neck and neck. Since then, America has surged ahead. American labor productivity increased by 67 percent between 1990 and 2022, compared to 55 percent in Europe and 51 percent in Japan.
In 2012 I heard a commencement speech by Dr. Atul Gawande that introduced me to the phrase “failure to rescue.” He reported on a study that found the best hospitals don’t necessarily prevent bad things from happening, but they’re really good at rescuing people when they have a complication to prevent failures from becoming catastrophes.
The American economy, especially in the Midwest, is kind of like that. Many of those places have experienced economic decline, but governments and people have shifted and adapted, and they are bouncing back.
The second lesson I draw is that Bidenomics is working — big time. President Biden promised to help America outcompete authoritarian China and to heal some of the economic divides at home. Both those goals are being achieved.
According to the Treasury Department, over 80 percent of the investment made through the Inflation Reduction Act is going to counties with college graduation rates lower than the national average. Nearly 90 percent of investments are being made in counties with below-average weekly wages.
I know many of you think Biden is too old, but I’d vote for a 100-year-old who could keep delivering results like that.
The third lesson I draw is that the right-wing populists are hopelessly outdated. Take, for example, the writer Sohrab Ahmari, who argues that “the state must also take a far more active role in coordinating economic activity for the good of the whole community.” But China’s industrial policy illustrates the classic downsides of excessive state interference. Even the vaunted German model, one of the great success stories of the 20th century, is showing its age. German manufacturing output and gross domestic product have been stagnant since 2018.
American politics is dysfunctional, our social fabric is in tatters, but somehow our economy is among the strongest in the world. Our economic competitors stumble and fall; we stumble, and somehow bounce back.
