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How Financial Triumphalists Destabilize the US Economy

As long as the Wall Street triumphalists’ unreflected “why worry?” thinking remains the norm, the urgently needed pursuit of a U.S. economic reform agenda will go nowhere.

May 25, 2020

As long as the Wall Street triumphalists’ unreflected “why worry?” thinking remains the norm, the urgently needed pursuit of a U.S. economic reform agenda will go nowhere.

With the rise of China, Americans’ penchant to resort to triumphalist rhetoric about the United States is becoming ever stronger.

Triumphalism and the elites

Triumphalism serves as an opioid for the Washington establishment. It can breathe easier if the — once upon a time justified — claims about the United States’ economic superiority are endlessly repeated.

Such recitations have traditionally also served as an opioid for the masses. Things might not be so great for oneself, but at least “we as a nation are still number one.”

That this predictable, but ill-advised reaction pattern simply kicks the can of overdue reform down the road, and even accelerates the very decline that triumphalists categorically deny is even conceivable, evidently does not concern many of the elites and their appointed soothsayers.

They have no interest in reconsidering elements of the “established” order.

Analyzing the sources of U.S. triumphalism: From Harvard…

There are three main strains of triumphalist sentiment. The first comes from the U.S. foreign policy establishment, which cannot envision national decline under its watch.

In its view, the United States is firmly ensconced as the “shining city on the hill.” While there may be occasional bumps in the road — such as the Trump presidency — nothing can keep the United States from fulfilling its pre-ordained destiny.

Harvard’s Joseph Nye, with his claim that “America may not actually be declining, but those predicting it are ascending,” is the patron of this group.

… to foreign boosters

A second camp are foreigners who look at the United States with longing and admiration, but often, lack of understanding.

Joseph Joffe, co-publisher of the German weekly Die Zeit, and the author of The Myth of America’s Decline, is emblematic of this group.

… to the underwriters of the triumphalist movements

The third group are bankers and investors who view the U.S. economy through a distinctly financial lens and see nothing but success. But they ignore production in favor of financial metrics, especially the strength of the dollar and the stock market.

And they are unperturbed in their rugged advocacy of shareholder capitalism, believing that strong financial metrics equate to a well-functioning economy and society.

The Sharma charm offensive

The latest version of someone giving voice to this third point of view comes from Ruchir Sharma, the chief global strategist at Morgan Stanley Investment Management.

In his article “Comeback Nation: U.S. Economic Supremacy Has Repeatedly Proved Declinists Wrong,” featured in the May/June 2020 issue of Foreign Affairs, Sharma tells a happy story, one that could only be told by someone on Wall Street.

Indeed, the illustration highlighting the article shows two smiling, fist-bumping stock traders. For them and for Sharma, financial metrics — rather than production system metrics — determines success.

Never been stronger?

Sharma argues that the U.S. economy has never been stronger (leaving aside the COVID 19 economic crisis):

During the 2010s, the United States not only staged a comeback as an economic superpower but reached new heights as a financial empire, driven by its relatively young population, its open door to immigration, and investment pouring into Silicon Valley… the 2010s turned out to be a golden decade.

A golden decade if you are a shareholder or Wall Street dweller, since stock market values boomed. But Wall Street is not the same as Main Street.

Mr. Sharma goes on to rhapsodize that, “For the first time since at least the 1850s, when record keeping began, the United States traversed a full decade without suffering a single recession.”

But this ignores the obvious fact that this growth came in the aftermath of the economic collapse of the 2009 Great Recession, which was so severe that of course there was going to be a long recovery.

National health vs. elites’ (financial) health

Besides, the business cycle is not an indicator of long-term growth, which is what really matters.

Indeed, the single most important economic factor — the one that could actually lift more boats than just those of investors — is the rate of productivity growth.

Mr. Sharma largely ignores this factor, except when he claims that “U.S. productivity has gotten a boost from investment in technology in recent years.”

In reality, labor productivity growth in the 2010s was around 1.2% a year, the slowest rate of growth since the Second World War. Some boost.

Figure 1: U.S. labor productivity growth rate, 3-year moving averages (ITIF calculation of U.S. Bureau of Labor Statistics Data)

The simplest indicator of the United States’ relative economic power is its share of global output. Sharma writes that the U.S. share has accounted for a steady 25% since 1980. That would seem to rebut of any declinist argument.

However, to arrive at this finding, Sharma artfully plays with the numbers. He uses nominal GDP in U.S. dollars, while almost all economists and the OECD agree that using purchasing power parity (PPP) is the right way to compare the relative size of economies.

And on that measure the evidence is clear: The United States’ share has fallen from around 40% after the Second World War to just 15% today. To me, that represents a very significant form of decline.

Repeat: Wall Street is not synonymous with the U.S.

Sharma also sees the 2010s as a golden decade because of the stock market performance. He writes, “Lifted by the strong performance of American technology companies, the U.S. stock market rose by 250% in the 2010s, nearly four times the average gain in other national stock markets.”

To be sure, a strong stock market is good for investors, but what really matters is robust real output growth, widely shared. We don’t consume stocks; we consume real goods and services.

Desperately looking for wage growth

When he finally gets to the real economy of production and wages, Sharma is mostly wrong. He writes that “wage and income growth revived in the mid-2010s,” and “weekly and hourly wage growth expanded in the 2010s.”

But one study that he cites states, “despite some nominal growth, real wage growth has been consistently hovering around zero,” while the other states, “low wage growth is a key sign of how far the U.S. economy remains from a full recovery.”

Disregarding per-capita developments

Finally, much of Sharma’s triumphalism comes from the fact that the U.S. population is growing faster than in other regions like Europe and Japan. In this regard, he is sadly stuck in a 19th century frame of mind.

He writes that, “[the] more important U.S. advantage has been a relatively high population growth rate.” But any developed country can rapidly grow its population by simply adopting an open-borders policy toward developing nations. Immigrants will flood in in search of a better life.

While a growing population might matter for fighting wars, it doesn’t matter for increasing per-capita income — and in fact, too much low-skill immigration lowers productivity growth.

Where are the Wall Street truth tellers?

Despite Sharma’s rose-colored glasses, the reality is that the United States faces a wide array of economic challenges. Let me just point to three of them:

1. Productivity growth rates are at an all-time low.

2. U.S. manufacturing capacities have shrunk. (Controlling for the value of the dollar, U.S. manufacturing output dropped from 25% of world share in the early 2000s to 18.4% in 2014). And U.S. manufacturing output in 2019 was lower than in 2008 (leaving out the computer sector which is mis-measured).

3. China is rapidly catching up in innovation. (The Information Technology and Innovation Foundation studied 36 indicators of China’s scientific and technological progress relative to the United States, and found that China has made significant progress and actually leads in a number of areas).

To overcome decline, fess up to it

This recent trend toward decline is troubling, to say the least. But it does not have to be the story of the United States’ future.

The Washington establishment needs to stop belittling the economic realists who look at the actual decline in our nation’s economic performance with open eyes.

And the members of our establishment most certainly need to let go of their smug assumption that the status quo will suffice.

Another “war” mobilization effort

It will be hard enough to mobilize support for a new approach to U.S. economic policy, one that puts production, not consumption and finance, at its core without this kind of denialism.

To that end, the United States needs a national industrial strategy that sets vital strategic goals. This would include determining our traded-sector tech industries, such as advanced machinery, biopharma, electrical equipment, semiconductors and computing, software, and transportation equipment, as “too critical to fail.” And these programs should be aligned with U.S. allies wherever possible.

Churchill to the rescue

Winston Churchill once said you can always count on the Americans to do the right thing, but only after they have exhausted all other options. Let us hope we are close to that point of exhaustion.


For most of US history, US elites had good reason to deny that US military and economic power is waning. That is no longer the case.

With the rise of China, talk of US decline is increasing. But the US establishment rejects any notion of US decline.

The US’ share of global output has fallen from around 40% after the Second World War to just 15% today.

In the past, US triumphalism has served as an opioid for the Washington establishment and for the broader population alike.

The US establishment has long believed that because the US works for them personally it works for the nation as a whole. It urgently needs to let go of this smug assumption.

The single most important economic factor -- the one that could actually lift more boats than just those of investors on Wall Street -- is the rate of productivity growth.