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The First World War, which destroyed much of Europe’s industrial capacity and killed millions, was quickly followed by the Spanish flu pandemic, with even higher mortality. Skip forward 20 years, and World War II delivered worse economic devastation and more death. Then the 1970s gave the world wealth-withering inflation, and the great recession of 2007–2009 nearly brought the world economy to a standstill. Each of those events had one special thing in common: the United States was the primary driving force in pulling the world economy back to good health.
Now the world economy has been battered by the pandemic, and some economists are saying that the US economy won’t return to its pre-pandemic level for years. But politics aside (I’m a UK/US dual national), history shows that America will lead the global recovery this time just like it has in the past. In part, that’s because of its sheer size, but there are other reasons to bet on an American repeat performance. “Businesses around the world look to America because of its outsized influence on markets,” says Robert Wright, a visiting fellow of policy studies at Georgia College and State University.
The US economy, at almost $20 trillion for 2020, remains by far the largest in the world—around 40 percent bigger than China. It isn’t just size. The US has a near-insatiable appetite for consumer goods. Even while the economy is operating at reduced levels and blighted by COVID-related high unemployment, it still imports goods and services worth more than $200 billion each month that benefits the rest of the world. “Even if countries don’t sell directly to the US, they care about the US market due to its size,” says Wright.
To be sure, some commentators believe that America’s best days are gone and unlikely to repeat. After both world wars, the US benefited greatly because its industrial infrastructure remained intact. Western Europe and many other areas had seen much of their industrial base devastated. “Germany, Japan, and France were basket cases,” Wright says. But even without the advantages it had after two world wars, the US still managed to stay out front when it comes to economic power and leadership. In 1979, when the country was blighted by stagflation, it was the US that successfully led the battle to fight burgeoning inflation under the leadership of then-Federal Reserve Chair Paul Volcker. Inflation dropped from a peak of 13.5 percent in 1980 to less than 2 percent in 1986, prompting a US-led global boom. The US also emerged from the 2007–2009 financial crisis faster than did other countries, thanks to another swift and sizable response from the Fed and the federal government while Europe limped along.
Now the question is whether COVID-19 changes all this. No one can know for sure, but decades of bare-knuckle capitalism has made the US economy resilient with few rivals. That’s in part due to the large contribution made by small- and medium-sized companies. “An awful lot of America’s growth is because of small companies which have grown innovatively,” says David Ranson, director of research at the financial analytics company HCWE & Co. That compares with other nations where monopolies tend to dominate the economy. Most economists say monopolies stymie innovation because there is less competition.
Together with the US Constitution, US commercial law helps assure investors that their investments won’t get summarily confiscated, as happens in some other countries. “The US is the most credible economy, and it is pretty much the most free-market economy,” Ranson says. All of that is especially important when investors are rightly nervous about making risky bets with their capital. In short, they want to put it somewhere safe, and for many, the number one destination is America.
The US manages to stay out front when it comes to economic power and leadership.
Constable is a current fellow at the Johns Hopkins Institute for Applied Economics and a former Wall Street Journal TV anchor.