The Bullish Case for the U.S. Economy

by: Mark J. Perry
From yesterday's WSJ interview with Robert Doll, Wall Street's perma-optimist and chief equity strategist for BlackRock, "The Bullish Case for the U.S. Economy":

"As intriguing in this moment of U.S. pessimism is the 56-year-old uber-investor's long-term bullishness on American companies and U.S. competitiveness. "You could say we're the best house in a bad neighborhood," says the man who has spent 28 years managing money. "We have fewer problems and more solutions than Europe or Japan."

"Over the next 20 years, the U.S. work force is going to grow by 11%, Europe's going to fall by five, and Japan's going to fall by 17. This alone tells me the U.S. has a huge advantage over Europe and a bigger one over Japan for growth," he says. "And the reason for this is pretty simple. We have higher immigration than both of these, and we make more babies. We have a higher fertility rate. And they are the long-term determinants of population growth and therefore work force growth."

But can we really win merely by staying ahead of Europe and Japan? So far the answer seems to be yes. People are invariably shocked when Mr. Doll tells them that in 1995 the U.S. produced roughly 25% of the world's goods and services and in 2010, after 15 years that included a tech bust, a terrorist attack and a housing bust that triggered a financial crisis, the U.S. was still producing that same 25% of global GDP (see chart above).

How is this possible given the rapid rise of China and India? Mr. Doll says the increase in emerging markets' share of the world economy has come "at the expense of mostly Japan and a bit Europe. The U.S. has held its own, which I think is a statement of our ability to be productive in a tough world."

But even with all our problems, he says, "I think the entrepreneurial spirit is alive and well in the U.S." He argues that we are still the source of technological innovation and home to the greatest universities and the most creative businesses. He sees promising advances in health care and alternative energy technologies. By alternative he doesn't necessarily mean "green" energy, but simply new power sources given that he expects oil prices to keep rising."

The chart above of world GDP shares (data here) from 1969 to 2010 confirms Mr. Doll's claim about America's amazingly stable share of world output, which has remained at about 26% for more than forty years. As I've indicated on the chart, the U.S. share of world GDP in 2010 (26.3%) was exactly the same as in 1975 (26.3%). It's also interesting to note that: a) the shares of world GDP in 2010 were almost exactly the same for the U.S. (26.3%), the EU-15 (26.4%) and Asia/Oceania (26.6%) and b) the shares of world GDP for Latin America and the Middle East + Africa have remained relatively stable since 1969.

The biggest change over time has been the gradual decline in the EU-15's share of world GDP from almost 36% in 1969 to less than 27% by 2010, while Asia/Oceania's share has increased from less than 15% in 1969 to almost 27% in 2010. The fact that America's share of world GDP has remained constant over time is a testament to how America's dynamism, resiliency, and culture of innovation and entrepreneurship have enabled us to be "productive in a tough world." In contrast, the EU-15's declining share of the world economy demonstrates the failure of anti-growth, European-style socialism with high taxes and excessive regulations that creates a culture of dependency and entitlement.