The U.S.’s main competitor, in military and diplomatic terms, is China. And China has gone from being a small fraction of the U.S. economy a few decades ago to being the biggest economy on the planet. Though its gross domestic product is still less than the U.S.’s when measured at market exchange rates, in terms of purchasing power parity -- which takes local prices into account -- it is now the biggest, and the gap is widening.
China’s takeoff represents a dramatic shift of global power. With its economic rise will come military and diplomatic influence, reducing U.S. supremacy even more.
There is also a third way in which a nation can be in decline -- stagnation. In this sense, the U.S. is also in decline, and has been since about 2000.
After 2000, the rate of formation of high-growth startups fell a lot and the U.S. economy became less dynamic. Around halfway through that decade, total factor productivity growth -- the ultimate driver of improvements in living standards -- also decelerated substantially from its earlier growth rate:
It was around 2000 that U.S. incomes flatlined as well.
Economists argue a lot about the reasons for these negative trends, although there is no consensus so far. But it’s clear by now that the turn of the century was also a turning point for the U.S. If “decline” means stagnation, then the U.S. has been in decline for roughly 15 years.
So the narrative of decline being pushed by Donald Trump -- and echoed by many other presidential candidates -- is real. So far, the decline isn’t too serious. Living standards haven’t begun to fall outright, and other indicators of social well-being, such as crime, have declined (though other indicators, such as suicide, have risen). It isn’t yet time for panic, but the U.S. should be looking at ways to arrest its decline before it becomes more serious.
What can be done to make America great again? That’s the slogan of Trump’s campaign, but his mix of grandstanding, self-promotion, media provocation and unworkable policy plans is highly unlikely to have any sort of positive effect. Instead, more serious leaders need to think about more serious policies.
One of the simplest and most obvious steps would be more high-skilled immigration. Switching to a Canada-style points-based immigration system, increasing the total number of immigrants, and giving out green cards instead of H-1B visas would do a lot to boost the skills of the U.S. workforce.
Since most immigrants are young, it would also prevent disruption to the economy from the aging of the population and ease the strain on programs like Social Security. It would also increase the population, while encouraging domestic investment to serve an expanding U.S. market. More population would boost total GDP, which would mitigate the U.S. size disadvantage relative to China.