American Confidence, or Lack Thereof

A wealth manager I know sends out a quarterly letter to clients that summarizes his view of the economy and his resultant investing plans. Here’s a nice paragraph from his most recent letter:

A key to any short-term outlook is what Americans are thinking. Most have been very wary about the upturn, given the widespread talk about the decline and fall of the United States; almost half of American people think the U.S. has already been surpassed by China in economic progress. (Actually, the average Chinese family has a small fraction of the income of the American one.)

VB in NV

OK Stephen, what did he conclude? Is the US's upturn for real but half of its people are unwilling to acknowledge it? Is half of the United States' population completely ignorant?

Where is he investing his clients' money?

Seth B

Americans have strangely forgotten the similar fear over Japanese ascent 20 years ago. The Chinese are no where close to overtaking the US. Although it may eventually happen in total GDP in the next 20 or 30 years, it will be far longer until it happens in per capita GDP. That level of growth can not happen without significant setbacks. Their advantages (size, decreased beuracracy, undervalued currency) can easily become liabilities as growth continues.


really interesting!


GDP per capita or average income is not a good measure of what is happening in China compared to the USA. The point is they are on their way up and we are on our way down. We've refused to accept that a free-market system doesn't provide satisfactory results for most Americans given the use of offshore labor and the competition for such labor between corporations that utilize that labor.

There's a good reason for low confidence, because workers don't want to lower their standard of living to that of the Chinese, which will occur under free market conditions. So our system has failed, period. It is time to think of new ways to make it work, but nobody is doing that and our political system seems incapable of it. So we are declining rapidly and they are rising rapidly.

I think many Americans know how bad the situation is regardless of the attempts by some to keep the orchestra playing all the way until they slip below the water line...


Eileen Wyatt


Wages in the U.S. rose very little from 2003 until the start of the 2008 recession sent jobs plummeting, and the 2002 recession had a "jobless recovery."

Meanwhile, although average Chinese family income remains low, it has improved a good deal over the same period. So it's not unreasonable to believe that China has made more progress than the U.S. Growing incomes > flat or declining incomes.

Eric M. Jones


Gosh, I hope you are wrong.

I can name the day I knew it was over; when I learned that Dick Cheney had NO US INVESTMENTS!

Ian Kemmish

If you want to really depress yourself, see how many Americans can draw China on a world map....

Pankit Patel

Economically speaking, this whole race of - Which country will gain/retain being the worlds "superpower" will only be a hindrance towards world prosperity. That very attitude may result to a countries downfall. Unfortunately, that very attitude also is the tone of today's politics.
People need to realize that in todays global economy, we're all riding in the same boat, we all rise and subside to together.


Steve, I think your money manager friend conflates the issue. When people think of one country "surpassing" another economically, they aren't talking about GDP per capita. For instance, I doubt many peoplw would say Denmark is economically more powerful than the U.S. even though their GDP per capital is 17% higher than ours. That said, with a GDP 1/3 the sizeof the US (for now) he does have a point that 50% of americans (at least) are idiots.

Dave (2:54pm post), the vast majority of the world (Americans included) benefit from globilization. Poverty stricken Chinies laborers improve their standardof living, and you get a cheaper iPod, Car, Polo shirt. Globilization creates wealth for all involved because of optimization of resources.

The U.S. is a Capital rich society that is highly technologically advanced. It is the natural order that incrimental growth takes longer as it relies on inovation. Developing nations almost by definition will experience faster growth than developed nations because they can import already developed technology and best practices and aply them to their Labour rich economies.



And then there's the eternal question, is GDP, a measure of cash flow, as important as the measure of the actual riches of a nation?


Does it follow that when looking for investment clients your friend is still looking for more clients in the US?


Serious comparisons aside, there is an interesting scene in the classic 1980s movie Back to the Future II in which the future Marty McFly is fired - by a Japanese boss! So that's the future 1980s Hollywood predicted for the US. Perhaps the same movie made today would have a Chinese boss in charge.

Eileen Yulic

We have productive labor, they have cheap labor. Only difference. However, with their higher savings rate, the Chinese are becoming more and more productive. Look it's a scary day when JP Morgan is accepting gold bullion as collateral for loans, and Bernake has flat out said if we dont raise the debt ceiling we will default on our debt. Thats as bad as me going into the bank and saying if you dont up my line of credit, I'm going to default on my line of credit.

The good times are behind us.


To be fair to the doom-and-gloomers, no one is saying "I want to trade my median American income for a median Chinese income." They're talking about the country as a whole, and for a whole lot of the things that play into global influence, it's about national wealth, not income per capita. Since we're looking at Chinese GDP surpassing American GDP somewhere around 2018, the American decline people aren't all that wrong.


China, India, etc these countries are improving based solely on the fact that they are worse than America/EU. Will America continue to outsource manufacturing/IT help to those countries when they demand equal pay?

HA! Such a suggestion is absurd. Once those countries catch up (or start to get close) they close their competitive advantage and have to start focusing on being good at things. In other words they have to try the Germany/Japan model, which isn't working well for Japan because it is such a monolithic country and its culture impedes social mobility. China has many of the same social problems, as does India.


While China cannot touch the US when you compare the economies as a whole, they do have 2 things going for them that we have bled or are currently bleeding ourselves to death on:

1.) Manufacturing - if you take away cars when was the last time you heard that someone was moving their manufacturing to the US?
2.) Natural Resources - China seems to have an abundance of resources right now and the Catan player within tells me you can't build cities without ore.

Steve H

Quote anybody you think has something intriguing to say, but please, please never again use a self-important/aspirational job descriptions such as "wealth manager." He's an investment advisor who might or might not enhance the value of your portfolio. He does not manage anyone''s "wealth" unless his clients' families have been clipping coupons for several generations, or thought up the likes of Google.


You failed to mention that housing is much more costly in US than in China.
Just think the stress of millions US homeowner who are underwater and or in Foreclosure, are they happy or hopeful?
What's good of it if one makes more money but lead a paycheck by paycheck lowlife??



Thanks for repeating the pro-trade mantra, but I've heard it thousands of times, as everyone has. It is a nice theory built upon a world history of trading goods between developing nations. No trade theory in existence accounts for the direct outsourcing of labor in the production chain of our modern goods. None. You are simply wrong because everything you know is built upon irrelevant models.

If you are still repeating this old mantra, it is a lost cause to convince you of anything different. So I won't even try.

Yes, our trade helps many abroad. It helps many locally by providing cheap goods. However, the friction between classes grows to the point of collapse. Or did you already forget that our financial system essentially collapsed a couple of years ago, largely because of the free flow of capital investment.

Don't go crying to anyone if you lose everything in the next collapse. People that talk positively about things they know nothing about deserve what they get.