Introduction
Since the prosperous days of Reagan in the 1980s, many international elites have been telling Americans that they’ve been misled. They argue that cutting taxes and regulations is an imprudent and unnecessary way to stimulate growth. These critics claim that countries providing generous subsidies to families and burying businesses in mountains of bureaucracy have comparable incomes. So, why tolerate a rough-and-tumble cowboy economy?
Economic Growth Superiority
Over the past decade, the U.S. economy has outperformed countries like Canada and Germany by differences reaching up to 20%. Stock markets tell a similar story: the S&P 500 has nearly doubled since 2015, more than double the rest of the G7.
Europe’s Dependence on U.S. Economy
The Trump administration often emphasizes defense, lamenting that Europe and South Korea don’t contribute enough. However, statistics show that the U.S. military spending is 3.5% of its GDP, compared to 0.8% in Austria and 1.6% in Norway (which borders Russia). The U.S. defense not only protects Norwegian fjords and Austrian Alps but also frees up funds for generous spending on education and healthcare.
U.S. Leadership in Pharmaceuticals
The U.S. supports half of the global pharmaceutical industry’s R&D spending with less than 5% of the world’s population. In contrast, the UK invests only 0.28% of its GDP in new drugs (about a third of the U.S. contribution).
When a company shouts “Eureka, we’ve found a new cure!”, loose U.S. regulations on pricing allow them to recoup massive R&D costs by charging American families. However, when Swedes and Belgians get advanced treatments for epilepsy or migraines, American consumers end up paying 2.5 times more. This excess payment funds the U.S.’s research stimulus.
U.S. Dominance in Energy
The U.S. shale revolution transformed North America’s energy profile and stabilized global oil prices. When Ronald Reagan proposed shale as a solution to the 1980 energy crisis, Jimmy Carter, an engineer, mocked him. Yet, as Russia and Ukraine’s conflict escalates and Houthi missiles fly over the Red Sea, oil prices are a non-issue. When Russia cut off gas to Europe, LNG ports in Texas and Louisiana came to the rescue.
While other countries have shale, France under Paris and Germany in Lower Saxony have reserves. However, their regulators prefer excavators to developing these resources.
U.S. Technological Advantage
Thanks to lax regulations, legal tolerance for bankruptcies, and a daring startup culture, the U.S. attracts $300 billion in venture capital (five times more per capita than Nordic countries, which only gather $5 billion).
The U.S. has three times as many unicorns (startups valued at over $1 billion) as the EU, with some becoming NVIDIA or Google. However, U.S. tolerance for failure is evident, as 70% of tech startups fail within five years. Investors reject the EU’s regulatory hurdles due to this acceptance of failure as progress.
Risks to the U.S. Model
The undeniable and widespread success of the U.S. resulted from the market. However, this model is at risk due to the White House’s plans under Trump to gain a stake in private companies, as targeted by Commerce Secretary Howard Lutnick (from Intel to Palantir and Boeing).
Shouldn’t Republicans be concerned about the precedent Trump sets by interfering in U.S. company boards? They may trust him for state capitalism, but what about his successor, Republican or Democrat?
Global Recognition of U.S. Leadership
At a recent investor conference in Seoul, I was struck by the lack of American attendees. Through simultaneous translation, I heard Korean speakers advise clients: “To make money in tech and AI, put it in the U.S.” I was surprised, as Samsung, LG, and SK Hynix compete with Oracle and Palantir.
Look up, down, or sideways, and you’ll find U.S. leadership. Looking down shows shale extraction; looking up reveals 70% of European companies using U.S. cloud services; and looking even higher shows Blue Origin and SpaceX launching European satellites into space.
Key Questions and Answers
- Q: Why do other countries benefit from the U.S. economy?
A: The U.S. supports global industries like pharmaceuticals and technology, attracts venture capital, stabilizes energy markets, and protects allies through defense spending.
- Q: How does the U.S. maintain its economic edge?
A: Through a combination of market-driven success, innovation, and strategic investments in sectors like technology and energy.
- Q: What risks does the U.S. model face?
A: Interference from the government in private companies could undermine the market-driven success that has characterized the U.S. economy.
Author: Todd G. Buchholz, former White House director of economic policy during George H.W. Bush’s presidency and managing director of the Tiger hedge fund, is the author of “New Ideas from Dead Economists,” “The Price of Prosperity,” and co-author of the musical “Glory Ride.”
Copyright: Project Syndicate, 1995 – 2025
Website: www.project-syndicate.org
