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Home Publications Blogs Beat the Press A Second American Century Led by People Who Can't Do Arithmetic?

A Second American Century Led by People Who Can't Do Arithmetic?

Sunday, 28 April 2013 07:13

That's what Richard Haass is promising in his Washington Post Outlook piece. He tells readers that the United States is still the world's largest economy and will be for long into the future.

"This country boasts the world’s largest economy; its annual GDP of almost $16 trillion is nearly one-fourth of global output. Compare this figure with $7 trillion for China and $6 trillion for Japan. Per capita GDP in the United States is close to $50,000, somewhere between six and nine times that of China."

The problem with the comparison with China is that it relies on market exchange rates. These fluctuate widely and are in part determined politically. (According to Haass's measure, China could make itself 25 percent richer relative to the U.S. tomorrow if it opted to dump $2 trillion in dollar holdings.) 

If the question is what can the economies actually produce then the right measure is purchasing power parity. Haass apparently has also neglected the fact that China now controls Hong Kong, which is not counted in its GDP measure. Turning to the IMF's data on purchasing power parity GDP we find that the United States has a bit more than three years left as Number 1:

China 11,305.769 12,405.670 13,623.255 15,039.001 16,647.491 18,442.890 20,440.875 22,641.047
Hong Kong SAR 357.726 369.379 386.558 411.548 438.187 467.253 498.588 532.098
United States 15,075.675 15,684.750 16,237.746 17,049.027 18,012.185 19,020.509 20,077.908 21,101.368

Source: International Monetary Fund.

Taking year-round averages, the United States is still slightly ahead of the combined projection for China and Hong Kong for 2016, but almost 5 percent lower for 2017. The projection therefore implies that China's GDP will surpass U.S. GDP sometime in August of 2016. This means that if being number one in this category matters to you, better do your partying now. (Actually, according to some estimates the time for partying may already be over since China's GDP may already have surpassed the GDP of the United States.)

The comparisons in this piece to West Europe are silly. The main reason that per capita income in the United States is higher than in Western Europe is that the average worker puts in about 20 percent more hours a year. In Western Europe 4-6 weeks a year of vacation is standard (guaranteed in law), as is paid parental leave and paid sick days. In some countries the standard workweek is also well below 40 hours.

Measured on a per hour basis there is little difference in output, although the European Central Bank is working hard to increase the gap with its current policies. Perhaps people in the United States feel better because they work longer hours, but that is not usually considered evidence of a stronger economy.

Comments (2)Add Comment
The tilt
written by Paine , April 28, 2013 3:42
Nice face slap to innumerate chauvinists
PPP suggests we oughta adjust import prices with a "forex fiddler tax"

WTO violation ?

Hey we need a good trade war
to spur job development

Not that we should need to be mercantilists
Why pick on Hans?

A sense of the big splashy move

I suggest we counter our protectionism here
With a little statue of liberty play

why not offer to import 5 million Han human capitals instead eh?

Remittances ?

That will get gobbled up in the forex fiddle
How valid is PPP, really?
written by Domus, April 28, 2013 7:52
I'm a little surprised you so totally go in for PPP. I understand the theory behind it, but the actual practice of calculating it is subjective and arbitrary. How can we trust that the measurers of PPP have made the adjustment correctly in giving the same valuation to each taxi ride, floor washer, in both economies, etc? PPP has always struck me as a measurement of "psychic income"--what you think the work is worth, rather than what the market will actually pay for it.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.