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Home Publications Blogs Beat the Press Serious Arithmetic Problems at the NYT

Serious Arithmetic Problems at the NYT

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Wednesday, 30 April 2014 18:59

It seems the folks at the NYT are having a hard time accepting that the United States has been surpassed by China as the world's largest economy. That is the implication of the latest measures of purchasing power parity  (ppp) GDP from the World Bank. (If one adds in the GDP of Hong Kong and Macao, which are both under China's control, its GDP is already larger than that of the United States.)

Rather than accept the standard measure economic output among economists, the NYT found one to deride the ppp measures. At great length it presented the views of Louis Kuijs, the chief China economist for the Royal Bank of Scotland. Mr. Kuijs noted the large revisions in the 2005 PPP measures that lowered China's GDP by around 20 percent and then the most recent numbers that increased the measure by roughly the same amount.

The article quotes Mr. Kuijs:

"Having observed these huge changes in estimates, I’ve become a bit wary of these estimates. ..  The market can be wrong but at least it’s a pretty objective measurement, and nobody can quibble about whether it was that number or whether it was 10 percent higher."

Actually the market measure can be 10 percent higher both because GDP is not measured perfectly (even the U.S. often has large revisions to its measure) and more importantly because currency prices fluctuate by large amounts. If China stopped deliberately propping up the dollar against its currency and then its currency rose by 20 percent, then Mr. Kuijs' measure would show that China's economy has just grown by 20 percent relative to the size of the U.S. economy.

Since most economists do not consider this a plausible story, they do not rely on exchange rate GDP for making international comparisons. Relying on exchange rate GDPs would also yield absurdities like China was exporting more than 9 percent of its GDP to the United States in 2007 (exports were $321.4 billion, China's exchange rate GDP was $3,494.2 billion). Mr. Kuijs might think that makes sense, but it's not likely the NYT could find many other economists who do.

To drive home its absurd case that we should rely on exchange rate GDP rather PPP GDP the article concludes by telling us about ordinary Chinese:

"Do ordinary Chinese appreciate that they pay so much less for the same product? Does it make them feel as if they’ve finally reclaimed the title as top economy after two centuries of British and American dominance?

"'If China’s economy has surpassed the U.S.A., why do I have to get up every morning at 4 a.m.?' Ms. Lu asked. 'In a few years, I will be 50 years old. If China’s economy has surpassed the U.S.A., it certainly hasn’t had anything to do with me.'"

China has four times the population of the United States. This means that if the average Chinese person has a living standard that is just one fourth as high as the average person in the United States then its GDP is as high as ours. The PPP data show that China's workers are much poorer than people in the United States. It is amazing that the NYT apparently did not recognize this fact. 

Comments (1)Add Comment
...
written by skeptonomist, May 01, 2014 10:14
Obviously the only objective standard for comparison is the jianbing - how much did you pay for yours today?

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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.

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