MarketWatch declares today: “It’s official: America is now No. 2”.
That is, the US is, according to the IMF, the second-place country when measured in “national economic output in “real” terms of goods and services.” Given that China has well over three times as many people as the United States, one should really be asking “what took so long?” The fact that China hasn’t been in first place for decades is just a testament for how horrible under-developed that country has been for a long-long time.
With more than a billion people, China should have an economy that is much, much larger than the US economy, but since worker productivity is so low there, they’ve not just caught up with the US. Of course, a far more useful measure of an economy is arguably the per capita GDP or the purchasing power parity measure. And in this, the United States ranks near the top, but is certainly not in first place. Excluding the oil rich dictatorships which are populated largely by temporary foreign workers, most of the countries that top the list of per-capita output are small countries like Switzerland and Norway, plus the microstates like Luxembourg and San Marino. Depending on which list you use, you’ll also find Hong Kong, Macau, Singapore, and Austria near the top of the list. China is far down the list.
For all the buzz about how well the Chinese are doing, German-speaking countries still have highly-impressive track records, and the Americans are hanging in there. Some eastern European countries like Estonia and Slovakia have made impressive gains, thanks to rapid moves toward more free markets in recent years.
China, which doesn’t exactly have a strong track record of long-term political stability, may or may not continue to top the world’s ranking over overall economic output, but it’s a waste of time either way to treat other countries as if they’re competitors in this. Americans have benefited immensely from increases in worker productivity in China where factories have replaced rice paddies as major drivers in the economy. This represents real wealth creation, and combined with trade, it increases our wealth too.* As Frank Shostak has pointed out in numerous articles, real wealth creation comes from increasing the means by which people can achieve their goals for themselves, whether that involves wearing a warm sweater or watching television. Wealth creation and capital accumulation, no matter where it is, if accompanied by trade, increases our own wealth here at home. Sounding the alarm because China has become “number one” reeks of mercantilist folly.
- *Well, at least SOME of it is real wealth creation, but you’d have to exclude the parts that are bubbly malinvestments driven by central-bank driven credit expansion.
