Which is bigger..and by how much?
Based on the criteria in place a quarter century ago, today’s US unemployment rate is between 9% and 12%; inflation at 10%; economic growth since the 2001 recession has been mediocre, despite a huge surge in the wealth and incomes of the superrich, and we are falling back into recession. What we really need today is a picture of our economy ex-distortion. For it would reveal a nation in deep difficulty, not just domestically, but globally. Numbers Racket. Kevin Phillips.
How many times have we been told that China’s economy is smaller than America’s? Thousands? And how many times have we seen the figures behind that claim? I’m guessing ‘never,’ because the claim does not hold up well in daylight: China’s industrial output is twice America’s and retail sales are 50% bigger.
Did You Ever Wonder Why..
America’s GDP has doubled since 2000 while manufacturing and wages stagnated?
Housing, healthcare, education, and financial stability have declined?
Apart from retail sales, consumption is 61% of America’s GDP but only 11% of China’s?
America, with $70,000 per capita GDP, has more hungry children, drug addicts, suicides, executions, homeless, poor, illiterate, and imprisoned citizens than China?
China, with $14,000 per capita GDP, has a longer life expectancy and a bigger navy?
Apples & Oranges
China calculates its GDP by summing the value of everything it produces. If it builds an airplane it adds the airplane’s wholesale price to its gross domestic product. If it builds a dam, it adds the dam’s cost to its gross domestic product. Pretty simple.
America calculates its GDP by summing the cost of the airplanes it makes and adding the cost of services Americans sell to each other.
Services account for 61% of America’s GDP and 11% of China’s because of price inflation: medical costs are 7% of China’s GDP and 19% of America’s because CT scans cost $2,000 in Kansas City, while a 22-item physical in wealthy Shenzhen, including CT, cost 580 yuan, or $92. My SF Bay Area cellular service, vastly inferior to Shenzhen’s, costs five times more. My Berkeley barber’s $85 haircut is indistinguishable from the one I get for $2 in Kunming.
With industrial production flat and consumption increasing, most of America’s GDP is generated by people taking in each other’s laundry: rent, tuition, healthcare, commissions, fees, and jailing millions of people. Are accounting, consulting, real estate commissions really ‘products’? Is Bitcoin? Is prostitution? Britain says so.
Reconciliation
China’s Material Product System, MPS, divides the economy into three sectors: productive enterprises, non-productive, and households, and collects comprehensive data on the physical products, not just the momentary market value of outputs produced, and thuse measures the annual output of material goods.
Applying this method to both economies moves China’s GDP from 65% of America’s to 124%.. If we equalize the purchasing power of the yuan and the dollar, by eliminating the differences in price levels between countries, gives the same result:
Further Reading
The quality of China’s GDP statistics – Carsten A. Holz
Understanding Chinese GDP. Xuguang Song. Palgrave Macmillan
