Twice as big as America’s? Three times?
Based on the criteria in place a quarter century ago, today’s US unemployment rate is between 9% and 12%, inflation is 10%, economic growth since 2001 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. Kevin Phillips. Numbers Racket.
When the license fee for cars in Singapore rose from $25,000 in 2020 to $70,000, the city-state recorded it as double-digit GDP growth. In fact, far than reflecting a higher living standard, it is a painful increase in the of cost of living. Similarly, more prisons and guards for more prisoners in privatized US prisons do not represent economic growth but the opposite. Says Glenn Luk, “The best way to approximate a nation’s wealth and power is by comparing the economic value of the total output of goods and services: amount of energy produced, cars produced, electricity consumed, students graduated, etc. This is certainly more reflective of reality than the fanciful GDP financial accounting used today”. Let’s see what’s left of the US economy without some of those distortions.
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 GDP. If it builds a dam, it adds the dam’s cost to GDP. America also calculates its GDP by summing the cost of everything it makes but then adds the cost of services Americans sell to each other.
Thus calculated, America’s official GDP has doubled since 2000, but wages share of GDP has fallen; manufacturing has declined; financial stability has fallen; life expectancy has fallen; housing, healthcare, education, have fallen; there are more hungry children, drug addicts, suicides, executions, homeless, poor, illiterate, and imprisoned Americans than Chinese.
All of which suggests that America’s economy is neither as big nor as healthy as the official figures suggest. So let’s follow Kevin Phillips’ advice and look at the economy without some of the anomalies and distortions.
An undistorted economy?
Services account for 61% of America’s GDP and 11% of China’s. That makes things like medical costs 7% of China’s GDP and 19% of America’s. The same CT scan costs $2,000 in Kansas City and $92 in Shenzen. The meal that cost $2 in Shenzen costs $20 in San Francisco.
Professional services like law, accounting, tax, insurance, marketing, make up
13% of US GDP ($3.5 trillion) and 3% of Chinese GDP ($0.5 trillion). There are 1.33 million lawyers in the US vs. 650,000 in China and more lawsuits, insurance transactions, annual tax auditing, and congressional lobbying in the US. But does that translate into national power?
The US includes the rent you would pay if your own house was rented to you1 and also includes how much health insurance you would pay if your employer didn’t provide it. Such imputations account for $4 trillion (14%) of US GDP. China doesn’t recognize the concept of imputed/implied economic output.
Construction contributes $1.1 trillion (4%) to America’s GDP and 7% ($1.2 trillion) to China’s. But China pours as much concrete in 3 years as America in a century, produces 1.34 billion tons of steel vs. 97 million, and built 45,000 km high speed rail to none. The almost identical construction value in GDP is a dead giveaway.
38% of Chinese GDP comes from manufacturing and 55% from services vs. America’s 11% and 88%. Regardless of how GDP is reported, China’s industrial and technological capacity is an order of magnitude bigger than Russias, which is currently outproducing the entire West in Ukraine. In a war, China’s hard national power and industrial base would overwhelm the US.
America’s investment in itself has been falling since 1980 while China’s has been rising.
Xu Xianchun, NBS Senior Statistician: “Some localities may interfere with GDP data in pursuit of political achievements, so it is necessary to ensure that such interference does not affect the national GDP figures, which are a matter of national credibility. Just as international standards for GDP accounting are continuously updated, the NBS also works to improve data sources and accounting methods. The NBS holds quarterly evaluations to ensure coherence between GDP data and the basic data, alignment between GDP calculated using both the production and expenditure approaches, and the consistency of GDP data with actual economic development”.
In other words, there is little evidence to support America’s claimed GDP and abundant evidence to support China’s.
Further Reading
The quality of China’s GDP statistics – Carsten A. Holz
Understanding Chinese GDP. Xuguang Song. Palgrave Macmillan
‘Imputed rental of owner-occupied housing.
