There’s much worrywarting over the new figures from the IMFtelling us the fact that China is now the world’s number one economy in terms of size. The truth is though that, other than for collectors of statistical trivia, this really isn’t important. Perhaps on a par with wondering how Lady Gaga is going to dress next but no more than that. Because the whole idea of “an economy” as defined by the borders of a nation state is pretty arbitrary anyway and further, it matters a great deal more how many people that economy is spread over than it does the size of it. Luxembourg’s economy is considerably smaller than that of India but with 400,000 people not 1.4 billion who is living better?
Here’s an example of this worrying:
Hang on to your hats, America.
And throw away that big, fat styrofoam finger while you’re about it.
There’s no easy way to say this, so I’ll just say it: We’re no longer No. 1. Today, we’re No. 2. Yes, it’s official. The Chinese economy just overtook the United States economy to become the largest in the world. For the first time since Ulysses S. Grant was president, America is not the leading economic power on the planet.
It just happened — and almost nobody noticed.
The International Monetary Fund recently released the latest numbers for the world economy. And when you measure national economic output in “real” terms of goods and services, China will this year produce $17.6 trillion — compared with $17.4 trillion for the U.S.A.
It’s not really true that no one noticed: people have been announcing that it’s about to happen for months. Further, people have been predicting it would happen for at least a decade. A pretty simple prediction it was too. As one banker turned university administrator said when he went off to work in China, China’s been the world’s largest economy for 19 of the past 20 centuries. It’s not going to go 2 for 21 either, it will be 20 of 21.
There’s simply so many people in that area of land that, barring any truly stupid set of economic policies (here’s lookin’ at you, Marxism) the place is simply going to be one of the larger, if not the largest, component of the global economy. Think of it this way: why shouldn’t 18% of the people on the planet have 18% of the economy of the planet?
So apart from the obviousness of this there’s also that other thing that we might want to consider: its importance. And it’s not important. For what determines how well people live (and yes, aiding people in living well is pretty much the point of this whole having an economy thing) is economic output per capita. That total economy divided by the number of people who get to consume the output. Here the US is well ahead (north of $50,000 a year in the US, only just over $5,000 a year in China and yes, that is after adjusting for price differences) and China would need another three generations of breakneck growth to close that gap.
There are those who worry that economic size equates to political or even military power. And there’s something to that but again not much. For that sort of power depends upon how much you can tax off those people in order to pay for that military power. And clearly, the richer people are the more there is to tax them before you push them back down into subsistence again. If it really came down to it, properly mano a mano, the US could mobilise a much larger portion of its economy for such purposes than a poorer country could.
It’s entirely true that, on a PPP basis (that is, accounting for price differences), China’s economy is now marginally larger than that of the US. But it doesn’t actually matter very much at all.
original source: http://www.forbes.com/sites/timworstall/2014/12/07/chinas-now-the-world-number-one-economy-and-it-doesnt-matter-a-darn/2/