China isn’t close to being the #1 economy

From my latest Bloomberg column:

The key point is the difference between income and wealth. GDP and related numbers measure income flows: namely, the quantity of goods and services produced in a given nation in a given year. Wealth is a measure of the total stock of resources in a nation and is much higher. Furthermore, the gap between wealth and income is usually higher for nations that have been wealthy and stable for a very long time, such as the U.S.

When it comes to national wealth, the U.S. has a big lead over China, possibly as much as three times greater. That is a very rough estimate by Michael Beckley of Tufts University, drawing on data from the World Bank and the United Nations.

For a relevant pointer to Beckley, I thank Evan Abramsky of AEI.

Comments

I am no worse than my worst enemy. I have been assuming I am.

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For example, the initial layer may give a hint of quality, as
well as may last for the initial 2 to 3 hrs. The very first
layer wears away to give way to the 2nd layer scent, which might be a little different from the first layer.
As you can envision, perfumes are optimal for busy specialists who do not have the moment to keep spraying
different fragrances at various times of the day.
Actually, the idea sounds ridiculous!

Chinese wealth has been moved out of the country to keep it out of the hands of the communists. Amounts roughly equal to the trade surplus annually.

What is the advantage of a stock of wealth three times as great if it doesn't generate you that much more income ?

You can live in a heated (or cooled) house?

A relative lived in a coastal city roughly halfway between Shanghai and Beijing. Their apartment block had no provision for heating the space. There weren't extreme temperatures, something like Seattle. He moved back to Montreal to get warm.

At one point the Chinese are going to be wealthy enough to have heated homes.

Ah, OK.

I see that some wealth generates utility that is not reflected in income.

Thanks.

That income is included in GDP. Amenities like heating drive up rents which are included in GDP. There are sources of utility that GDP intentionally ignores (home production of sex) but this is not one of them.

If the heater was owned then its more complicated.

They didn’t have electricity?

Dum vos aqua, Faciam te collaudamus.

And Herr Hitler only wants the Sudetenland.

And if anyone has money, they leave China as fast as they can

Rough? Man, is that rough! Some nominal series, some real series, unclear what exchange rates are used, except in select cases, where the choices are absurd.

Written like describing a sausage factory.

Chinese per capita consumption has proceeded rapidly and that is not from living off the fat of the land. More employment [in industry?] and more capital. Is this bad? Is the article saying there is no catch-up ?

The main reason for the wealth gap is that the US has had steady economic growth for over 200 years thanks to being able to settle a rich and undefended new continent without any predators, while China spent over 100 years having all its wealth plundered then 30 years of economic stagnation under Mao, and is only now recovering from all that.

We’re able to tolerate vast wealth inequality between individuals because of the idea of social mobility—“shirtsleeves to shirtsleeves in three generations” as the saying goes. Unfortunately this saying does not appear to apply to countries, so people should be much less tolerant of the vast wealth gaps between countries, particularly because the wealthiest countries today were the most expansionist imperial powers in the recent past.

Lebensraum does not guarantee wealth. Look at Russia or Argentina or Brazil.

I live in Russia and I have looked for a long time. If it wasn't for our "Lebensraum" that provides us with about 1/6 of all Earth resources, we would have been a post-industrial wasteland not worth mentioning and not even worth conquering, basically an immensely huge Mongolia and a GDP that is half or even lower than it currently is. We basically know two things: how to fight and how to dig. If there would be nothing to dig, just fighting wouldn't get us anywhere after industrial revolution and probably even before that (because we also used all those woods to hunt, no huge swathes of woods - no furs, no furs - no trading).

Western Europe is wealthy because of the industrial revolution, not because they underpaid natives in their colonies for raw materials.

You seem to want to ignore the 1000s of years China was in a position to build wealth. I don't think the dynastic changes were so terribly violent and costly that it needed to start from scratch each time.

I would also question the claim that it had been plundered, in the sense of a significant portion of its wealth taken, for 100 years prior to Mao. Might be interesting to see some numbers on that.

100 years prior to Mao? You mean including the Taiping Rebellion? The Opium Wars? You aren't going to find any numbers in that black hole of a century that are worth anything, outside the tales outrageous numbers of corpses can tell.

Wealth?

What about the Gini coefficient.

"The top 1 percent of earners in America now take home about 20 percent of the country’s pretax national income, compared with less than 12 percent in 1978, according to the research the economists published at the National Bureau of Economic Research. Over the same time in China, the top 1 percent doubled their share of income, rising from about 6 percent to 12 percent.

While that suggests that China and the U.S. are experiencing growth of inequality in tandem, there’s one major difference, which suggests the problem may be more dire on American soil. That regards how the bottom 50 percent of income earners are taking part in -- or in the case of the U.S., losing out on -- the country’s economic growth.

America has experienced “a complete collapse of the bottom 50 percent income share in the U.S. between 1978 to 2015,” the authors wrote. “In contrast, and in spite of a similar qualitative trend, the bottom 50 percent share remains higher than the top 1 percent share in 2015 in China.”

https://www.cbsnews.com/news/usa-china-income-inequality-economic-research/

For the paranoid we can point out that China has less to loose from total destruction than the US has to lose from total destruction.

f China struck the U.S. with 30 ICBMs, America's major cites wold be craters, killing over 50 million. The united States could kill 200 million Chinese the same day. So, new populations: America 275 million; China 1.2 billion.

The United States military could create a complete breakdown in large scale transport and water provision in China resulting in the deaths of around 1 billion+ if they put effort into that. China could not visit the same level of destruction on the US.

But back to the topic of the destruction differential. To reduce the destruction gap, I suggest the United States immediately start destroying their capital, starting with what is easiest to destroy. This is obviously the United States soft power and so... oh... Oh my... Oh dear... Well, carry on then.

Actually, China likely could deliver a huge amount of equivalent destruction. Back in the late 70/early 80s, a surprising amount of war planning involving a massive conflict involved using EMP to cripple an industrialized opponent's abilities, both tactically and strategically. The various source is lost in the mists of pre-Internet time (Analog? Hackett?), but apparently, with ten 1 megaton devices detonating in the ionosphere 800 or so miles up, you can take out 90% of America's oil refining capacity - back in an age where digital equipment in large industrial facilities was not actually common.

The Chinese might even find such an idea exceedingly attractive, as the U.S. would require new electronics - guess who makes most of them these days?

It's interesting that today many people carry around the processing power of a 1985 supercomputer in their pants. These "pants computers" or "mobile phones" as they are often called, are too short to suffer from EMP effects. So even in a worse case scenario, the US or China will still still have plenty of working computing power at hand.

Whether or not it can or will be used effectively is another matter. See the Fukushima nuclear disaster for example were a stitch in time could have saved several nuclear reactors.

On the other hand, the cell towers, much less the grid feeding them power aren't too short to experience EMP.

The U.S. conducted extensive EMP hardening work during the Reagan era - and then gave it up, as the threat of nuclear war receded. However, the U.S. did use carbon fibers in an attempt to cripple Serbia's electrical grid in the later 1990s - along with 'mistakenly' hitting the Chinese Embassy.

The point of those late Cold War scenarios was not primarily about computing power - it was about ensuring that no oil could be refined or distributed with the electrical grid no longer deliver power.

The next major global conflict will undoubtedly involve ensuring that an opponent's electrical grid collapses. No one is likely to care about their smartphones being charged or working when there have been no fuel or food deliveries for the last 12 days.

That various global navigation systems are likely to be among the first targets destroyed goes pretty much without saying - the Chinese have publicly displayed their capability 12 years ago.

This perspective of attacking a critical point in a complex system has a long history in the U.S., most prominently in how the U.S. waged long range strategic bombing against Germany in WWII. One assumes the Chinese are not completely ignorant of this concept, especially after seeing what was going on in Servia.

There's no way the U.S. could cause anywhere close to 500 million to a billion Chinese deaths.

The US has about 4000 nuclear weapons, plus 2000 or so that are officially retired and scheduled for disassembly but could be rushed back into use. That's enough to destroy the 2000 largest settlements in China with enough nukes in reserve to keep Russia from getting any ideas.

The reason nuclear way scares the hell out of every sensible policymaker is that it it is easily capable of killing that many people in the space of a few hours.

Launch a surprise nuclear strike, survive whatever China is able to retaliate with, put the US on a war footing, obtain air supremacy, use it to destroy infrastructure with the aim of murdering the maximum number of people.

Of course, this requires other nations do nothing stop the greatest evil the world has ever seen.

EMP effects are greatly overstated and can be repaired in days. Relevant in the short term but only an annoyance over any longer time frame.

Tyler, i think a lot of smart people outthink things. I don’t understand why you think the unreachable purchase commitments are some sort of brilliant negotiating strategy. As Sumner points out, failing to hit them doesn’t increase our actual power or moral authority to get other points that the US cares about. Failing to hit the numbers allows us to say, “Hey, and you’re stealing our IP, too?”

I agree that China is a national security threat to the US. But this trade agreement kabuki dance is BS, and Trump does not have the stuff to play a long game here.

Excuse me. Meant for #3 of prior post.

Tyler is getting ready to overtly support Trump in 2020 election. Sowing the seeds of overtly supporting Trump 2020.

Tyler title 1: "China’s Economy May Be No. 1..."

Tyler title 2: "China isn’t close to being the #1 economy"

This brings back memories of The New Republic in the 1980s.

@Todd - you can square that circle by considering PPP (title 1) vs nominal GDP hedonistically adjusted (title 2).

Obviously, people, the population of the two countries, aren't considered wealth. In that case the Antarctic continent must be the wealthiest place on earth.

Does anyone know how people in China store their wealth? Anecdotally I feel like they buy real estate and houses they don’t technically own (70 year leases). I think the reality of living there is super unstable relative to America , but maybe there are some benefits to this in terms of dynamism? Or major drawbacks we don’t account for? I guess what I’m saying is that we might even be further underestimating their wealth because they will struggle to grow it as efficiently going forward

A lot of wealth is sunk into housing. A great deal is kept in bank accounts where the Chinese government basically takes what it wants through inflation. You can think of it as a 1.5% to 2.5% wealth tax on wealth held in bank accounts. Thanks to this, a lot of wealth ends up in Australia. I alone have probably increased the net flow by millions of dollars by making jokes about how paranoid the US is about Chinese spying. I laughed, my friends laughed, and the imported inverter we were standing next too laughed...

It seems like a major omission to fail to mention the fact that China's PPP GDP is comparable to the US's only in aggregate terms. In per capita terms, it's just about caught up to Mexico.

A lot of lay folk seem to be confused on this point, and thus we get nonsense about China demonstrating the superiority of a managed economy. This all sounds a lot sillier when we acknowledge that China's GDP per capita has yet to surpass Mexico's.

China's PPP GDP is comparable but it's actual economy is only 2/3 of the US's. So no, China's is not close to the largest.

TMC,

This is a nonsense statement. PPP is generally accepted as being the measure of the real economy, the"actual" economy. I was unable access Tyler's column, but it looks like he accurately said that while the US is still ahead (probably only for a few more years) in nominal total GDP. it is behind in real PPP total GDP.

Clearly in his post here he argues that US is far ahead of China in real total wealth, which is probably correct, and it is indeed still well ahead of China in real per capita income as well, although there are several nations ahead of the US on that one.

Several people here seem to have it in their minds that the US and China are "about comparable" in total PPP GDP. Not really anymore. China has recently moved fairly decisively ahead of the US on that measure, now almost 25 percent greater. This is no longer really"comparable."

PPP is a good measure to compare a person's experience in an economy, but not for comparing economies unless exchange rates are way out of whack. You need the actual number for that.

@TMC - right. And pace Sir Charles, PPP is decidedly not a good metric to gauge well-being. PPP is the 'international dollar' designed to make 3rd Worlders feel good about themselves. A pizza in Peking is not the same as a pizza in Jersey, much less New Jersey. Heck, even a haircut in Asia is not the same in quality as a haircut given by Vietnamese barbers in the USA, as I once found out to my chagrin when I got a crude 'bowl cut' in SE Asia that made me the laughingstock of my expat friends.

Income is the source of wealth for developing nations (savings), while wealth is the source of income in developed nations (asset appreciation). China has chosen to build its economy by increasing the capacity to generate income (i.e., by investing in productive capital including infrastructure), while America increasingly has chosen to build its economy by increasing consumption (and foregoing investing in productive capital including infrastructure) and relying on asset appreciation for income and wealth. Wealth is a function of asset prices: rising asset prices adding to wealth and rising wealth adding to asset prices. What is wealth? Is it the capacity to generate income or is it something amorphous that is separate from the capacity to generate income?

One will recall the Chinese insurance company Anbang, which issued insurance policies to ordinary Chinese that promised an unrealistic high rate of return, which induced Anbang to seek alternative investments with a high rate of return (i.e., a rate of return that relied on rising asset prices) such as real estate in the U.S. It didn't work out so well for either the owners of the insurance policies or Anbang as much of the "wealth" vanished.

So, no bank bailouts by China!

China did what both conservatives and progressives think should have been done circa 1988-1990 and circa 2008-2010 in the US.

Doesn't that mean China implements superior government policy than the US government which pursues massive bank bailouts?

It comes as something of a surprise when I point out that Piketty, in his famous book about inequality, states that governments and central banks will always intervene in a financial crisis and halt and reverse the fall in asset prices. Maybe. Piketty is French, so his view of the destruction of wealth may be shaped by the European experience, which is the physical destruction of assets, and wealth, in war (I and II), whereas in the U.S. we experienced the destruction in the value of assets (in the financial crisis of 1929 and the ensuing great depression). I'm not as confident (pessimistic?) that governments and central banks will always intervene, or that intervention will always avoid the destruction in the value of assets, especially if that value dos not reflect an underlying capability to generate income (such as productive capital).

From the paper: "In industry after industry, from refining to ships to aluminum, the picture is the same—supply far outpaces demand—and still, expansion continues."

Isn't this the goal of supply side economics?

China's taxes are lower than the US as Trump and supporters claim in justifying tax cuts which increase deficits.

And China cut regulations to allow removing obstacles to development, like people living on land, which is a problem Trump is frustrated by when it comes to Build The Wall.

China not only produces more vehicles of all sorts than any nation, Chinese consumers buy more vehicles than any other nation after only recently buying almost none.

And the "ghost cities" are cities with property owned by Chinese consumers saving their earnings.

Citing Wanniski, wikipedia summarizes, "According to supply-side economics, consumers will then benefit from a greater supply of goods and services at lower prices and employment will increase."

So, is the complaint that China stole Reaganomic intellectual property and did it better?

"For example, China spends around $1 trillion per year on food, which is 30% more than the United States. "

Isn't that a sign of higher productivity, feeding four times the number of people at only 30% more costs?

"Premiums under China’s national healthcare scheme average only $24, a sum far from sufficient to cover a basic checkup, let alone a major procedure. As a result, one-third of Chinese citizens who are told to go to a hospital decide not to because of the cost, and 80% of rural residents diagnosed with serious illnesses die at home. The United States has one of the most expensive and inefficient healthcare systems in the world, spending $3 trillion a year versus China’s $1 trillion, but it provides far greater access and better care than China’s system, resulting in a much healthier and more productive workforce."

Clearly US Reaganites have failed to duplicate China's health care system, even with the best efforts of Trump. China spends one third of the US on four times the population with only a 40% increase in lost productivity per ailment. But this forces each Chinese individual to suffer the consequences for their bad choices.

"Air pollution is seven times worse in China than in the United States—breathing the air in China’s major cities is equivalent to smoking a pack of cigarettes a day—and kills 1.6 million Chinese citizens each year versus 200,000 Americans. "

US conservatives, and those who elected Trump believe US air and water are too clean and cheer Trump's efforts to increase air and water pollution by cutting regulation, and damn the regulation of the Supreme Law of the Land that stands in Trump's way.

Isn't China what Reaganites and Trumpites want the US to be?

Clearly China has stolen the IP of Reaganism and Trumpism and delivered better results.

In other words you can keep redefining #1 Economy so that the US occupies that spot. There'll be a place for you in the next Clinton administration.

Nope, GDP, like always, works just fine.

For some reason the thought of the potential equivalences between quantity and quality (think things like 10 million soldiers with only 10,000 rifles charging a team of 5 soldiers with modern automatic weapons and a lot of ammo) as well as the situations where a real distinction does exist.

Is wealth a quality or a quantity category?

Then there is also the limiting factor aspect as well. If neither side is reasonably viewed as limited by some wealth constrain that might not be a critical metric.

You expect people to endorse critical thinking?

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