China is Still Number Two
CAMBRIDGE – Headlines around the world last week trumpeted a watershed moment for the global economy. As the Financial Times put it, “China poised to pass US as world’s leading economic power this year.” This is a startling development – or it would be if the claim were not essentially wrong. In fact, the United States remains the world’s largest national economy by a substantial margin.
The story was based on the April 29 release of a report from the World Bank’s International Comparison Program. The ICP’s work is extremely valuable. I eagerly await and use their new estimates every six years or so, including to look at China.
The ICP data compare countries’ GDP using purchasing-power-parity (PPP) exchange rates, rather than market rates. This is the right thing to do when looking at real (inflation-adjusted) income per capita in order to measure people’s living standards. But it is the wrong thing to do when looking at national income in order to measure the country’s weight in the global economy.
The bottom line is that, by either criterion – per capita income (at PPP exchange rates) or aggregate GDP (at market rates) – the day when China surpasses the US remains in the future. This in no way detracts from the country’s impressive growth record, which, at about 10% per year for three decades, constitutes a historical miracle.
At market exchange rates, the American economy is still almost double the size of China’s (83% larger, to be precise). If the Chinese economy’s annual growth rate remains five percentage points higher than that of the US, with no significant change in the exchange rate, it will take another 12 years to catch up in total size. If the differential is eight percentage points – for example, because the renminbi appreciates at 3% a year in real terms – China will surpass the US within eight years.
The PPP-versus-market-exchange-rate issue is familiar to international economists. This annoying but unavoidable technical problem arises because China’s output is measured in renminbi, while US income is measured in dollars. How, then, should one translate the numbers so that they are comparable?
The obvious solution is to use the contemporaneous exchange rate – that is, multiply China’s renminbi-measured GDP by the dollar-per-renminbi exchange rate, so that the comparison is expressed in dollars. But then someone points out that if you want to measure Chinese citizens’ standard of living, you have to take into account that many goods and services are cheaper there. A renminbi spent in China goes further than a renminbi spent abroad.
For this reason, if you want to compare per capita income across countries, you need to measure local purchasing power, as the ICP does. The PPP measure is useful for many purposes, such as knowing which governments have succeeded in raising their citizens’ standard of living.
Looking at per capita income, even by the PPP measure, China is still a relatively poor country. Though it has come very far in a short time, its per capita income is now about the same as Albania’s – that is, in the middle of the distribution of 199 countries.
But Albania’s economy, unlike China’s, is not often in the headlines. That is not only because China has such a dynamic economy, but also because it has the world’s largest population. Multiplying a middling per capita income by more than 1.3 billion “capita” yields a big number. The combination of a large population and a medium income gives it economic power, and also political power.
Similarly, we consider the US the number-one incumbent power not just because it is rich. If per capita income were the criterion by which to judge, Monaco, Qatar, Luxembourg, Brunei, Liechtenstein, Kuwait, Norway, and Singapore would all rank ahead of the US. (For the purposes of this comparison, it does not matter much whether one uses market exchange rates or PPP rates.) If you are shopping for citizenship, you might want to consider one of those countries.
But we do not consider Monaco, Brunei, and Liechtenstein to be among the world’s “leading economic powers,” because they are so small. What makes the US the world’s leading economic power is the combination of its large population and high per capita income.
It is this combination that explains the widespread fascination with how China’s economic size or power compares to America’s, and especially with the question of whether the challenger has now displaced the long-reigning champion. But PPP exchange rates are not the best tool to use to answer that question.
The reason is that when we talk about an economy’s size or power, we are talking about a broad range of questions – and a broad range of interlocutors. From the viewpoint of multinational corporations, how big is the Chinese market? From the viewpoint of global financial markets, will the RMB challenge the dollar as an international currency? From the viewpoint of the International Monetary Fund and other multilateral agencies, how much money can China contribute, and how much voting power should it get in return? From the viewpoint of countries with rival claims in the South China Sea, how many ships can its military buy?
For these questions, and most others involving total economic heft, the indicator to use is GDP at market exchange rates, because what we want to know is how much the renminbi can buy on world markets, not how many haircuts or other local goods it can buy back home. And the answer to that question is that China can buy more than any other country in the world – except the US.
Jeffrey Frankel is Professor of Capital Formation and Growth at Harvard University.
Copyright: Project Syndicate, 2014.
Image credit: testing/Shutterstock
What can 3D printing do for medicine? The "sky is the limit," says Northwell Health researcher Dr. Todd Goldstein.
- Medical professionals are currently using 3D printers to create prosthetics and patient-specific organ models that doctors can use to prepare for surgery.
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The 'People Map of the United States' zooms in on America's obsession with celebrity
- Replace city names with those of their most famous residents
- And you get a peculiar map of America's obsession with celebrity
- If you seek fame, become an actor, musician or athlete rather than a politician, entrepreneur or scientist
Chicagoland is Obamaland
Image: The Pudding
Chicagoland's celebrity constellation: dominated by Barack, but with plenty of room for the Belushis, Brandos and Capones of this world.
Seen from among the satellites, this map of the United States is populated by a remarkably diverse bunch of athletes, entertainers, entrepreneurs and other persons of repute (and disrepute).
The multitalented Dwayne Johnson, boxing legend Muhammad Ali and Apple co-founder Steve Jobs dominate the West Coast. Right down the middle, we find actors Chris Pratt and Jason Momoa, singer Elvis Presley and basketball player Shaquille O'Neal. The East Coast crew include wrestler John Cena, whistle-blower Edward Snowden, mass murderer Ted Bundy… and Dwayne Johnson, again.
The Rock pops up in both Hayward, CA and Southwest Ranches, FL, but he's not the only one to appear twice on the map. Wild West legend Wyatt Earp makes an appearance in both Deadwood, SD and Dodge City, KS.
How is that? This 'People's Map of the United States' replaces the names of cities with those of "their most Wikipedia'ed resident: people born in, lived in, or connected to a place."
‘Cincinnati, Birthplace of Charles Manson'
Image: The Pudding
Keys to the city, or lock 'em up and throw away the key? A city's most famous sons and daughters of a city aren't always the most favoured ones.
That definition allows people to appear in more than one locality. Dwayne Johnson was born in Hayward, has one of his houses in Southwest Ranches, and is famous enough to be the 'most Wikipedia'ed resident' for both localities.
Wyatt Earp was born in Monmouth, IL, but his reputation is closely associated with both Deadwood and Dodge City – although he's most famous for the Gunfight at the O.K. Corral, which took place in Tombstone, AZ. And yes, if you zoom in on that town in southern Arizona, there's Mr Earp again.
The data for this map was collected via the Wikipedia API (application programming interface) from the English-language Wikipedia for the period from July 2015 to May 2019.
The thousands of 'Notable People' sections in Wikipedia entries for cities and other places in the U.S. were scrubbed for the person with the most pageviews. No distinction was made between places of birth, residence or death. As the developers note, "people can 'be from' multiple places".
Pageviews are an impartial indicator of interest – it doesn't matter whether your claim to fame is horrific or honorific. As a result, this map provides a non-judgmental overview of America's obsession with celebrity.
Royals and (other) mortals
Image: The Pudding
There's also a UK version of the People Map – filled with last names like Neeson, Sheeran, Darwin and Churchill – and a few first names of monarchs.
Celebrity, it is often argued, is our age's version of the Greek pantheon, populated by dozens of major gods and thousands of minor ones, each an example of behaviours to emulate or avoid. This constellation of stars, famous and infamous, is more than a map of names. It's a window into America's soul.
But don't let that put you off. Zooming in on the map is entertaining enough: celebrities floating around in the ether are suddenly tied down to a pedestrian level, and to real geography. And it's fun to see the famous and the infamous rub shoulders, as it were.
Barack Obama owns Chicago, but the suburbs to the west of the city are dotted with a panoply of personalities, ranging from the criminal (Al Capone, Cicero) and the musical (John Prine, Maywood) to figures literary (Jonathan Franzen, Western Springs) and painterly (Ivan Albright, Warrenville), actorial (Harrison Ford, Park Ridge) and political (Eugene V. Debs, Elmhurst).
Freaks and angels
The People Map of the U.S. was inspired by the U.S.A. Song Map, substituting song titles for place names.
It would be interesting to compare 'the most Wikipedia'ed' sons and daughters of America's cities with the ones advertised at the city limits. When you're entering Aberdeen, WA, a sign invites you to 'come as you are', in homage to its most famous son, Kurt Cobain. It's a safe bet that Indian Hill, OH will make sure you know Neil Armstrong, first man on the moon, was one of theirs. But it's highly unlikely that Cincinnati, a bit further south, will make any noise about Charles Manson, local boy done bad.
Inevitably, the map also reveals some bitterly ironic neighbours, such as Ishi, the last of the Yahi tribe, captured near Oroville, CA. He died in 1916 as "the last wild Indian in North America". The most 'pageviewed' resident of nearby Colusa, CA is Byron de la Beckwith, Jr., the white supremacist convicted for the murder of Civil Rights activist Medgar Evers.
As a sampling of America's interests, this map teaches that those aiming for fame would do better to become actors, musicians or athletes rather than politicians, entrepreneurs or scientists. But also that celebrity is not limited to the big city lights of LA or New York. Even in deepest Dakota or flattest Kansas, the footlights of fame will find you. Whether that's good or bad? The pageviews don't judge...
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- A popular means of transportation from the 1920s to the 1980s, hitchhiking has since fallen in disrepute.
- However, as this map shows, thumbing a ride still occupies a thriving niche – if at great geographic variance.
- In some countries and areas, you'll be off the street in no time. In other places, it's much harder to thumb your way from A to B.
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