Take a look at the change in World GDP rankings since 1980. Stunning.
The U.S. GDP in purchasing power parity (PPP) terms, which adjusts for currency valuations, was 187 percent larger than Japan, the world’s second largest economy in 1980. U.S. GDP is now 12.7 percent smaller than China, the world’s largest economy.
Note the U.S. is still ranked numero uno when GDP is measured in nominal terms.
Nominal versus PPP GDP
Here is a decent piece in explaining the differences between nominal and PPP GDP. Remember, economies are denominated in local currency and when comparing across countries they must be converted to a common currency, such as the US dollar. Some currencies can be cheap and where the home country would, say, have cheap Big Macs, and some can be expensive and have expensive Big Macs.
The Economist’s Big Mac Index measures the Chinese currency at about 45% undervalued to the U.S. dollar when purchasing a Big Mac in China. This partially explains the big differential in China’s nominal dollar GDP versus its GDP in PPP terms. And, maybe one reason President-elect Trump rails on China as a currency manipulator. The China currency situation is very complicated now as they are experiencing massive capital flight, putting further downward pressure on the currency and its international reserves. One reason they have been selling U.S. Treasury bills, notes, and bonds.
Relative Growth and Demographics
Also interesting to note that since 1980, US GDP has grown 643 percent versus Japan’s 395 percent and Germany’s 359 percent. Not surprising given the relative demographic trends, where Germany and Japan are among the oldest by median age in the world — tied at 46.5 years old. — second only to the miniscule city-state, Monaco, with a population of 37K and a median age of 51.7 years old — really doesn’t count, in our opinion.
Contrast that to the U.S., which has the 62nd oldest population in the world with a median age of 37.8 years, much, of which, can we say it, ugh, hmm, has to do with immigration. Demographics are a YUUUGe factor in economic growth.
We also suspect the euro currency distorts and depresses the value of German PPP $ GDP. If the Germans still had the deutsche mark (which they may again, probably sooner than we all think) we estimate German PPP GDP would be 30-40 percent higher, giving the country’s economy a 520 percent boost from 1980-2016.
So there you have it, folks, we live in a different neighborhood and world now than when Ronald Reagan was elected and there is no turning back. Sure, China could collapse – claptrap we have been hearing for 10 years, BTW – India could stop having babies, and the U.S. will once again be the lone economic superpower, or whatever.
You know we are a pretty nonpartisan bunch over here and we really hope and pray that President-elect Trump becomes one of the greatest Presidents in history, as we would have said the same for a President Clinton.
But we can’t help but think this past election was an exercise in Land of Oz, where Dorothy clicked her ruby red shoes together and said,
There is no place home Make America Great Again.
We’re not going back there, folks, let’s live and adapt policy to a world as it is, not as it was, not what we wish it was, or what we hope it should be. So let’s get on with it.