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America’s Relative Decline: Should We Panic?

Public Policy

Over at the Washington Post, Charles Kenny has a provocative op-ed arguing that China’s GDP will almost certainly soon surpass America’s in absolute terms, and this is to the United States’ benefit (the op-ed is based on Kenny’s new book, which can be purchased here).

Kenny’s first argument in support of this claim is that Americans’ quality of life will still be better than their Chinese counterparts, and that in fact “losing the title of largest economy doesn’t really matter much to Americans’ quality of life.” Fine.

Kenny next concedes that there may be some negative effects, but nonetheless argues that these are limited. For example, he notes that the dollar may no longer be the world’s reserve currency, but “businesses in the rest of the world still manage to export, even though they must go through the trouble of exchanging currencies.” Similarly, while having the largest GDP has allowed America to maintain the largest and most powerful military, “how much [has] the three-quarters increase in defense spending between 2000 and 2011 enhanced America’s well-being?” Thus, lower defense spending could be a net positive.

Kenny goes on to list a number of benefits America will receive from its relative economic decline. For example, this relative decline “is mainly a result of the developing economies becoming larger, healthier, more educated, more free and less violent. And there is little doubt the United States benefits from that,” such as through increased exports and being able to import the amazing new innovations these newly empowered countries will no doubt invent. Moreover, economic growth in the developing world “also means that there are more places for Americans to travel in security and comfort.”

There’s no doubt some truth to at least some of this. Most notably, China having a larger GDP will not equate to a better quality of life for Chinese people, and, I suppose, having more vacation spots to choose from also could bring some amount of joy to the top 1% of Americans who get bored of laying out on the same hundreds of beaches they currently feel safe to vacation in.

Still, China’s relative rise and the United States’ relative decline carries significant risks, for the rest of the world probably more so than for Americans. Odds are, the world will be worse off if China and especially others reach parity with the U.S. in the coming years.

This isn’t to say America is necessarily as benign a hegemon as some in the U.S. claim it to be. In the post-Cold War era, the U.S. has undoubtedly at times disregarded international laws or international opinions it disagreed with. It has also used military force with a frequency that would have been unthinkable during the Cold War or a multipolar era. Often this has been for humanitarian reasons, but even in some of these instances military action didn’t help. Most egregiously, the U.S. overrode the rest of the world’s veto in invading Iraq, only for its prewar claims to be proven false. Compounding the matter, it showed complete and utter negligence in planning for Iraq’s future, which allowed chaos to engulf the nation.

Still, on balance, the U.S. has been a positive force in the world, especially for a unipolar power. Certainly, it’s hard to imagine many other countries acting as benignly if they possessed the amount of relative power America had at the end of the Cold War. Indeed, the British were not nearly as powerful as the U.S. in the 19th Century and they incorporated most of the globe in their colonial empire. Even when it had to contend with another superpower, Russia occupied half a continent by brutally suppressing its populace. Had the U.S. collapsed and the Soviet Union emerged as the Cold War victor, Western Europe would likely be speaking Russian by now. It’s difficult to imagine China defending a rule-based, open international order if it were a unipolar power, much less making an effort to uphold a minimum level of human rights in the world.

Regardless of your opinion on U.S. global leadership over the last two decades, however, there is good reason to fear its relative decline compared with China and other emerging nations. To begin with, hegemonic transition periods have historically been the most destabilizing eras in history. This is not only because of the malign intentions of the rising and established power(s). Even if all the parties have benign, peaceful intentions, the rise of new global powers necessitates revisions to the “rules of the road.” This is nearly impossible to do in any organized fashion given the anarchic nature of the international system, where there is no central authority that can govern interactions between states.

We are already starting to see the potential dangers of hegemonic transition periods in the Asia-Pacific (and arguably the Middle East). As China grows more economically and militarily powerful, it has unsurprisingly sought to expand its influence in East Asia. This necessarily has to come at the expense of other powers, which so far has primarily meant the U.S., Japan, Vietnam and the Philippines. Naturally, these powers have sought to resist Chinese encroachments on their territory and influence, and the situation grows more tense with each passing day. Should China eventually emerge as a global power, or should nations in other regions enjoy a similar rise as Kenny suggests, this situation will play itself out elsewhere in the years and decades ahead.

All of this highlights some of the advantages of a unipolar system. Namely, although the U.S. has asserted military force quite frequently in the post-Cold War era, it has only fought weak powers and thus its wars have been fairly limited in terms of the number of casualties involved. At the same time, America’s preponderance of power has prevented a great power war, and even restrained major regional powers from coming to blows. For instance, the past 25 years haven’t seen any conflicts on par with the Israeli-Arab or Iran-Iraq wars of the Cold War. As the unipolar era comes to a close, the possibility of great power conflict and especially major regional wars rises dramatically. The world will also have to contend with conventionally inferior powers like Japan acquiring nuclear weapons to protect their interests against their newly empowered rivals.

But even if the transitions caused by China’s and potentially other nations’ rises are managed successfully, there are still likely to be significant negative effects on international relations. In today’s “globalized” world, it is commonly asserted that many of the defining challenges of our era can only be solved through multilateral cooperation. Examples of this include climate change, health pandemics, organized crime and terrorism, global financial crises, and the proliferation of weapons of mass destruction, among many others.

A unipolar system, for all its limitations, is uniquely suited for organizing effective global action on these transnational issues. This is because there is a clear global leader who can take the initiative and, to some degree, compel others to fall in line. In addition, the unipole’s preponderance of power lessens the intensity of competition among the global players involved. Thus, while there are no shortages of complaints about the limitations of global governance today, there is no question that global governance has been many times more effective in the last 25 years than it was during the Cold War.

The rise of China and potentially other powers will create a new bipolar or multipolar order. This, in turn, will make solving these transnational issues much more difficult. Despite the optimistic rhetoric that emanates from official U.S.-China meetings, the reality is that Sino-American competition is likely to overshadow an increasing number of global issues in the years ahead. If other countries like India, Turkey, and Brazil also become significant global powers, this will only further dampen the prospects for effective global governance.

Therefore, many of the benefits that Kenny predicts will accompany the rise of developing countries may not occur, at least in as dramatic a fashion as one might think. For instance, there’s no doubt that a richer developing world should result in more American exports. However, American exports might at the same time be constrained by a far less open global trade environment in a multipolar world. Things we take for granted today, such as freedom of navigation and airflight, could very well be much less assured in a bipolar or multipolar future. There’s also the possibility that the world will divide into spheres of influence, in which regional hegemonic powers demand highly preferential access to markets in their home regions. Similarly, the decline of the U.S. dollar and greater international competition could also result in far more unstable international financial markets that also inhibit trade.

In short, Kenny’s no doubt correct that China becoming the largest economy won’t be the doomsday that some in America predict. Indeed, there will almost certainly be some benefits that come with it. Still, the rise of China and the rest, should it continue, will also create new dangers and risks that the world would be wise not to neglect.

The Diplomat



39 Comments on "America’s Relative Decline: Should We Panic?"

  1. J-Gav on Sat, 25th Jan 2014 3:47 pm 

    Oh yeah, panic is always a great idea …

  2. Northwest Resident on Sat, 25th Jan 2014 4:04 pm 

    America just needs to pay slave wages, do away with all environmental regulations, build a bunch of empty cities and then we can compete with China for largest GDP. Of course, the trade-off is that, like China, we would so pollute our atmosphere and poison so many of our rivers and so much of our farmland that — just like the elite are doing in China — anybody with the financial ability to do so would get the heck out of America.

  3. PrestonSturges on Sat, 25th Jan 2014 5:18 pm 

    Blah blah blah, remember when Japan was going to buy up America? Just before they plunged into a 20 year recession.

  4. J-Gav on Sat, 25th Jan 2014 8:28 pm 

    NW – Well, you being Canadian (if I remember), you know well that we’ve already polluted so many rivers and lakes (including the Great Lakes) that bringing them back will already be a major undertaking.

    I grew up in the country near the Kalamazoo River in Michigan – it was white at the time and dead – as in no life, due to the paper industry there. They spent years getting it back to real river status then came the recent spill and they’ve got to start all over again. I see no end to this litany of frustrating (and criminal)environmental back-pedaling until citizens decide they’re “mad as hell and not going to take it anymore”, as Peter Finch famously said in the film ‘Network.’ But we also both know that the general public is so lulled into complacency and complicity in the futherance of their own servitude that the liklihood of such a reaction is slim, as least for the time being.

  5. PapaSmurf on Sat, 25th Jan 2014 8:52 pm 

    Panic fixes EVERYTHING.

    Most of the active posters on this website have been in a panic since 2004. See how effective it has been?

  6. PrestonSturges on Sat, 25th Jan 2014 9:09 pm 

    >>>Most of the active posters on this website have been in a panic since 2004. See how effective it has been?

    To be fair, most everyone here realized that George Bush was leading us into the economic woodchipper, and that happened in 2008.

    Since then, we’ve split into two groups. For some people, the only thing that gives their life meaning is hating Obama, and they have completely forgotten the sense of blind panic that gripped the country under the GOP.

  7. Harquebus on Sat, 25th Jan 2014 9:56 pm 

    At 7% growth, China’s GDP will double in 10 years and double again in another 10 after that. I don’t think that there is enough fossil fuel energy to support that without frying our planet.

  8. PapaSmurf on Sat, 25th Jan 2014 10:40 pm 

    To be fair, most everyone here realized that George Bush was leading us into the economic woodchipper, and that happened in 2008.
    ==================

    That is being revisionist by a huge leap. There have been so many wacko predictions made on PO.com that claiming that anyone here is good at it is not being serious. Batting 1 out of 1,000 is not a solid ratio for prediction. Anyone can predict a recession. I hereby predict we will have another one in a few years.

  9. rollin on Sat, 25th Jan 2014 10:48 pm 

    China has about half the GDP of the US. Japan about 40% and India about 16% of the US GDP. Russia is about 16% of the US GDP.

    So if power is measured in money, the USA is twice as powerful as China.

    So why does anyone believe these BS articles? With all the problems and predicaments coming to a head in the next two decades, GDP will not even be a measure anymore.

    What we should be looking at are areas, countries and regions that are moving to a more sustainable system, rather than BAU on steroids that is about to get a heart attack.

  10. Northwest Resident on Sat, 25th Jan 2014 11:52 pm 

    J-Gav — You are right. As long as there are bucks to be made — and power and “wealth” to be gained by those who seek it — then nature will always be abused to enrich the few at the expense of the many. Hopefully, over time, humanity evolves to stop producing “leaders” to are so willing to destroy nature to further their own ends. And hey — I’m American — living in the NorthWest — Oregon to be exact. Was it my class and style and intelligence and wit that prompted you to believe I am in Canada??? 🙂

    Uh-oh. Looks like the local funny farm let PapaSmurf use the computer again for a few minutes. He’s baaaaack…:-)

  11. Davy, Hermann, MO on Sat, 25th Jan 2014 11:54 pm 

    two guys in a sinking life boat on the ocean do you think it matters who is wealthier

  12. Makati1 on Sun, 26th Jan 2014 1:13 am 

    More Chinese bashing from the MSM Ministry of Propaganda…

  13. action on Sun, 26th Jan 2014 1:47 am 

    The US uses twice as much oil as China, and the magnitude of its wealth is unparalleled. All westernized countries will burn globally, before the US does individually – if the US goes down, so does everyone else because that will mean the end times are here. Besides, who the hell would choose to live in China over the US? The name of the game is oil, and the US uses a lot of it, making a lot of people rich; everyone else is just playing catch up in a game that’s almost over. I’m not bragging for the whole of the US people though, they’re largely moronic to a painful extent.

  14. Feemer on Sun, 26th Jan 2014 1:53 am 

    China doesn’t seem like a big issue, I mean their military and economic prowess in recent years is unsettling, but as stated they RAPE their environment. I don’t think US environmental regulations are adequate, but at least we have(partially) effecting regulations. Our rivers, our lakes, our smog may be bad, but compared to china, its not even close. If anyone has read Collapse, by Jared Diamond, you’ll know that he makes the point that a society cannot survive unless it takes care of the land and climate. Of course those aren’t the only factors, but they will limit china

  15. yellowcanoe on Sun, 26th Jan 2014 2:10 am 

    I don’t believe a country with as much debt as the United States can continue to be a superpower. The primary reason Britain ceased to be a superpower was because the cost of fighting two world wars had used up a lot of their wealth and put them deeply in debt. Britain was forced to significantly reduce military spending and dismantle much of her empire after WW II.

  16. GregT on Sun, 26th Jan 2014 5:53 am 

    Feemer,

    China doesn’t rape their environment, it is mainly American corporations that are raping OUR planetary environment for monetary gain in China. There isn’t a magic dotted line that separates China’s environment from the rest of the Earth. We all live on the same planet, and it is the consumers in the Western world that are mostly responsible for destroying OUR planet. The next time you go into your favourite ‘super mart’, pay attention to what you ‘consume’, and think about your responsibility as a global citizen. All of the stuff that YOU consume has an environmental impact on the entire Earth. The consumer is responsible for the pollution generated by his consumption. No consumers, no market, no environmental consequences. China WAS nothing more than a way for capitalists to exploit cheap labor, to keep selling crap to the ‘consumers’ that they never really needed, to turn a profit. China IS waking up. China is far bigger than America could ever dream to be.

    Oh, and no need to worry about China’s military prowess, they have already made it very clear that they plan on taking down the US through economic warfare. The war has been underway for at least two decades, and the US is losing. Eventually the power shift will be complete, and the US will become a third world country.

    China is a very big issue, now would be a very good time to learn how to speak Cantonese.

  17. Aire on Sun, 26th Jan 2014 8:01 am 

    “China IS waking up. China is far bigger than America could ever dream to be.”

    What does this even mean? China is going down a worst path than the USA. The only thing they seem to be doing right is that they are buying gold and resources but after a global collapse happens the Chinese government is bound to retract and mostly collapse too. This leaves the elite with the resources mainly.

  18. Arthur on Sun, 26th Jan 2014 9:37 am 

    China has about half the GDP of the US. Japan about 40% and India about 16% of the US GDP. Russia is about 16% of the US GDP. So if power is measured in money, the USA is twice as powerful as China.

    Fascinating. Europe simply does not exist, but in the mean time has the largest economy of them all (EU T18$, US T15$), plus single currency, single market, president, parliament, constitution and the upper hand in IT hardware, cars, planes, fast trains, aerospace, renewable energy, trade surplus, under control deficits, largest building and construction firms, and shown in 2003 with the Iraq drama that it can disobey instructions from their former colony turned global hegemon.

    Paris-Berlin-Moscow has 3 times the economy of China.And once the dollar reserve currency will be history, expect US GDP to drop with 40%, like in Greece. The Ukraine is banging on the doors of Europe these days and so will Russia, once the US role of western hegemon will be over.

    Ssssh, don’t tell anybody and let the US and China concentrate on each other in their fight for ‘global supremacy’.lol

  19. Davy, Hermann, MO on Sun, 26th Jan 2014 12:39 pm 

    GregT on Sun, 26th Jan 2014 5:53 am

    You a china lover? Look China has done a lot in 20 years but it can’t go on much longer. They are reaching diminishing returns everywhere you look. They will be lucky to feed themselves adequately soon. There military is no match for the US and is increasingly overstretched because of their grandiose strategies.

    You mention American companies raping the environment. Today companies are multinationals who’s shares are held globally. Get your facts better organized!

  20. Arthur on Sun, 26th Jan 2014 2:06 pm 

    There military is no match for the US

    You do realize that China is thirty times North-Vietnam?

    and is increasingly overstretched because of their grandiose strategies.

    Last time I checked China does not have 13 carriers. Grandiose? For the record, carriers were useful in WW2 against single engine Japanese fruit flies, in 2014, with Chinese Mach-10 missiles around, carriers are an anachronism, a drain on US fiscal resources and as such a Chinese asset.

    And no, I am not a China lover.

  21. DC on Sun, 26th Jan 2014 2:40 pm 

    And why exactly does China need to ‘match’ the US war-machine? And whose grandiose strategies? You must be talking about the Us of War and Coal because they are about the only ones exceeding their reach these days. Anyone that thinks its good strategy to try to enter into a ruinous arms race with amerika deserves exactly what they get. In fact, the Us hopes nations it doesn’t like will do just that. Ruin themselves in a pointless ‘arms’ race with the Us. Best to let the US-war machine bankrupt the country all on its own.

    All this China-fear must be very amusing to the chinese themselves. They are fairly pragmatic and mostly concern themselves with regional issues. Historically China has always been inward focused and thats true even today, even with all the resource shopping they have doing lately. They are quite content to let amerika blunder around the world alienating what ‘friends’ they have left, and doing their best to make new enemies at every opportunity.

  22. Sudhir Jatar on Sun, 26th Jan 2014 2:44 pm 

    Rise of China will no doubt add more hostility amongst nations. Tensions will be critical in South East Asia and in South and East China Seas.
    Perhaps it would be better to go back to the cold war era when there was a clearly divided world.
    India, particularly will be hard put to balance between the US & Pakistan on one side and China & Pakistan on the other!

  23. Plantagenet on Sun, 26th Jan 2014 3:09 pm 

    The Chinese will be kindly overlords when they run the world. No worries dudes

  24. rollin on Sun, 26th Jan 2014 4:37 pm 

    Arthur, Europe is not a country. If you are going to compare Continents, then it’s North America compared to Europe compared to Asia, compared to South America, etc. Get it?

  25. GregT on Sun, 26th Jan 2014 5:25 pm 

    Aire said:

    “The only thing they seem to be doing right is that they are buying gold and resources”

    With the interest on massive amounts of US debt, I might add. Not that amassing gold and resources are enough, it would also be prudent to add that they are rapidly growing their manufacturing base, and their technologies. Thanks in a large part to American multinational corporations, outsourcing to achieve larger profit margins.

    What the USA is losing, China is gaining. People have been predicting precisely what is occurring now, for decades. Just because I am observant, does not make me a ‘China lover’.

  26. Arthur on Sun, 26th Jan 2014 5:48 pm 

    rollin, define ‘country’. That’s why I said that the EU has a single currency, president, parliament, commission, foreign policy body. Europe is no longer a set of 28 independent countries, but has common policies on all sorts of topics. 80% of the legislation comes from Brussels. The EU is more a country than it is not.

    The US btw has more than twice the territory of the EU, some ‘continent’.

  27. Arthur on Sun, 26th Jan 2014 6:04 pm 

    The Chinese will be kindly overlords when they run the world. No worries dudes

    If the western world can refrain from infighting, like in WW1 and WW2, no such thing needs to happen. But as long as Anglosphere let’s itself being used by the Lobby to achieve global hegemonic pipe dreams, geopolitical instability is pre-programmed.

    Ah well, just like in 1945 American and Soviet globalists were roaming Europe, intervening in an intra-European conflict, I can imagine scenarios where Greater European (EU and Russia) and Chinese ‘multipolarists’ will be roaming north America, intervening in a conflict there between Constitutionalists and neo-Bolsheviks. That conflict could erupt immediately after it is clear for all that US hegemony is over. For a lot of Americans this development will mean a homecoming of sorts.

  28. DMyers on Sun, 26th Jan 2014 6:30 pm 

    Interesting commentary. My own conscience has called me to walk up and down the road out front, with a sign that says “China Lover”. Following a brief mental inventory of all I own, I confess that were it not made in China, I would own nothing at all.

    Although the article is chiefly about multi versus uni polarity of the world and American exceptionalism, which must dictate our understanding of this concept, that aspect has received little attention. It’s hard to go anywhere with this polarity formulation, as the article itself demonstrates. However, it is subject to being kicked around.

    Whether America has, indeed, been the Benign Hegemon should be treated more as the question at this point than as the answer. This is tied up with the whole American exceptionalism issue, and all you can say about that is just take a look at the American vector which is moving from high prior exceptionalism to low current exceptionalism. Perhaps the Benign Hegemon has followed obtusely the course of universal truth – absolute power corrupts absolutely. Or maybe our beloved Bible explains it simply in a phrase: “…pride cometh before a fall.” If anything, America is living proof that uni-polarity leads to self-destructive excess and lawless brutality, even in a uni-polar power not so predisposed.

    There is also a larger context in which this all occurs. This context lacks human causation. This is the scale of great cycles and ages. This is the realm of Time alone, in which Time may bring the long-anticipated closure of the circle, on a long, Westward “Journey to the East.”

  29. Northwest Resident on Sun, 26th Jan 2014 7:53 pm 

    All this discussion on China versus America is interesting, but I think missing the main point. The main point, IMO, is that China NEEDS America (and the west) to sell its cheap stuff to as much as America (and the west) need the cheap stuff that China sells. Remember, China didn’t start of 20 or 30 years ago with a big wad of investment cash to start rapidly growing their economy. No — what happened is a bunch of American companies moved their production to China (no regulations, pollute all you want, no taxes, no actual human workers with human needs — just slaves). America (and the west) pumped billions into China to build up their industry, so America could (and the west) could buy the cheap crap. Today’s fragile and fraudulent economy is based on that symbiotic relationship. All this talk of China versus America in some kind of war is pure B.S. China is beating the war drums to distract its population and to inspire “patriotism” — the oldest trick in the book for nations that are in big, big trouble. When America (and the west) crashes, so will China, and vice-versa.

  30. Arthur on Sun, 26th Jan 2014 8:47 pm 

    HWR, what you say applies to the past. Not even ‘Chinese slaves’ will want to work for green paper without inherent value ad infinitum. The tipping point is almost there. China will continue to trade for dollars as long as the west still has gold to offer, like the German gold in the vaults of the FED or Fort Knox. China clearly is no longer interested in letting the pile of dollars grow further.

    http://usawatchdog.com/what-happens-when-you-have-to-admit-the-golds-not-there-eric-sprott/

    This is tied up with the whole American exceptionalism issue

    It was good old Alexis de Tocqueville who called America ‘exceptional’ once or twice. But if you really dig into who actually picked this concept up and turned it into a world view, you will arrive at Jay Lovestone, an American Jewish communist leader, who had the temerity to maintain that America was so exceptional that it even defied otherwise unshakable Marxist laws. The origin of the concept of American Exceptionalism clearly hints at an interpretation of a sort of second hand Chosen-ness. As long as America behaves as a tool for establishing world government, Americans can pride themselves as the bearers of the silver medal in the messianic pecking order. The gold medal obviously is reserved for some other group.

  31. Arthur on Sun, 26th Jan 2014 9:00 pm 

    While I type these words, I watch with one eye German television, that has a discussion program around Edward Snowdon, with parts from an interview with him. Guest is the former US ambassador to Berlin, John Kornblum. The German public applauds vehemently when someone suggests that Germany should grant political asylum. Neo-Bolsheviks/globalists like Kornblum and a German media bigwig call Snowdon a ‘traitor’, the rest is clearly a Snowdon supporter. Snowdon looks very confident.

    If a small Polish electrician like Walesa can be come president of Poland, there is no reason why Constitutional material like Snowdon, at some point in the future, could not play a very prominent role in US politics, after the crash.

  32. stevefromvirginia on Sun, 26th Jan 2014 9:03 pm 

    First of all, there is no monolithic ‘China’ no more than there was a monolithic Soviet Union. China is a collection of interconnected regions with distinct cultures, languages, traditions and economic capabilities. Right now, Chinese regions sticking together b/c it is in their relative interests to do so. Nothing lasts forever: even if you leave out Tibet and Xinjiang the Chinese regions are at odds with both the central government as well as with each other. Enough stress and regions are likely to go their own way.

    The same can be said for the US but Chinese regionalism w/ rule by warlords was in force until 1949.

    Second: According to CIA factbook, the Chinese GDP is about 3/4 of US (which is a bit more than Europe). Yet, by BP, China’s energy consumption is a bit greater than the US. China has invested a great deal in Victorian-era energy infrastructure. They are not in a position to either replace it or abandon it. Yet, their infrastructure is not able to support doubling consumption again. Right now China ports, rail lines, mines, terminals struggle with the burden of managing China’s current energy throughput. To exceed US throughput is something that is unlikely to happen … which means less GDP going forward.

    Third, China is being revealed as a kleptocratic colossus … its leadership of the country and business being thieves racing to leave the country with their loot. This tells a more accurate tale of Chinese GDP than government lies. Indeed, China has built a lot of concrete towers, but these are gigantic liabilities, not assets that will offer any return. Meanwhile, China is losing millions of acres per year due to pollution and water contamination. Hard to see how that improves GDP.

  33. Arthur on Sun, 26th Jan 2014 9:23 pm 

    steve, the CIA itself does not support your claim that Chinese GDP is 3/4 of the US:

    http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)

    EU – $16.4T
    US – $15.7T
    CH – $8.2T

    Other source…

    en . wikipedia.org / wiki/Economy_of_Europe

    … estimates EU GDP at $19.9T (nominal) or $18.1T (PPP)

    I must remind you that the EU has achieved this result without owning a reserve currency. If you leave this essentially free lunch out and postulate that the wealth generating capacity of a Euro-American (180m) is about equal to that of a Western European (380m), expect the US GDP to contract to 180/380 * 18T = $8.5T, that’s about China.

  34. DC on Mon, 27th Jan 2014 12:35 am 

    Watching (some) of you guys bash China reminds me of the exact same way people would bash Russia when I was young(er), and still do btw. It seems to be the national sport in amerika. Bash nations and cultures that not even 1% of amerikans will ever actually visit, much less understand, but vilify them loudly and constantly all the same. I dont mean to suggest China doesnt have problem, serious ones, but the point is, CHINA is not the cause of *any* of amerikas problems. We could say the same about just every other nation that is subject to vilification in the US ‘media’.

    In this case, the China-bashing displays the US’s bipolar disorder very clearly. Amerika currently cant seem to decide what they value more. A new cold-war 2.0 ‘enemy’ for the pentagon to ‘contain’, or the only place capable of making amerikas discount cookbooks, saladshooters, and I-junks. I suspect they want both at the same time. US corporations love having their cake and eating it too….

  35. Makati1 on Mon, 27th Jan 2014 12:54 am 

    DC, after all the BS and posturing above by our commenter friends, it comes down to the same ‘me and mine’ rhetoric for most of them. China is where the US was about 50 years ago as far as pollution and industrialization, but they are catching up with the West quickly. Anyone thinking the US is not polluted from shore to shore needs to remember places like Love Canal, the flat ‘mountains’ of West Virginia, etc.

    As for China going down if the US does, that is open for debate. Most of the world will burp and move on, hardly noticing the change unless it is is the sudden peace that comes to many countries when the US cannot afford to meddle. The Western countries will suffer most and the closer to the US, the more the pain. I have thought about how the Philippines will change and realize that it will be one of the countries that burp and move on. True, millions of Filipinos will come back here to live, if they can, but most imports are local, not from the West. China and the ASEAN countries supply most of the things I buy here. The wet markets will still sell the food I need and the small shops will still sell clothes and housewares. Most families still have farms or land they can go back to. The mass migrations out of the cities, back to family, on holidays will just be permanent. I can handle that. And, yes, I am learning a bit of Chinese… ^_^

  36. GregT on Mon, 27th Jan 2014 1:57 am 

    I think that it’s a safe bet to say that the modern school of economics is a failed ideology. Growth is coming to an end, no matter how hard the economists would like to pretend otherwise, and with the end of growth will come the end of our fiat based monetary systems. GDP is another ‘invention’ of economists, and has as much basis in reality as infinite exponential growth. It is easy to add whatever one would like to determine gross domestic product, but in the end, it is only resources and energy that really matter.

    The American/western economies have become largely service based over the last few decades. While we still export energy and resources overseas, the real goods are no longer manufactured at home, but are imported from developing nations. We are dependant on their cheap labour, to buy and sell the goods that keep our domestic economies alive. When I was younger, ‘Made in the USA’ was a common indicator of a quality item. I haven’t seen one single ‘Made in the USA’ item for sale here in Canada, for well over a decade. I would guesstimate that at least 90% of all consumer goods sold in every big box corporate American store here, are manufactured in China. Many of them under American company names. So I guess it’s fair to add the ‘cost of labour’ spread to our so called domestic GDPs as well.

    A Peter Schiff paraphrase:

    “Some people were stranded on an island, 6 Asians and one American, and as soon as they were on the island they divided up jobs. One Asian was given the job of fishing, another Asian was given the job of hunting, and one of them got the job of gathering firewood. The American was assigned the job of eating. At the end of the day, they would all gather around and prepare this feast and the American would sit there and eat it. He wouldn’t eat it all though, he’d leave just enough crumbs to give to the 6 Asians, so they could go on and repeat it all again tomorrow, spend all day preparing a meal for the American to eat.

    Now, the way modern economists would look at it, they would say “Well, this American is vital to the whole island economy. Without him nobody would have to fish, nobody would have to hunt, nobody would have to gather fire wood. He is creating all this employment on the island”. But the reality is, every Asian on that island, his lot in life would be dramatically improved, if they kicked the American off the island, because now they would have a lot more to eat or they wouldn’t have to spend all day hunting and fishing and they could even lay on the beach a little bit”.

    The Chinese have been around for a very long time. The mass migration of people to work in the big cities is a relatively recent phenomena. While China does face some very serious problems down the road, so does every other country on this planet. The Chinese people are used to living in poverty, us westerners, not so much. We will have much larger adjustments to make, especially when China is amassing energy and resources.

  37. deedl on Mon, 27th Jan 2014 10:46 am 

    For Millenia India and China made up roughly half of the world GDP. As late as the 18th century China refused to trade with Britain, because the Europeans coulndt produce anything that ould not be produced in similiar or better quality in China. The industrial Revolution started a boom in the western hemisphere, that caused Europe, Northamerika and Japan to grow enormously in economic, technological and military terms which ended the economic superiority of the great asian civilizations.

    This two century superiority of “us” over “them” feels for us like the normal case, but it is just a blip in time, a small episode of history.

    The world will catch up to the technological level of the west. Once China and India fully cought up in terms of education, technology and infrastructure, they will due to sheer population again produce maybe a third of world GDP. That is their natural position among worlds civilizations.

    The few years after WW2, when Europe and Japan lay down in ruins and the rest of the world was still behind, those where the years when the US made up half of world GDP. But this was not due to any exceptionalist american traits, it was just the pure luck of the situation. This position was never one, that could last. So the relative declibe is nothing that comes by surprise and it is nothing that can be prevented. It is almost inevitable.

    Especially the end of non renewable resources in combiantion with the emerging renewable revolution will end the geostrategic dominance of resources. In two generations economic activity will be determined on the then level playing field by population. That means Europe and the US (then grown to Europes population level) will have roughly the same economic strength, but they will be dwarfed by india and china. Even when the GDP per head in the western world is still twice as high (doubtful), then each India and China will have a higher GDP then the US or Europe.

  38. Northwest Resident on Mon, 27th Jan 2014 5:18 pm 

    China’s credit-fueled bubble economy is falling to pieces before our very eyes. Between 2008 and 2013, China’s credit market increased from $9 trillion to an incredible $23 trillion. To give this number some perspective, China’s GDP is a little over $7 trillion. So China today has a credit market well north of 300% of its GDP. There is simply no other way to view this than as a bubble. Indeed, we see all of the clear signs of a bubble in the real estate markets today with countless ghost cities, massive empty malls, and other excess capacity.

    What’s truly stunning to witness however, is the fact that in spite of all of this expansion in credit, China’s GDP growth continues to fall. Indeed, GDP is now trending downwards for the first time in a decade. China’s Government has realized that this is a major problem for the country and so has announced that “GDP is no longer a measure of success.” This is an incredible admission from the Chinese Government as everyone on the planet knows China’s GDP measure has been a work of fiction for decades. The fact that GDP growth is slowing in spite of all the manipulation of the metric is a major sign that things are sharply turning for the worse in the People’s Republic.

    Indeed, we get additional indications that China’s economic data is dramatically overstated from other less massaged metrics. China recently announced that it would be implementing a crackdown on fraudulent trade invoicing. It is not coincidence that right after this, China posted a truly horrible steel export results for the month of May: a mere 1% increase from the year before (hardly the stuff of which 8% GDP growth is made of). Another metric is electricity usage, which increased by a mere 2.9% in the first quarter of 2013.

    So, steel exports are increasing by 1% year over year. Electrical usage increased by just 2.9% in the first quarter of this year, and the Chinese Government has announced that the world should stop looking at its GDP numbers because they are not truly indicative of the economy there.The Government is right in saying this, though not in the way it means. China’s GDP is not indicative of its true GDP growth… it’s sharply overstating it.

    More evidence shows up in the China ETF (FXI) which has been in a massive wedge pattern for five yeas now. AS soon as we take out that bottom line, it’s GAME OVER.

    … from a news article I read a while back

  39. GregT on Tue, 28th Jan 2014 12:20 am 

    This article gives a very different perspective. It would appear that China is moving away from her dependance on foreign markets.

    “Pessimists argue that the government’s efforts to curb leverage will stymie growth this year. But these rigours should be offset by stronger exports and consumer spending, both of which have plenty of room for improvement. Foreign trade subtracted from China’s growth last year. Consumption, which made the biggest contribution to growth in 2012 and 2011, was once again overshadowed last year by China’s traditional engine of demand, investment.”

    “Of greater historical resonance was the shift in production. Last year China’s output of services, which contributed 46% of GDP, finally eclipsed the output of its industry (44%).”

    “China’s fastest-growing sector last year was wholesaling and retailing, which expanded at a double-digit rate. In the workshop of the world, growing numbers now work in shops. Services are known as “the tertiary sector” (whereas agriculture is “primary” and industry “secondary”). It is this long neglected third piece of China’s economy that will prove the optimists right in 2014.”

    http://www.economist.com/news/finance-and-economics/21594999-some-chinese-economic-indicators-are-moving-right-direction-others-are

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