by Joseph E. Stiglitz

February 21, 2016 10:11 AM

China Has Overtaken the U.S. as the World’s Largest Economy
posted by infini (45 comments total)

"The news about China’s change in status was in fact blacked out at home."

the paradox of China right there.
posted by Heywood Mogroot III at 10:17 AM on February 21, 2016 [6 favorites]

https://research.stlouisfed.org/fred2/graph/?g=3wRf
posted by Heywood Mogroot III at 10:25 AM on February 21, 2016

I enjoyed the article, though it was lower on data and higher on pondering than I'd like.

[Disclaimer: My experience of global macroeconomics is mostly restricted to news articles and pop-economics books and thus I'm speaking out of a yawning void of conceptual ignorance]

So...China possesses a much larger population, a rapidly developing modern infrastructure and fairly considerable natural resources. Is that not most of what you need to be the world's largest economic power?
posted by The Zeroth Law at 10:28 AM on February 21, 2016 [2 favorites]

Gosh, Heywood Mogroot III, looks like the inflection point on that graph occurs at about early September 2001.
posted by infinitewindow at 10:29 AM on February 21, 2016 [2 favorites]

Good for them. Next India?
posted by Postroad at 10:34 AM on February 21, 2016 [1 favorite]

Next India?

Not for a few decades yet. Otoh, right now India's the fastest growing, ahead of China, which has slowed down now (naturally)
posted by infini at 10:39 AM on February 21, 2016

switching to YOY % gains:

https://research.stlouisfed.org/fred2/graph/?g=3wRA

shows they really took off during our housing boom/bubble. US households were borrowing $1T/yr then so I guess that gave the globe happy times selling us stuff.

yet our real GDP growth capped out at +5% in the 1990s.

I suspect this graph:

http://www.bea.gov/newsreleases/international/intinv/intinvnewsrelease.htm means we're effectively bankrupts at this point, but macroeconomics is very, very hard to get your head around.
posted by Heywood Mogroot III at 10:40 AM on February 21, 2016 [1 favorite]

Good article, and hits something everyone needs to understand -- a free economy is not a zero-sum game. It is possible for everyone to win.
posted by Cool Papa Bell at 10:46 AM on February 21, 2016 [9 favorites]

China's population is more than twice as large as that of the US. Their GDP being smaller than the US implies a pretty dramatic difference in GDP/capita. Insisting the US must be the world's largest economy* despite the fact that our population is quite a bit smaller than a number of other countries is effectively insisting on persistent inequality across countries (at least on average) setting aside the dramatic inequality within each country.

China (and India's) rapid growth does not seem too terrible surprising, nor does the fact that China's has slowed down. There was a lot of low-hanging fruit to take advantage of to "catch up" to the technological frontier. Eventually, you catch up, and then growth probably starts looking like the United States'.

* I don't think Stiglitz is doing this, but I hear USians do that a lot.
posted by dismas at 10:48 AM on February 21, 2016 [11 favorites]

So what does this say about global inequality? I mean in a perfect world, the larger the population, the larger the economy, so this seems like a step in the right direction. On other hand, what this means for the actual inequality of individual human beings might or might not be the same. If the growth in China goes only to the rich or the shrinking in the US hurts only the poor, then this may not be helping at all.

So does anyone know what this does to global inequality?
posted by If only I had a penguin... at 10:48 AM on February 21, 2016 [1 favorite]

Heywood, I don't see that graph as saying China picked up during the housing bubble so much as it shows their growth picking up in the 1980s, which is when Deng Xiaopeng started implementing market reforms.

And no, I don't think a negative foreign asset position means we are "effectively bankrupt." The US's finances are not the same as that of a family.
posted by dismas at 10:54 AM on February 21, 2016 [3 favorites]

-Emily Parker and Clay Shirky on China's accelerating technological development
-Michael Pettis on the Chinese economy[1,2,3,4,5]
posted by kliuless at 10:55 AM on February 21, 2016 [4 favorites]

We should be less worried about China's rise and more worried about the prospects they might fall.
posted by humanfont at 11:02 AM on February 21, 2016 [2 favorites]

their growth picking up in the 1980s

that goes without saying, but China did experience, by that graph at least, a burst right during our credit boom. Japan did too, well, a return to 2-3% real GDP growth at least, until the Lehman Shock arrived.

I don't think a negative foreign asset position means we are "effectively bankrupt."

yeah I threw in the weasel word there because I don't really know what it means going forward.

That graph doesn't look good, I'll tell you that.
posted by Heywood Mogroot III at 11:07 AM on February 21, 2016 [1 favorite]

One real-world effect I see with a more middle-class China is demand pressure on the US's agricultural output.

Less food for us, more for them essentially.

BNSF's rail network is essentially designed to carry this trade, which is no doubt partially why Buffett bought them back in the crash.

Anyhoo, this was also the rationale behind my $300/barrel oil expectations, so it's more of a fear than a projection at this point.
posted by Heywood Mogroot III at 11:14 AM on February 21, 2016 [1 favorite]

It is possible for everyone to win.

back on the NIIP thing, I think this table is sorted pretty well by winners vs losers:

https://en.wikipedia.org/wiki/Net_international_investment_position

"Free trade" is great and all that, but when this trade comes with sustained trade deficits it strikes me as selling our birthrights for porridge.

I believe in "following the money" in economic analyses, and our NIIP is a gross measure of that -- and is something rabble rousers like Trump can easily demagogue, for good reason I think.
posted by Heywood Mogroot III at 11:22 AM on February 21, 2016

If there's going to be more demand from China for food produced in the US then maybe we shouldn't be disinvesting in agricultural research. That seems like a competitive position that we could exploit. But, science, who needs that.
posted by wintermind at 11:22 AM on February 21, 2016 [2 favorites]

Yup, the fact that a lot of the developed world is handicapped in biotechnology by irrational fear of GMO is leaving a huge opportunity out there for someone willing to take it.
posted by Drinky Die at 11:26 AM on February 21, 2016

China just threw out a 43 billion dollar bid for Syngenta (whom Monsanto was attempting to takeover).
posted by infini at 11:44 AM on February 21, 2016 [2 favorites]

Gosh, Heywood Mogroot III, looks like the inflection point on that graph occurs at about early September 2001.

A better way to look at it is the same graph but with a log scale on the left. On a linear scale, everything curves upward exponentially so it is hard to pick out any change in rate of growth. But on a log scale, a constant rate of growth looks like a straight line. Any deviation from a straight line indicates a change in growth rate.

So on the log scale you can see U.S. growth rate slowing slightly, but the China rate of growth accelerating. The bends in the straight line are your inflection points.
posted by JackFlash at 11:45 AM on February 21, 2016 [3 favorites]

GDP Panic is a total red herring. Obviously so, because after all this article and the transition of dominance it is reporting is from over a year ago, yet since then there's been no GDP Manhattan Project or Space Race. Nobody in power cares. They care about siphoning worker productivity into the pockets of the plutocracy, and as long as that project continues unabated, why mess with a good thing? In fact, every time there's a shock, oil shock, banking crisis, housing crisis, national reckoning etc., and people are not rioting in the streets, it increases the confidence of those in power that the public will accept a decreasing share of the real GDP.

Therefore, for the rest of us, the real threat to our quality of life is not China's burgeoning GDP but the dwindling proportion of our own GDP that we still have access to. Even if the US somehow regained top dog status it would mean little for those of us who by official fiscal policy remain struggling on hopelessly stagnant incomes. It sucks for humanity that China's authoritarian and politically repressive society is able to present itself as a viable economic model. But that doesn't change the fact that our own nation, the USA, has given up on its mission statement of promoting the general Welfare, and securing the Blessings of Liberty to ourselves and our Posterity. It's more about promoting the welfare of billionaires and securing the liberty of corporations to exploit a resigned and complaint populace.
posted by xigxag at 12:03 PM on February 21, 2016 [14 favorites]

What exactly are you measuring though?

Energy use per capita (or USA! USA!)
posted by bukvich at 12:06 PM on February 21, 2016 [1 favorite]

In the 1970s the US had a very positive NIIP, but also stagflation. While during the 1980s it went negative during a period of economic growth. If anything a negative NIIP reflects a desire by foreign investors to hold more US debt either because of confidence in the US economy or fear of weakness in their own.
posted by humanfont at 12:21 PM on February 21, 2016 [2 favorites]

There is a surge of US dollars being sold off by the Chinese. The last two are my surprise at noting this is still news in the middle of Feb. The rest of the articles online are various forms of posturing.
posted by infini at 12:31 PM on February 21, 2016 [1 favorite]

Insisting the US must be the world's largest economy* despite the fact that our population is quite a bit smaller than a number of other countries

The US not not smaller than "a number of other countries." The US is #3 in terms of population, after China and India, although I suppose the Eurozone with 500 million could be counted as a "country."

330 million people (the US) is a one hell of a lot of people. The sheer size of the sample also accounts for weird things like Florida Man and mass shootings.

Anyway the more interesting countries to consider are places like Indonesia (250 million), Philippines (100 million), Pakistan (182 million).

Huge countries in terms of population, although I think only Indonesia is successfully making the transition to a more equitable, productive society.
posted by My Dad at 12:34 PM on February 21, 2016

Not just global inequality, human rights.
posted by brujita at 12:46 PM on February 21, 2016 [2 favorites]

in the 1970s the US had a very positive NIIP, but also stagflation

the 1970s saw the addition of twenty million jobs, the best growth record of any decade.

when I look at https://research.stlouisfed.org/fred2/graph/?g=3wUI

I see the Fed inducing the Nixon and Ford recessions, then boosting rates from 5% to 19% during Carter's presidency, doing their best to make him a one-term president.

Volcker did his best to get the damage done & over in the first half of Reagan's first term, but the early 80s were really brutal for people thanks to him.

Negative NIIP isn't all bad -- it's built Australia's economy -- and perhaps somebody has to be in the Triffin seat, but I suspect it's been enabling us to write checks our economy can't cash, in the long run.
posted by Heywood Mogroot III at 12:48 PM on February 21, 2016 [4 favorites]

The #1 in the article is based on PPP, purchasing power parity. Stiglitz says this right up front, but he doesn't explain what it means or how other measures provide a very different view.

In raw numbers, the US economy is $17.4 trillion, the EU is $18.5 trillion, China is $10.5 trillion— meaning it's still pretty far behind. The EU economy is almost twice as large, and EU + US dwarfs China.

PPP adjusts the raw numbers based on cost of living, reflecting the fact that housing and food are a whole lot cheaper (even relative to income) in Shanghai than in Chicago. This is an important counter-balance to the raw numbers, especially when it comes to judging standard of living. On the other hand the raw numbers are what are important in evaluating balance of trade and international investments. That is, when China buys foreign companies, it doesn't get to use PPP numbers.
posted by zompist at 1:20 PM on February 21, 2016 [8 favorites]

The US not not smaller than "a number of other countries." The US is #3 in terms of population, after China and India, although I suppose the Eurozone with 500 million could be counted as a "country."

Two is a number :) but fair enough, I misremembered that there were more countries ahead of the US in population. But India still has about four times as many people as the US; also the fact that the US is 3rd in population wasn't really my point.
posted by dismas at 1:55 PM on February 21, 2016

Negative NIIP isn't all bad -- it's built Australia's economy -- and perhaps somebody has to be in the Triffin seat, but I suspect it's been enabling us to write checks our economy can't cash, in the long run.

join the dark take the red hop on the MMT train! (here's a good place to get on ;)
posted by kliuless at 1:56 PM on February 21, 2016

America's main export: the middle-class.
posted by adept256 at 2:17 PM on February 21, 2016 [4 favorites]

MMT seems to be just a papering over the grave asymmetries in the economy.

Inflation is a form of "redistribution", but people with effective inflation hedges -- e.g. landlords -- would have nothing to fear in this free money environment.

What we need is a Moore's Law for housing. Health care, too. These are the two things we can't import from China yet, and thus where all the rents lie.
posted by Heywood Mogroot III at 2:43 PM on February 21, 2016 [1 favorite]

Heywood, not to be pushy but: what do you mean by "we need a Moore's Law for housing?" Based on my understanding of what Moore's Law is (which is maybe faulty; I study economics, not computer engineering), that statement doesn't make sense.

What it sounds like you're saying is "the cost of housing and health care are rising quite rapidly," which, yes. Policy can do some things about that. But if that's not what you mean, I don't understand what you're saying.
posted by dismas at 4:14 PM on February 21, 2016

Yes, that's what I mean. Every year we get more utility per $ from electronics.

Currently policies reward cost increases in housing (& health care . . .)and while much of the country rents, home owners are by far the more important demographic politicians have to serve (and of course a renter politician is a scarce animal, 1000 to 1 they're more on the landlordy side of things.).

Back on topic, China isn't doing too hot on the housing policy front, either, making the same mistakes we've made, though from what I gather getting a loan in China still takes a lot more down compared to our 95% LTV programs.
posted by Heywood Mogroot III at 5:13 PM on February 21, 2016

Heywood it seems you have some unconventional economic policy views. I don't know what to make of your statements. It seems kind of all over the place and I'm not sure how it connects to the OP
posted by humanfont at 5:58 PM on February 21, 2016

"The news about China’s change in status was in fact blacked out at home."

the paradox of China right there.

"There was one more concern, and it was a big one: China understands full well America’s psychological preoccupation with being No. 1—and was deeply worried about what our reaction would be when we no longer were."

the paradox of the USA right there.
posted by iotic at 6:36 PM on February 21, 2016 [2 favorites]

Isn't this article from December 2014?
posted by OldReliable at 9:19 PM on February 21, 2016

Amazing how this story got buried for so long, isn't it?

not newsfilter
posted by infini at 3:03 AM on February 22, 2016

MMT seems to be just a papering over the grave asymmetries in the economy.

like keystrokes in the ledger...

fwiw, speaking of some unconventional economic policy views, you've mentioned that 'maybe Kuroda is a bit insane'; i'm not sure it's on FRED but the CBC and SNB B/S's are approaching 100% of GDP (from a website 'preparing americans for hyperinflation' ;) while smallish mercantile countries you might say, but to connect back to the OP, the PBOC has run in excess of 50% for most of the last decade!

in any event, per your repeated emphasis on rentierism, a dose of monetary realism: "Is the constraint related to balance sheet effects? Is the constraint related to lack of business prospects? In any case, we can be relatively certain there is no real level of monetary policy moves we can do which would solve the constraint." which may be why PBOC seems to be letting its B/S run off :P

which may be why bridgewater sees helicopter drops on the horizon: "The Bridgewater founder says this third era of monetary policy will range from central banks directly financing government spending through electronic money-printing to what the famous economist Milton Friedman coined 'helicopter money' in 1969, in other words central banks disbursing cash directly to households."

oh and also btw a georgist citizen's dividend isn't too far from a basic income (better imo! altho MMTers seem to prefer a job guarantee taking the fed's full employment mandate literally...)
posted by kliuless at 10:10 AM on February 22, 2016 [2 favorites]

The sheer size of the sample also accounts for weird things like...mass shootings.

err, not really.
posted by Hoopo at 1:43 PM on February 22, 2016 [1 favorite]

I'm not sure how it connects to the OP

China, USA, and Japan are a weird triumvirate, economically.

#1 and #3 (who thought they were going to be #1 in the 80s) have been, over the decades, fronting #2 trillions in loans to keep their respective currencies weak.

This is visible here: http://ticdata.treasury.gov/Publish/mfh.txt

but more than that Japan Inc created so much of our US standard of living in the 1960s to 90s and China has taken up the baton since then.

Economic mistakes seem to be only apparent in retrospect, and I think we're making a doozy of one now, with that NIIP and all.

China's 1990-now was our 1950-65, pulling ourselves together. China is at parity with us now, but still has the potential to move 2X by us, or even 3X as our Idiocracy here progresses.
posted by Heywood Mogroot III at 6:36 AM on February 23, 2016

Heywood: Apart from the fact that you seem to think it looks/feels "bad" in some nondescript way, you haven't articulated why the US's net international investment position is a reason for concern. Sure, many countries have a positive NIIP and are doing "well" (although I don't think the US can imitate Hong Kong or Singapore or Malta). But a positive NIIP hasn't stopped two "lost" decades in Japan. It's not stopping the commodity (especially oil) driven economies with positive NIIP from being messes. It seems like one can have positive or negative NIIP with a variety of outcomes and so it is not really a sufficient statistic for the health of an economy (or the welfare of the people living in a particular country).

International economics is a bit outside my wheelhouse, but your random charts and sort of vague allusions to how you think the economy works are, at best, making your comments extremely confusing to read. Maybe this is just one of the things that rubs me the wrong way, but economics is hard, and it is something that benefits from precision about what is happening, and the exact channels by which we think it happens. This is the only way to evaluate economic arguments in a way that is useful, either as a way of enhancing understanding or as a guide to policy. But drawing in allusions to Moore's law gives economics discussions a Deepak Chopra vibe that obscures arguments instead of making them clear, which I don't think helps anyone.
posted by dismas at 8:19 AM on February 23, 2016

-Beijing is banning all foreign media from publishing online in China (via)
-Xi tours Chinese top state media, demands total loyalty (pic; otoh)
-A Chilling Effect As Hong Kong's Missing Bookseller Cases Go Unresolved (NY-er)
-Dissidents fearful as Thailand, once a haven, favors China
posted by kliuless at 9:26 AM on February 24, 2016

Heywood what then do you make of the current capital flight crisis in China? Does this datapoint impact your thinking?
posted by humanfont at 8:10 PM on February 24, 2016

-I don't mean to alarm anyone about China, but...
-China's got problems, but it won't run out of reserves
-The coming age of capital deglobalisation?* "Banks are encouraged to lend, but generally to lend in their home market. Institutional investors face rules that encourage reduced currency risk... Understanding political risk requires a greater investment in time and resources than does understanding economic risk. As political risks rise investors are likely to keep money closer to home (where familiarity breeds reassurance)."

also btw...
-'In the Eye of a Tornado': Views on Innovation from China
-Mindsets for Thinking about Innovation In — and Competition from — China
posted by kliuless at 11:56 AM on February 29, 2016