Home > Uncategorized > The U.S. economy is not the world’s largest

The U.S. economy is not the world’s largest

from Dean Baker

I know that reality often has little place in our political debates, but is there any way we can the New York Times and other news outlets to stop saying that the U.S. economy is the world’s largest? It happens not to be true.

According to the I.M.F., using purchasing power parity measures, which most economists view as the best measure, China passed the United States in 2015 and is now more than 25 percent larger. Maybe reporters and editors get a kick out of saying that the U.S. is the world’s largest economy, but since it happens not to be true, it would be good if they stopped saying it.

  1. J Ruivo
    August 24, 2019 at 4:02 pm

    Your link says 2014.

  2. August 24, 2019 at 4:39 pm

    The reckoning with China was bound to happen, and this is just one example of the U.S’s difficulty in coming to grips with it. Trump is about ten years too late, and the better model for the U.S. is to concentrate on improving its domestic economy, including environmental products of all sorts. If they are good enough then they can become part of the export cycle.

    If Dean is right on this metric, and I think he is, then the direct confrontation mode of Trump is bound to lead to trouble – and worse: economic chaos. It is by no means clear that we can win a direct wrestling match with China on trade. Ordering US to companies to jump to executive orders is very different than, for example, the Green New Deal winning an election, mapping out the plan which we don’t have yet thanks to Speaker Pelosi’s aversion, with business participating – or not – invited certainly, and then placing the private sector in the position of helping save the planet or destroying it…

  3. Craig
    August 24, 2019 at 8:05 pm

    Purchasing power is exactly the correct metric. That’s why the 50% Discount/Rebate monetary policy at retail sale which is the very expression of the new paradigm of Abundantly Direct and Reciprocal Monetary Gifting works so dramatically and effectively to resolve the current paradigm’s “un-resolvable” problems.

    Those that have eyes, let them see.

  4. August 25, 2019 at 4:57 am

    Purchasing power is not monetary policy. It is fiscal policy. That is the way forward now. It worked a treat for Australia in 2009 and it is an option open to all today!

  5. Ken Zimmerman
    August 26, 2019 at 12:16 pm

    I put this question to a friend who teaches economics at U. of Texas. His response: “If you call what China has an economy, in the same way Oklahoma is a university.” Sports analogies just seem to come naturally to Americans.

  6. Michael
    September 5, 2019 at 5:58 am

    PPP is only a valid adjustment when comparing countries whose GDPs are calculated in broadly the same way. This isn’t the case for China. Because much of the economy operates without hard budget constraints, and there is almost no pressure to write down bad debt or the huge amount of non-productive investments (which is nearly always carried at the higher of cost or market), China’s reported GDP is much higher than it would be if it wrote down non-productive investment more or less in line with other countries. By now most economists (including most in China, although usually only in private) agree that China’s “real” GDP (by which we really mean the one that would be comparable to that of other countries) is lower than China’s reported GDP by anywhere from 10 to 30 percentage points. Adjusting upward for PPP differences thus becomes an almost meaningless exercise.

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