Friday, May 16, 2008

The big dog

This picture (via Barry Ritholtz) illustrates that the US is still the dominant economy in the world.

Note, though, that the growth rate differential between the US and China is currently around 7 percent per year (e.g., 10 vs 3). If that persists for another decade, China's PPP GDP will exceed that of the US.

See here for a list of PPP adjusted GDPs by country.

70% of US GDP is consumer-related. One can expect significant consequences abroad from any slowdown here -- for example due to freezing of home equity lines of credit ;-)


Dan said...

So, looking at that graphic, is the DE GDP larger or smaller than the JP GDP? It's an amazingly awful representation, as interpreting it correctly requires knowledge of the individual state GDPs!

steve said...

You are right -- that's why I linked to the individual country numbers!

smekhovo said...

Why bother with PPP estimates? They are opinions, everybody has one.

steve said...

Would you prefer to use artificially maintained exchange rates? How else to convert a yuan economy into dollars?

smekhovo said...

I'd rather use the current exchange rate - if you don't like it, just wait!

steve said...

If you use instantaneous exchange rates you can have almost discontinuous changes in relative sizes of economies. Just look at USD vs mark or yen after the Plaza accord. Did the US economy actually shrink relative to the others? Or was the exchange rate just out of whack? PPP is designed to correct this problem. It's not completely precise, but probably yields the best rough guide to relative GDPs.

smekhovo said...

No reason not to recognise discontinuity. If someone inherited millions, you wouldn't smooth out the step function in his wealth.
Incidentally, the dollar exchange rates were already declining several months before the Plaza accord.

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