America as #3
Ever since I started blogging in 2009, I’ve been predicting that China would become the world’s largest economy, and much faster than most people expected. If you’ve been reading the news, you know that it has already happened. But I also made a more outlandish claim, that India’s economy would soon be as large as Japan’s (a country with exactly 1/10th India’s population), and that in 100 years India would have the world’s largest economy. Later I moved that auspicious date up to 2081.
Unfortunately India hit a wall right after I made those predictions, and its growth rate slowed. The reform process stalled. The Sumner jinx. So am I scaling back my forecasts? Not at all. The Economist has come out with its GDP forecasts for 2o15, and it says India’s economy will be almost 60% larger than Japan’s economy, at nearly $8 trillion (PPP). My new forecast is that India will surpass the US by the early 2030s, and become #2. To give you a sense of just how outrageous that forecast is, consider that a few years ago Lester Thurow was forecasting that the US economy would remain larger than China’s for the next 100 years! Many other forecasters expected China to surpass us eventually, but almost none as soon as I did. India? No one even talks about it.
Here are the Economist (PPP) forecasts for 2015:
China $19,584.0 billion (over $20 trillion if you include HK and Macao, and why the hell shouldn’t you?)
USA $18,365.5 b.
India $7,899.4 b.
Japan $4,952.8 b.
Germany $3,844.7 b.
India is forecast to grow at 6.5% next year. It seems reasonable that India will grow about 4% to 5% faster than the US for the next few decades. By the early to mid-2030s America will be number three. And that’s something to give thanks for, as it is the only way that billions of Asians can move out of poverty.
BTW, I participated in a recent Cato symposium of economic growth. And later this afternoon I’ll do a post on growth over at Econlog.
PS. If any commenter wishes to complain that it’s per capita GDP that matters, then please move to Liechtenstein or Qatar and leave the rest of us alone. If the US and India both spend 2% of GDP on the military in 2034, we’ll have roughly equal defense budgets.
PPS. Some of this is due to the IMF and World Bank dramatically redoing their PPP adjustments. Back in 2009 I complained that the PPP adjustments for China were far to small, but there was no objective “truth” of the matter. On the other hand, Rorty once claimed that when people say something like; “Although my peers believe X is true, I think Y is actually true” it’s an implied prediction that eventually people will come to believe that Y is true. As far as PPP adjustments for China (and many other Asian nations), that day has arrived.
PPPS. Unfortunately there still is no objective truth to the question of whether the US or China is the world’s 3rd largest country, geographically speaking. That question remains shrouded in the Rortian mists of disputed borders.
PPPPS. The Economist contains other interesting tidbits—next year Indonesia surpasses France and Great Britain in total GDP (PPP). The distinction between middle and high income continues to blur—where do you put countries like Malaysia ($26,320 per capita) or Chile ($24,310 per capita?) Portugal and Greece are only around $27,000.
PPPPPS Singapore at $83,340/person? Even I don’t believe that. What happened to common sense? Who makes these estimates?
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27. November 2014 at 09:48
Can anyone answer the question why Thailand, a far more free-market country than China, is also growing much slower? It’s been bugging me lately.
http://www.google.com/publicdata/explore?ds=d5bncppjof8f9_&ctype=l&met_y=ny_gdp_pcap_pp_kd#!ctype=l&strail=false&bcs=d&nselm=h&met_y=ny_gdp_pcap_pp_kd&scale_y=log&ind_y=false&rdim=region&idim=country:THA:CHN:PHL:KOR:IDN:JPN:SGP:VNM&ifdim=region&hl=en_US&dl=en_US&ind=false
27. November 2014 at 10:09
Scott, your predictions always made sense. The part that made them seem outlandish is that many otherwise smart people don’t seem to fully comprehend the impact of compounding returns (in this case faster growth rates). Perhaps even more surprisingly, they don’t seem to understand the effect of working-age population on total GDP or per capita GDP. This explains why you are one of the few pointing out that Japan (which has had a declining working-age population for many years) SHOULD have lower GDP growth than countries with rapidly rising working age populations.
27. November 2014 at 10:25
Scott, I think you’re ignoring the impact of massive immigration into the United States in your thinking. Today, India’s population growth rate is less than twice that of the United States and is the same as that of Mexico. Heck, America had a higher population growth rate in 1991 than India has today. Considering the various amnesties that will surely be granted by future Democratic administrations, there’s no reason that in fifty years the Central American population in the U.S. will be any smaller than the entirety of the population of Honduras today. This will surely impact absolute GDP growth rates.
http://www.google.com/publicdata/explore?ds=d5bncppjof8f9_&ctype=l&met_y=ny_gdp_pcap_pp_kd#!ctype=l&strail=false&bcs=d&nselm=h&met_y=sp_pop_grow&scale_y=lin&ind_y=false&rdim=region&idim=country:CHN:MEX:USA:PHL:IND&ifdim=region&hl=en_US&dl=en_US&ind=false
27. November 2014 at 10:36
E. Harding,
India and Mexico both have higher population growth rates than the U.S. In addition, illegal immigration into the U.S. has practically screeched to a halt since 2008 or so, so I have no idea where you’re getting your numbers from.
27. November 2014 at 10:42
@E. Harding:
The obvious culprit for disappointing growth in Thailand is the decade-long and extreme political instability in the country, which shows no signs of resolution. If it isn’t possible to feel secure in your person and property rights, then people will not invest, and growth will be subdued.
27. November 2014 at 11:07
“Portugal and Greece are only around $27,000.”
Either they are not high income or we need a new “extra high income” category for the likes of US, Singapore, Northern Europe (say, above 40k per capita). I mean, these are qualitatively different material lifestyles, not just “some people have slightly nicer cars”.
*
In a year or two China (as a whole, not just “the rich provinces of China where the richer 500 million live”) will start surpassing the poorer EU countries in GDP per capita terms.
27. November 2014 at 11:47
@E. Harding,
Has there ever been a “free-market” economy that has done better than the likes of Taiwan, S. Korea, Singapore, China, etc. all of whom have used extensive economic planning? Bolivia and Ecuador have also done way better than “free market” El Salvador, Guatemala and Honduras.
27. November 2014 at 14:46
@ Adam Platt
“India and Mexico both have higher population growth rates than the U.S.”
-Do you think this will still be true twenty or fifty years from now? Indians, Chinese, and Mexicans coming to America will surely keep the U.S. population growth rate steady, despite a U.S. birthrate below that of Russia a decade in the future. Also, you’re completely ignoring the potential of Central American immigration.
@ Tom M.
Hong Kong and Ireland have also done pretty well. Ecuador is not doing well compared with its neighbors; Bolivia is doing well because business restrictions there exist mainly on paper.
27. November 2014 at 15:18
E. Harding, I’d guess that cultural differences play a role in explaining the relative performance of Thailand and China. Also see Salem’s comment.
The US population growth rate is likely to remain under 1% for the next few decades, by which time India will have caught up in total GDP.
Tom, I’m glad you use scare quotes with “free market,” as those Central American countries don’t qualify.
27. November 2014 at 15:45
Regarding India: the good news is that their central bank is apparently is satisfied with inflation rate on the equivalent of the PPI at 4 to 5 percent. The bad news is they have a new central banker, Rajan, who is from the west and who talks about lower inflation rates. Let us hope that monetary suffocation does not come to India.
27. November 2014 at 20:28
Benjamin cole,
One of the Indian government’s big concerns is the populace’s gold fever. India actually needs a low inflation rate to dissuade the constant purchase of gold, which acts as a drain on the country’s private finances. Actually, a stronger statement to make here would be that India needs nearly a generation worth of time, around 2.5 decades, in which gold is a BAD investment to change this.
Recent nominal GDP growth was 13.5%. An announced NGDP growth path with level targeting around 11.5% for the next 9 years would be a GREAT policy entirely shifting the onus of real growth on the central government. Currently the central government is “pressuring” the central bank to reduce rates. With an NGDP target, the central bank has its work cut out, simply targeting the Nominal variable. The central government simply cannot demand any loosening or tightening. Everyone in the country will know the exact score, thanks to the NGDP futures market.
28. November 2014 at 01:23
It’s time to do something about China
http://defense-and-freedom.blogspot.ro/2014/11/its-about-time-to-do-something-about.html
28. November 2014 at 05:29
Daniel, That’s a good one.
28. November 2014 at 08:13
Singapore is now at >80k/capita at PPP? Sure. Whatever. Might as well completely ignore any numbers and just make them up. I’m glad Scott you finally come out and also don’t believe it 😉 . For the rest of the readers of this blog who haven’t actually been to Singapore, general living standards in Singapore feel similar to living standards in, say, France, or other continental European countries, as long as you enjoy living in government housing (with a median income in Singapore, you will), you don’t value owning a car much (with a median income in Singapore, you won’t own one), and you don’t aspire to having a house with a garden (with anything but a top 10% income in Singapore, you won’t ever live in one).
28. November 2014 at 08:32
mbka, My previous comments on Singapore were based on last year’s estimates ($49,280). So it’s not me who has changed his mind, it’s the Economist magazine that predicts Singapore’s (PPP) GDP per person will rise from $49,280 in 2014 to $83,340 in 2015. Given Singapore’s super high savings rates, the earlier figure is quite compatible with Singapore having consumption levels that are comparable to Europe. So perhaps it’s you who has “finally come out?” 😉
On a more serious note, housing is really tricky. What is the living standard of someone in the West End of London, or the Upper East Side of Manhattan, who lives in a dwelling the size of the average American house, but unlike most Americans lacks a garden? I honestly don’t know. But I’m inclined to agree with you that Singaporean living standards are not particularly high by Western standards. Here’s an interesting question: If Singapore were 20 times bigger (i.e. still rather small) how much would living standards rise? That is, how much of the higher living standards in Australia is due to luck? Or Austria?)
Speaking of Singapore, I did this post yesterday over at Econlog.
http://econlog.econlib.org/archives/2014/11/the_piketty_pat.html
28. November 2014 at 09:38
What would US GDP be if it was PPP’d into Yuan?
28. November 2014 at 21:00
India and China may b able to devote even bigger portions of their budgets to military and $$pricey 1st unit projects, if they do not repeat 1st world entitlement commitments
given poverty reduc, agg net worth to throw at dreams like fusion, agg IQ, low-income heritages, these trends r very exciting
29. November 2014 at 07:19
Robert, Around 60 trillion yuan.
29. November 2014 at 10:04
The Singapore questions are these:
1. Did Singapore have roughly the same per capita real PPP GDP in 1990 as Japan had in 2010?
2. Did Singapore’s real per capita PPP GDP grow at an average rate of over 3.5% between 1990 and 2013?
29. November 2014 at 23:37
Scott, somehow my comment disappeared…. Next try below.
If you look at household consumption data, or at wages as % of GDP, Singapore comes out pretty low. I had a comment on that some time ago if you recall. So I don’t buy even last year’s 49k … 😉 not to mention anecdotal evidence from frequent travel between Europe and Singapore.
I completely agree that an apples to apples comparison is tricky though. For starters one would have to compare Singapore (and Hong Kong) with other cities, not with countries. This incidentally would make their economic performance look much more mainstream than a country-to-city comparison. We’d have London, or NYC, in the mix. This would also get rid of the space-as-quality-of-life question.
And as you say, qualitative differences and choices are hard to compare. When you say “the earlier figure [49k / capita year] is quite compatible with Singapore having consumption levels that are comparable to Europe” … well, I have a hard time to believe that a US$ 100,000 Camry in Singapore really has 3x the utility of an otherwise (save price) identical US$ 30,000 Camry in Anytown, USA. PPP data seem to imply that the price of the Camry hasn’t been factored into the PPP factor, or does not count much in it. But in nominal economic consumption, it would be counted as 3x the consumption value of the US. So to me, neither makes much sense.
30. November 2014 at 08:32
mbka, You said:
“If you look at household consumption data, or at wages as % of GDP, Singapore comes out pretty low. I had a comment on that some time ago if you recall. So I don’t buy even last year’s 49k … 😉 not to mention anecdotal evidence from frequent travel between Europe and Singapore.”
You seem to be overlooking the fact that these claims support my argument, and undercut yours. The lower the wage level and consumption level as a share of total income, the more likely it is that Singapore has a high real GDP/person. Let me use numbers as an example:
Suppose PPP GDP/person in Germany and Singapore are both in the high 40s, but Singapore seems only about as rich as Spain, with a GDP/person around $34,000. How could we explain this? Easy, the Singaporeans save far more than Spaniards. Thus Singapore has a high per capita GDP, but low living standards. That’s very plausible. I’ve been to both Singapore and Spain, and Singapore certainly doesn’t seem significantly poorer than Spain in living standards. So I find it plausible that real consumption is Singapore is similar to Spain, and real income in Singapore is similar to Germany. But living standards in Singapore are far below Germany. That’s because they save far more.
BTW, You would not want to compare Singapore to New York or London, but rather urban America or urban Britain.
30. November 2014 at 08:34
Unfortunately Spain and Singapore are such different places that comparing living standards is a sort of apples and oranges problem.