China Overtakes US Economy

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  China Overtakes US Economy

Monday, October 13, 2014

Business Insider Article on This

I want to add some information to the above fine article.  The first is that, likely, there is no good way for the US to look at this.  That being said, measuring an economy is always hard and so this article and others can be open to criticism.  This article compares "buying power" which is not the usual way that US measures economy.  The US just does it using US dollars.

Of course, for those who are even wiser, even just using the US method of measuring the economy can lead to errors.  How so?  Well, if one measures the economy in US dollars, US dollars yes may increase for total goods and services since goods and services did in fact improve and are now larger.  However, there is another possibility.  And that is one of inflation.  Inflation could also raise the cost of US goods and services sold simply because they now cost more.  I want to be quick and also state that some of the US people handling our figures and official US charts know this.  They therefore sometimes in the past have showed US economy growth (GDP) both with inflation in and inflation taken out.  For example, in the Jimmy Carter era, I recall GDP increase looked great.  But then I noted the chart that takes inflation out.  Using that chart, GDP did go up, but not significantly.  And so, the real message of the charts was, "inflation was high."

There is even something to know measuring GDP or economy growth for those even wiser.  And that is that when the US measures the economy in dollars, even taking inflation into account, the result may not give a great answer.  Why?  From my research not all inflation that I consider real is claimed by the US government.  For example if you were to take the cost of gold when the US left the gold standard, and the cost of gold today, that difference is twice as large as the inflation claimed it seems by the US government recording figures.  And that would seem to me, that only half the real inflation figure is taken into account in the US.

The Summary of all of this is that measuring economies of countries is not easy or simple and that means there can be endless criticism from people, and some of it may be valid.  But as I said at the start, China catching up to the US economy, regardless of how it is measured, is good for China, but less good for the US who at one time enjoyed first place.
 

 

Ronald J. Plachno

 

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