Oct 8, 2021Liked by Tomas Pueyo

Having read the whole paper again today, I guess I remain confused by it.

I might be wrong, but your opening statements suggest the subject is geopolitical rivalry, which is great, because it is indeed one of the biggest issues the world has currently, but then tea leafs are read based on GDP per capita, a measure indicative of, but not even necessarily the best on, the wealth of citizens.

If GDP per capita was significant for geopolitical competition, US would have considered Luxembourg, Singapore or Qatar etc. global competitors. I would have thought GDP is far more relevant, since it relates to what an expenditure of X% of a nation’s GDP on their military, foreign aids, R&D or infrastructure development etc. would mean. Throughout history, the issue is the capability and capacity of countries “throwing their weight” around, for good or for bad, don’t you think?

In other words, not only is the paper reliant on the Maddison estimates, which are rather different to World Bank’s or IMF’s and hence potentially questionable in terms of accuracy and utility for informing policies and trends, the paper examines and concludes from a parameter that is at best tenuous to geopolitical competition.

The US is hostile to and wants to “contain” China because the issue is who is going to be the king of the mountain internationally. While currently their GDP are similar (certainly in PPP terms), if China continues to maintain just 2/3rd of what they achieved over the past 30 years (i.e. 6% pa rather than c9%) while US remain at 2%, it would take only 18 years for China’s GDP to be twice as big as that of the US (or greater than US and EU combined). You know the power of compound growth, and a low GDP per capita suggests structural ceiling, if any, for China’s GDP is likely to be distant - I hope this answers your question to me about China’s growth in our discussion yesterday.

For the avoidance of doubt, I am not saying GDP is the only measure relevant to geopolitical competition. Innovation (e.g. patent filings, number and quality of PHDs), availability of asymmetric tools (e.g. hypersonic missiles vs aircraft carriers), level, efficiency and effectiveness of national investments, educational and career backgrounds of politicians etc. are all relevant, to name just a few.

The fact remains it will become very noticeable, soon enough, if not already, that China has overtaken US geopolitically – a reality many in the US find difficult to accept, given their exceptional position over the past 150 odd years, which led the Anglo-Saxon if not the Western world to adopt various exceptionalistic narratives with religious fervour, e.g. that the American political system is the best (as implied throughout your paper), despite contrary to facts and logic.

So what is counterfactual or illogical? Is it not ironic for a country to accuse another of being “belligerent” and dangerous to international orders on a daily basis, while the accuser 1) is the one with c800 military bases around the world, 2) has a military expenditure that is more than the next 10 spendiest combined, 3) waged numerous wars causing the death of circa 1 million over the past 4 decades, and 4) regularly sending warships to the coast of the other in the name of defending freedom of navigation while freedom of navigation is what the other relies on as the biggest trader in the world?

And it is not as if the US has nothing else worth focusing on - the bottom 50% of Americans have not seen their economic circumstances improved for over 4 decades, and 40% of Americans don’t have $400 in the bank for emergencies today. The sad thing, is that many of those who have nothing and hence most vulnerable believe, wrongly, that they have nothing to lose by electing morons.

US exceptionalism is of course also why, realising that China has no intention to follow US’ developmental and political path anytime soon, US is turning on China on a bipartisan basis.

Why am I saying all this? With Covid, you have demonstrated that you are able to filter out noise and nonsense to get to the crux of the matter, and communicate in such a way that makes perfect sense to any who has the chance to read what you wrote. I think if you would apply your outstanding talents on this topic, you could again make the world a better, safer place!

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Oct 7, 2021Liked by Tomas Pueyo

Strange numbers: Cuba's GDP per capita is 1/6 of the US, but has the same life expectancy. Italy's GDP per capita is 62% of the USA, but life expectancy is 4.5 years higher. Cuba has a similar human development index as the USA, but needs just one planet, not seven or more as the USA (and other industrialized countries). Maybe it's time to look at the well being instead of the GDP. It's the ecology, stupid!

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Oct 5, 2021Liked by Tomas Pueyo

Interesting. Yet, I am not sold why the GDP per capita is such a good measure. In the end, its the GDP of a country divided by the population, right? Resulting in an average value. However, distribution of capital/wealth differs strongly between those countries. Shouldn’t that be included somehow in the analysis? What could be learned from a comparison of median GDP per person instead of an artificial average?

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Oct 9, 2021Liked by Tomas Pueyo

FWIW I agree with your central thesis. If you start from a low base, it's a lot easier make the numbers look good from there.

Humans always copy what works (eventually, sometimes takes them a while to catch on).

Intelligent copying involves improving on the original idea or process. But copying is very different from creating, so it will be interesting to see where China goes from here.

I wonder how many economists follow or subscribe to your posts. I haven't seen any sign of one, so it raises the question of why not?

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Oct 6, 2021Liked by Tomas Pueyo

I must say I find your statement:

"In this light, the story of Chinese growth becomes much more banal. China’s economy is nothing special. The only thing that’s special about China is that there are a lot of Chinese people."

quite remarkable.

As they say, there are lies, damned lies and statistics - if you had plotted the growth factor of GDP or GDP per capita (preferably in PPP terms since we are talking about people and society) over the past 40 years, would "Chinese growth" in relation to other countries Asian or otherwise still look "banal" to you?

Leaving that aside, fact is they have lifted c800 millions out of poverty over the past 40 years, as your chart shows, and unlike India e.g. have made huge advances in education, healthcare, infrastructure and industrial capabilities that are now, in many areas, world class. Such growth and improvement for so many over such a short time is unprecedented in the history of mankind - are you sure your personal political belief/prejudice isn't clouding your view and judgment?

Also why isn't size critically important? 1) It is one thing to have the wherewithal to stablise and enrich 10 million, another to do the same for a billion, wouldn't you say? 2) In terms of trade or international relations, or impact to the world in the future, why doesn't size matter tremendously?

I appreciated your articles on Covid, but like others have indicated, it seems you have a rose-tinted view about the West in general, and US in particular. Numerous trends indicate this is likely to be an Asian century - history is likely to show the past 150 years is but an aberration in thousands of years.

I trust you are sold on the invincibility of democracy, problem is in reality US is no more a democracy than China is communist, given US is really a plutocracy, while China has been striving to be a meritocracy (do look up Daniel A Bell and/or Kishore Mahbubani if you disagree). Not only that, Churchill wisely and famously said democracy is the worst form of government except the others that had been tried, but he couldn't have seen why China's rise is no accident, you can.

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Oct 6, 2021Liked by Tomas Pueyo

Tomas, your thesis is provocative as you will have anticipated. I ask you and your network to confront these questions. (1) The USA's economic performance is a result of its size, natural resources, and commonalities. (2) That performance does not result from exceptionalism, integrity, diligence or virtue. (3) It's a ridiculous concept to ask smaller nations to compete with the USA's scale. (4) China will not only compete but surpass the USA; but they are not a competitor (5) The world will benefit from trading blocs that leverage the scale of the USA, and the USA should encourage them without self-interest. (6) Why not trading blocs in LATAM, ASEAN and the near Middle East. (7) I learned from my father-in-law, British, a senior diplomat in the European Commission. I have lived and worked around the world.

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Oct 6, 2021Liked by Tomas Pueyo

I was surprised to see this comparison using GDP as a measure, and reading some of the other comments I see I'm not the only one. Its a very poor measure of wealth and the critiques of it as a yardstick go back at least to the 80's. Richness <> GDP.

More importantly I think is the argument about using median rather than average (per capita). For example - Ireland comes in with a higher GDP per Capita, but a lower median income PPP per capita, which suggests that the "economic growth" from the tax avoidance of companies nominally being based there doesnt translate to actual benefit and "richness". https://en.wikipedia.org/wiki/Median_income

Its also worth looking at the trends, for example https://en.wikipedia.org/wiki/Personal_income_in_the_United_States#By_educational_attainment shows essentially no improvement in inflation adjusted income for any income group, i.e. the increase in GDP is just a numbers game once you take inflation into account.

I usually love your articles, but this one seems to have missed the important points.

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Oct 6, 2021Liked by Tomas Pueyo

There's an argument from many people (in example Michael Beckley) that measures such as GDP do not account for the costs of producing and maintaining that level of economic value.

The same agricultural value entails different costs in the US midwest (and moving the final products through the Mississippi basin) than in other parts of the world. Maintaining a large enough military force without actual threats to the homeland (USA) is quite different (and less costly in net terms) than maintaining a large military to fend off adversaries (Greece).

Maybe that also accounts for a part of different country trajectories.

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Oct 5, 2021Liked by Tomas Pueyo

It's an interesting idea using US GDP/capital to benchmark other countries. But past performance is no guarantee of future performance.

Other economic models can overtake the US. For example, the tax haven model outperforms the US on a GDP per capita basis.

The democratic socialist model also outperforms the US on a median salary basis. The Nordic countries and Australia all beat the US on this basis - because much of the income growth is captured by corporations and not filtered down to individuals. (Source: https://worldpopulationreview.com/country-rankings/median-income-by-country)

Median income is a more statistically robust measure than mean income because it is not affected by extreme outliers. The US has more billionaires than anywhere else, so they drag up your statistics even though much of your country is very poor.

The US is lauded for the outperformance of its market. But its government is bitterly dysfunctional regardless of who is in power because of your deeply divided society. Noone looks to the US government and sees a model they want to emulate. Maybe if your democracy looked a little bit more like ours, you might catch up to us on a median income basis while keeping your world beating companies.

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Oct 5, 2021Liked by Tomas Pueyo

Muy interesante por la sencillez, como toda navaja de Occam, en eso está también su peligro.

Por ejemplo, la omisión del tamaño de las economías y su disponibilidad de recursos internos para crecer por cuánto tiempo. China no es comparable con Japón por esa razón.

El PBI per cápita es una medida relativa a sí mismo, como el peso específico. Pero un gigante, aun con un peso específico menor, tiene mejor pronóstico en cualquier lucha que un enano.

China tiene aun grandes reservas de chinos pobres y capacidad para mantener el orden interno suficientes para ser competitivo por unos cuantos años más. Es decir, ser más grande (mayor PBI) y poner más condiciones a los demás países. Cuanto más grande sea que USA, el menor PBI per cápita será su ventaja.

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Oct 5, 2021Liked by Tomas Pueyo

I enjoyed reading this article but I was wondering if your charts analyzed nominal or PPP GDP per capita, which I believe is a more accurate measure, accounting for differences in relative costs of local goods? The other consideration is that an economy's performance should not only reflect output per capita but also analyze distribution through the Gini index. The US has relatively high income inequality with a high proportion of income being accumulated by the wealthy. I am not sure I agree that other countries that have slightly lower GDP per capita but more widely distributed income/wealth are trailing the US in economic performance.

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Tomas, you scare me. Your articles on COVID-19 were great - an example of a nerd in his element. But you epitomize the arrogance of US capitalism and its silicon valley techno-magicians. You will know of Yeat's warning, "The best lack all conviction while the worst are full of passionate intensity", as the world slouches towards Bethlehem.

You imagine a world without countries, ignoring the fact that it's the state and its laws that protect the majority from the tyranny of elites. You imagine a world without fiat money, ignoring the fact that fiat money is what invests in the public good. And now you pontificate about GDP, ignoring the fact that it's a largely debased measure that, today, accounts for little more than how effectively we're destroying our planet. And yes, the US, to its shame is at the top of the list. And always has been!

Here are four things for you to consider:

1. GDP requires energy and energy is running out. I challenge you to look at human population - three phases stand out - civilization (the rise of cities), the age of coal (1775 to 1940) and the age of oil since then (with doubling times of 950, 135, and 40 years). If we're faced with declining energy, what happens to our GDP, our economies, and our social structures?

2. Inequality: GDP measures a total but not its distribution. I challenge you to look at Peter Turchin's work, "Quantitative historical analysis uncovers a single dimension of complexity that structures global variation in human social organization", 2017. And you'd be doing a real service if you looked into how income distributions (measured using "1/f" plots) have changed over the last 50 years.

3. Eco collapse: our planet cannot support the ruinous monetary growth that US capitalism demands. I challenge you to look at William Rees's work on "eco-footprint analysis".

4. Conventional economic analysis is wrong. It envisages a system in equilibrium (our economies are dynamic), with no need to account for money (banks and fiat governments create money - one for profit and the other for free), and no answer as to why income distribution is the way it is - which takes us back to item 2 above. I challenge you to read Stephanie Kelton and look at Steve Keen's work.

In the meantime, a bit of grace would serve you while you acquire wisdom to supplement your technical ease and youthfully uninformed imagination.

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You failed to include income disparity as measured by the Gini coefficient which is very high in the United States which means there are very few extremely wealthy people in that country and a growing number of impoverished people that needs to be considered when looking at GDP per capita.

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Interesante artículo. ¿Qué es lo que crees que cumplen los países que siguen a EEUU? Claramente no es la religión. En el gráfico de los países anglos se ve claramente a Irlanda, católico, por debajo de los demás hasta su cambio de políticas fiscales. ¿Tal vez la mentalidad protestante? Tampoco parecen ser las medidas económicas liberales. Los países escandinavos tienen un estado del bienestar muy potente.

Me gustaría ver cual es la gráfica relativa a los países escandinavos. La mayoría de ellos han invertido mucho en estado del bienestar y, además, tenemos para todos los gustos. Desde países muy ricos en recursos como Noruega, a otros no tanto como Finlandia pero que han despuntado también económicamente.

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Very interesting, but I have two problems with your conclusions. First, per capita GDP comparisons lack some weighting due to the monetary policies adopted by the countries. Take, for example, China, which undervalues its currency to increase exports.

Second when you conclude that taxes are the key to the success of some countries, I find that the list of countries you mentioned corresponds to those that stimulate the economy by laundering money derived from wealth produced in other countries, even within the European Union.

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