Let us focus on the relative standing of the US in the world economy. Here, T = trillion, B = billion, M = million, etc. GDP = Gross Domestic Product

GDP includes the total value of final products that are produced and sold (and not resold) within the current year.

In 1947, per capita GDP of the US was only about $1700, but has since grown to about $47,000 in 2008, and has not been increasing in recent months, due to the worst recession last year. The growth rate has been about 5.5% per year.

 

Of course, much of this reflects inflation. For the same period, the inflation rate (GDP deflator) has been about 3.5%. Thus, the net or real per capita GDP growth rate has been about 2% in the US.

 

During the post-WWII period until about 1980, business cycles had short duration. A recession occurred about every five years. After 1980, it occurred once a decade.

     In 1975, US trade surplus was about $12 billion, but that would be the last time in the 20th century that the United States had a trade surplus. In 2008, the US export amounted to $1.84 T, but imports were about $2.52 T. Thus, we had a trade deficit of about $700 B (X - M = T ). China has now replaced Mexico as our second largest trading partner. (Canada is our largest trading partner.)

US exports to China totaled $69.7 billion while imports from China totaled $337.8 billion in 2008. Thus, US-China bilateral trade deficit was $268 billion in 2008.

These charts were made by http://www.economagic.com.

If you connect $1,000 bills to make a long string of bills, it would cost about $260 B to circle around the entire earth. If you connect New York and Tokyo with $1000 bills, it would be less than $130 B.

          (40,000km = 133,512,000 ft = $267,000,000,000 (2 bills per foot) = $267 B.

It costs about $11 B to cover one time zone.

Japan achieved the most impressive growth record of the post World Wart II era. In 1950, the real per capita GNP of Japan was less than 1/5 that of the U.S. $1,060 compared to $6,330 for the US.

          However, the Japanese economy grew during the period 1950 - 1980. Japanese real GNP grew at an annual rate of 7.4%.

If the growth rates were sustained, Japan's income would be higher than that of US before 1990. However, Japan's economy collapsed in the early 1990s, and its growth rate has since declined, which can be attributed to protectionism. China's growth rate has been over 10 percent during the past decade, which is likely to be sustained for another decade. But China's protectionist policy may slow their growth.

In 1945, US GDP was $223 billion (in 1998 dollars) and its population was 140 million. US GDP per capita was only about $1600 in current dollars. China's income per capita today exceeds this amount.

g = growth rate (%),

N = # of years it takes for a growing variable to double. Some people also use the Rule of Seventy Two (72/g = N).

For growth rates less than or equal to 5%, the Rule of Seventy is more accurate than the Rule of Seventy Two, which is more accurate for g > 5%. However, both rules underestimate the actual value of N when g > 10%.

Remember that these rules are for approximation purposes only. Use either rule only for growth rates less than or equal to 10%. For more information, read my note on The Rule of Seventy. The same rule can be applied to negative growth, i.e., 70/g is the number of years when the entity halves, where g is the absolute value of the shrinking rate.

110/g = N

g = growth rate (%),

N = # of years it takes for a variable to treble or to third (to reduce to one third) its size.

140/g = N

The Rule of 140 (140/g = N) tells us the number of years it takes for a variable to quadruple or to quarter (to reduce to one fourth) its size. This rule can be obtained by applying the rule of seventy (or seventy two) twice. For growth rates exceeding 5%, Rule of 144 (72 x 2) should be more accurate than the Rule of 140.

See David Coutts

What if the growth rates exceed 10%?

For the purpose of approximation,
use 76 rule for g = 20%
use 79 rule for g = 30%
use 82 rule for g = 40%
use 85 rule for g = 50%
use 88 rule for g = 60%
use 91 rule for g = 70%
use 94 rule for g = 80%
use 97 rule for g = 90%, and
obviously, use 100 rule for g = 100%, which means 100/100 = 1, or if the growth rate is 100% per year, it will take exactly one year for the growing entity to double its size.

So, here is an even more pracrtical way to memorize the above numbers. For every 10% increment in the growth rates above 0%, add 3 more years to the rule of Seventy. In other words, if the growth rate is slightly above 10%, use the Rule of Seventy Three. If the growth rate is 40%, (3 × 4 = 12%, and hence) use the rule of (70 + 12) = 82, etc. This is a useful and practical rule, which slightly deviates from the above numbers.

Warning: it is important to note the limitation of GDP when comparing the living standards of countries. These income figures are computed using the current exchange rates. By definition, exchange rates are biased in favor of traded goods because they are based on the prices of traded goods and nontraded goods are ignored. These may not reflect the real standard of living.

For example, in 2009, US per capita GDP was $46,000 and that of China was about $7,000. This does NOT mean that the living standard of a typical American was six times higher than that of a Chinese counterpart.

Realistically, Americans may be only two or three times as well off as the Chinese, due to low prices in China. Also, the World Bank report argues that for example, Americans live in spacious houses and less polluted environment than the Japanese, even though per capital income levels of both countries were about the same in the early 1990s.

European Union: GDP = $14 trillion, population = 501 million, per capita GDP = $33,000. In reality, consumer prices are much higher than in the US.

CIA estimates of GDP, 2005 (copy)

CIA estimates of per capita GDP, 2004 (copy)

Goldman Sachs Report (2003) copy

To get more information about population, visit Population Reference Bureau.

Per capita GDP of Western Europe was about $400 - 500, slightly lower than China.

In 1405 Zheng He, a Chinese admiral, led an expedition of 317 ships with more than 28000 troops to the west, reaching eventually Europe and Africa. (When he was a boy, he was caught in a Mongolian rebellion which was squashed by the newly rising Ming dynasty, and was castrated. Subsequently, he served Emperor Yongle.) After he returned, the new emperor decided to stop trading with the West because there is nothing China can learn from them. This was the beginning of the decline of China that lasted six hundred years.

David Teniers, Flaemische Kirmes (1640) (Flemmish Festival).

Europe begins to surpass China. Europe's per capita GDP reaches $1200.

GDP growth was about 2%, breaking the record.

Through the industrialization and concentration of workers in urban areas the middle class emerges in Europe and Asia.

Shops in Edo, the capital of Japan during the Edo period (1603-1867). Tokyo Museum of Art.

Economic growth also brings about income inequality, which stimulates otherwise lazy human beings to strive for success and recognition.

Contrary to a wide spread belief, inequality is good as it contributes to economic development, especially in its early stage. Some countries adopted communism to exterminate income inequality, but the communist experiment failed in most countries during the 20th century.

Only one out of 35 lads employed by a shop in Edo in 1742 eventually became the CEO. Tokyo Museum of Art.

During the 20th Century, per capita income of the world more than quadrupled. That is, per capita GDP more than doubled every fifty years (or a growth rate of 1.4% per year).

Income statistics have been gathered during the last century, and there is no income data four centuries ago. However, the two paintings below show that per capita income of Europeans four centuries ago would have been less than $500.

Rebuilding America's Infrastructure (popular mechanics)

Investment during the Post war period

(1945 - 2000)

Investment/Output Ratio              Net I/O
US                    14%             4%
J                     27%            17%
F                     19%             9%
G                     19%             9%
Canada                19%             9%

Worse than we thought

Personal savings rate was about 10% of income until 1990, but has since steadily declined, even below zero. Pesonal savings were negative in some years (2005).

In China, national savings rate is about 50% (35% personal savings, 15% public savings)

If gross investment is less than replacement investment (10%), the nation's production capacity shrinks.

Infrastructure breakdown raises transportation costs for producers. The nation becomes less competitive in the world markets.

China surpassed Japan as #2 after the US in 2010.

China's GDP is currently about $9 trillion.

China is the largest producer of automobiles (13.7 million cars)

Japan (7.9 million cars)

US (5.7 million cars)

China's success comes at the expense of workers and companies throughout the developing world that offer cheap labor but not much else. Even in India, which has some of the planet's lowest wages, low-tech industries can't compete with the Chinese in productivity. Shops in Bombay and Calcutta are flodded with Chinese goods. The Indian government is so worred about China that it has refused to allow Chinese software companies to locate in the high-tech center of Bangalore and scotched plans by software powerhouse Infosys Technologies to train 200 Chinese employees in India.

Already, more than 100 million peasants have flocked to the cities in search of work, and that number is likely to increase, adding to China's angry underclass.