U.S. vs. The World

THE U.S. ECONOMIC MAP VS. THE WORLD
Fellow Investor,

Yesterday, the market capitalization of
Chinese state-owned oil company, PetroChina, hit $1 trillion --
eclipsing
U.S.-based rival Exxon as the world's most valuable company. Last
night, at a lecture in Manhattan, I heard George Soros predict (yet
again) that the
unraveling of the U.S. economy had finally begun. Last week, a
London-based financial newsletter called the United States “the next
Argentina” -- suggesting that the U.S. economy's destiny was to echo
the fate of Argentina -- a formerly prosperous nation that descended
into
poverty and economic chaos. It seems that anytime financial markets
have a bad week or two, the global financial press readily hitches
itself to the
doomsday bandwagon by cheerfully predicting the demise of the U.S.
economy.

At
times like this, it's worth reminding ourselves that we've
been here before. In the 1970s, Americans grew up with two myths.
First, that the Soviet Union would dominate the U.S. militarily;
second, that the
Japanese would dominate the U.S. economically. With the Soviet Union
erased from the map, and the Japanese stock market below levels it
traded at 17
years ago, both fears seem almost quaint. Yet today, the conventional
wisdom that Brazil, Russia, India, and China -- the BRIC countries --
are set
to dominate the United States is just as prevalent.



The U.S. Economic Map: Size Matters

In
the midst of a housing collapse and credit crunch, the
impending doom of the U.S. economy is taken as gospel. But look behind
the headlines, and the numbers tell a different story. The U.S. economy
grew
by 3.9% in the credit turmoil-ridden third quarter -- following a 3.1%
jump in the second quarter. That means that the United States added the
equivalent of a new Saudi Arabia to its economy just since the
beginning of April. And the fact that the World Economic Forum ranked
the U.S. economy
the most competitive economy in the world last week got little press.
And even when it did, the #1 ranking of the United States was explained
away as
a statistical mirage.
This is not to say that the U.S. economy is in ship shape. But with
all of the talk about China and India dominating our economic futures,
it's
worth reminding ourselves where these new economic challengers stand in
comparison to the United States today. Despite the high economic growth
rates
of developing nations, the United States is by far the world's
wealthiest nation as measured by GDP -- the broadest measure of
economic wealth. And
the rest of the world isn't even close. This year, U.S. GDP is
projected to be $13.22 trillion. That means that the U.S. economy is as
large as the
next four-largest economies in the world -- Japan, Germany, China, and
the United Kingdom -- combined.
The map below -- originally published
here
-- puts the size of the United States' global rivals in perspective. On
the map, the name of each U.S. state is replaced by a country, whose
GDP equals approximately that U.S. state's GSP (gross state product.) A
quick glance at the map leads to some fascinating -- and unexpected --
comparisons.


Standing alone as a country, California would be the eighth-largest
economy in the world and approximately the size of France. Texas'
economy is
half the size of California's and its GSP compares to that of Canada.
Florida's GSP is approximately the size of Asian tiger South Korea.
Illinois'
economy is approximately the size of Mexico. Ohio's economy is roughly
the size of Australia's. Tennessee's GSP is the size of Saudi Arabia;
Nevada,
the size of Ireland; Alabama's economy is the size of Iran. Bill
Clinton's home state of Arkansas, one of the poorest states in the
United States, is
approximately the size of Pakistan's economy.

And what about
the United States' nearest rivals? Germany and China -- #3 and #4 on
the list of
the world's largest economies -- are smaller than the economies of
Texas and California combined. India's $800 billion economy is on par
with
Florida. Brazil, as we see on the map, is comparable to New York.
Russia's economy is about the size of New Jersey (or Texas).


The U.S. Economic Map: Two Caveats

Not
surprisingly, reactions to the map have been mixed. The
first criticism is that the map is based on nominal GDP -- how much
wealth is generated in dollar terms -- and not how many goods and
services those
dollars buy. Economists sometimes use “purchasing power parity” (PPP)
when comparing the size of global economies. Because prices for
goods tend to be lower in developing countries, this measure makes
poorer countries appear wealthier than they really are. But in taking a
birds-eye
view of wealth generation in the global economy, that approach makes
little sense. Think of PPP as similar to a “cost of living
adjustment” on a country level. Within the United States, $50,000 in
Kansas buys you a lot more than it does in Manhattan. But as a measure
of
wealth in absolute terms, having $50,000 in your bank account is the
same no matter where you live in Kansas or Calcutta (Kolkata).
Second, the map does not adjust for population. California and Texas
have a combined population of 60 million, while China's population is
1.3
billion. This has huge implications. Let's say China does become the
largest economy in the world in 20 years time. Yet, because of its
large
population, even if it continues growing at its current pace (a huge
assumption), by 2050 it will only be as wealthy as former Communist
Hungary is
in 2007.
The U.S. Economic Map: The Past... and The Future
In 1790, the United States was a new, tiny nation of 4 million,
about the size of Ireland today. Europe's population was 180 million,
while
India's was 190 million and China's was 320 million. Only seven cities
had a population of 5,000 or more; just 12 had a population above
2,500. The
United States had an agricultural economy with practically no
factories. By 1885, the United States was #1 in the world in
manufacturing. It produced
almost 30% of the world's manufactured goods to outpace both the
British Empire and the spanking new Germany. Into the 21st century, the
cutting edge
of global industries -- whether Silicon Valley, Hollywood, or Wall
Street -- are still products of the U.S economic
experiment.

Underestimating the U.S. economy has become the new
global financial sport. Yet the Japanese economy has not matched U.S.
growth
rates for at least the last decade. Europe celebrates triumphantly when
its growth rate hits 2.5%. And for all the press they generate, China
and
India rank 34th and 48th, respectively in the World Economic Forum's
global competitiveness index. The world has been counting out the
United States
as far as I can remember. The U.S. economic map provides a vivid
reminder of just where the U.S. stands.

Sincerely,

Nicholas A. Vardy

Editor, The Global Guru