I like to think that I'm a reasonably intelligent person. But I am forced to admit that when it comes to economics, I'm as dumb as a bucket of hair. Sure, I can do basic math. I can even balance a checkbook (but come on, in this age of debit cards who really balances their checkbook anymore?). But large-scale economics is like a foreign language to me.
But even if you don't understand the language spoken, you can usually tell from the tone whether what's being said is good news or bad. And I don't like the tone of what I'm hearing.
I've been thumbing through my copy of the CIA's World Factbook (it's a great bathroom reader if your a fact junkie) and comparing data for the United States and various other countries. Some of that data doesn't look good to my admittedly untrained eyes.
According the book, the United States' Gross Domestic Product (GDP) is $12.77 trillion, by far the largest in the world. By comparison, Japan's GDP is $3.867 trillion, Germany's is $2.446 trillion, and that of China – our nearest GDP "rival" – is $8.158 trillion. So China is hot on our heels.
But GDP isn't the sole measure of a nation's economic success. Another benchmark is per capita GDP – basically the amount of money a nation's economy generates divided by that nation's population. Some examples of the per capita GDP's of the nations mentioned above, as well as a few others for comparison:
United States - $41,800
Japan - $30,400
Germany - $29,700
China - $6,200
Switzerland - $35,000
Canada - $32,800
United Kingdom - $30,900
France - $29,900
Israel - $22,200
Saudi Arabia - $12,900
South Africa - $11,900
Russia - $10,700
Mexico - $10,000
Iran - $8,100
India - $3,400
Iraq - $3,400
Zimbabwe - $1,900
Afghanistan - $800
East Timor - $400
So, by this measure at least, China's economic success is somewhat better than India's, but not so good as Iran's. For the most part these numbers correspond roughly with the United Nations' Human Development Index (HDI) measure, which takes into account a number of factors to rate the overall quality of life in the nations of the world. The following are the top ten and bottom ten nations on the HDI ratings:
HDI Top Ten
- Norway
- Iceland
- Australia
- Ireland
- Sweden
- Canada
- Japan
- United States
- Switzerland
- Netherlands
HDI Bottom Ten
- Mozambique
- Burundi
- Ethiopia
- Chad
- Central African Republic
- Guinea-Bissau
- Burkina Faso
- Mali
- Sierra Leone
- Niger
(Just as a point of interest, the lowest-rated non-African country is Haiti at #154. If nothing else, the HDI amply demonstrates the desperation faced by so many on the African continent.)
The HDI ratings of the nations mentioned above are:
- France
- United Kingdom
- Germany
- Israel
- Mexico
- Russia
- Saudi Arabia
- China
- Iran
- South Africa
- India
- East Timor
- Zimbabwe
(Data were unavailable for Afghanistan and Iraq, but it seems safe to assume that the quality of life in both those countries is quite poor.)
So far it seems like the United States is doing pretty well, right? Maybe, maybe not.
Two of the most telling statistics I compared were public debt (as a percentage of GDP) and external debt (as a raw figure). These figures for the "Big Four" economies are as follows:
United States
Public Debt 64.7% of GDP
External Debt $8.837 trillion
China
Public Debt 28.8% of GDP
External Debt $242 billion
Japan
Public Debt 170% of GDP
External Debt $1.545 trillion
Germany
Public Debt 68.1% of GDP
External Debt $3.626 trillion
Finally, there are these nations' reserves of foreign exchange and gold, which are:
United States - $86.94 billion
China - $795.1 billion
Japan - $845 billion
Germany - $97.17 billion
I look at these numbers and get worried. The US' foreign debt is over eight trillion dollars. In fact, we owe as much money as the entire gross domestic product of China. That's ironic, since we owe most of the money to China. Am I the only person worried about this? How can we owe this much money? More importantly, are we going to be able to pay it back? China's economy grew at a rate of 9.2% in 2005, according to the Factbook, while ours grew only 3.5%. No matter how far ahead you are, if the guy behind you is going three times faster, sooner or later he's going to pass you by.
As I understand it, the American economy is fueled almost entirely by our vast consumer spending. But that spending is made possible by credit. We're spending money we don't have, both on the level of individual consumers and on a national scale. China's economy, on the other hand, is fueled by manufacturing – in fact, manufacturing the stuff we're buying. So basically, we're borrowing money from China in order to buy more Chinese products. Meanwhile, the United States is running huge trade deficits (exports $927.5 billion, imports $1.727 trillion), and spending at an unsustainable rate (revenues $2.119 trillion, expenditures $2.466 trillion).
This leads me back to where I started, namely, my sheer ignorance of economics. I just don't understand how this situation can continue. When you owe money, sooner or later you're creditors are going to come calling, right?
Is there an economist in the house?