About a month ago, I read an intriguing article that suggested that China’s economy would be ahead of the United States as soon
as 2030 or perhaps earlier. On the one hand, this makes sense- the article says,
“The health of the global economy increasingly will be linked to progress in
the developing world rather than the traditional West.” I could easily see this
happening. China has definitely seen the greatest spike in economic growth over
the long and short term. On the other hand, the patriot side of me simply
cannot believe the idea that the U.S. will be surpassed in the global economy
that quickly, given the enormous head start we already have. (As of 2011, the
United States’ economy was still twice as large as that of China- about 15
trillion to 7 trillion, respectively[1])
When it comes to even statistics, it’s sometimes difficult
to eliminate bias. The statistics tell no lies, of course, but the statistician
can easily manipulate the data to draw the conclusion that he/she wants to.
This can be achieved by only including certain data in a model, for example, or
even by blatantly ignoring a significant trend in the data when drawing a
conclusion. One could draw that same conclusion that the U.S. has quite a
cushioned lead over China, but that would ignore the fact that China’s nominal
GDP grew nearly three times as fast from 2010-2011[2].
However, the statistician cannot rely solely on statistics
alone. Context and outside information are both needed to present a strong
model as well. For example, it is unrealistic to believe that because a
baseball player strikes out, he is beginning a brutal slump, just as it’s
unrealistic to believe that a country’s economy will immediately go into a
terminal downwards spiral because it entered a small recession. Yes, sometimes
this will happen, but the probability is still very low.
My task for today’s post is to weigh the claim that China
will have surpassed the United States in nominal GDP by 2030, whilst trying to
balance the statistics with context and empirical evidence- without letting
bias enter the equation. There are many different models I could establish with
the amount of data available on this subject- but which is most likely to
occur?
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While the global economy continues to grow, it doesn’t grow
at the same rate for every country. Some countries experience periods of great
economic growth while at the same time other economies begin to decline. This
isn’t a random phenomenon; there are many factors that go into it, but in the
end it can be boiled down into simple supply and demand economics: The country
that has the most of what people want will do the best. If a country can no
longer produce or manufacture what is in demand, it will go into decline.
The United States has enjoyed its position at the forefront
of the global economy for a long time, but a look at this long term graph
(1970-2010) suggests that we have entered a period that could result in
economic decline (beyond that which we’ve already experienced, of course):
It looks like the United States is beginning to be out-produced
by other countries- namely, China. It’s not an exaggeration to say that other
countries are becoming more innovative than the U.S., either[3].
A brief look at these pieces of evidence could be enough to
convince someone that the U.S. economy will soon fall behind China. But take a
closer look at the graph above: it’s actually set on a logarithmic scale. In
this format, an exponential plot would appear linear, and a linear plot looks
something, well, more like the U.S. plot. Here’s the same data set on a linear
scale:
And a graph for the short-term as well:
These look a lot more promising for the United States. This
is just an example of how easy it is to manipulate data to appeal to one’s
bias.
There are a few other things we should consider rather than
just a straight GDP plot. What about the change in GDP from year to year? The
derivative of the graphs above could provide a good idea of if and how the
landscape of the global economy is changing.
For these and future plots I’m going to eliminate most of
the countries listed so that the graph is less cluttered. The seven countries I
decided to leave in (before any of the plots were made) are the USA, China, and
Japan, the three clear economic leaders; three more countries that are
beginning to develop strong economies: Brazil, India, and Indonesia; and
Russia, which saw decline after the fall of the Soviet Union and whose economic
future is at a crossroads of sorts.
In the short-term, it’s clear that the global economy is
filled with complex connections: Every country took quite a hit in 2009.
However, all four of the Asian countries still saw an increase in GDP whereas
Brazil, the U.S., and Russia saw declines.
It should also be noted that China clearly had a fast
recovery and has continued that growth through 2011, while several other
countries had strong recoveries in 2010 but did not continue the trend through
2011.
Here’s the derivative of long term nominal GDP. China
clearly has shown strong growth recently:
I finally put all of my data together to create a couple of
models based on long-term and short-term GDP, and extrapolated them out to the
year 2030. The results were somewhat surprising:
 |
| Long-Term Graph |
Both models suggest that China
will surpass the United States well before 2030. There were several other
models that had the US remaining on top, or even Japan or India surpassing the
other nations. But I’m only posting these two because I feel these two simulations
were the most likely to happen. Of the two, I feel much stronger about the
former: I don’t see anything that suggests the US’s productivity will go down,
but nothing suggests the opposite either. Meanwhile, China’s recent gains will
probably continue.
We don’t know for sure what will
happen. There’s another trendline for China that suggested it would have nearly
the exact same GDP as the US in 2030, and it fit all of the data points through
2005- but because of the spike in 2010, the model no longer fits very well.
My own personal opinion is that
the U.S. and China will probably have fairly similar nominal GDP values in
2030. It’s unrealistic to assume that China will continue to have such
incredible economic growth as we’ve seen in the past few years, but it is also
clear that China will have a strong economy for years to come. I’ll be the
first to admit that there could easily be some potential bias in this
conclusion, but I believe that I’ve been able to balance the statistics and
outside information well enough to give this prediction merit.
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[1] International
Monetary Fund
[2] United
Nations Statistics Division (http://unstats.un.org/unsd/snaama/selbasicFast.asp)
[3] Baltimore
Sun: “U.S.
losing ground in engineering” http://articles.baltimoresun.com/2005-08-14/business/0508130255_1_engineering-graduates-engineering-trends-science-and-engineering
