Two Perspectives on Our Significance
If you're over thirty, you're accustomed to a world in which the U.S. was a dominant, or even the dominant economic player. For all the talk about the emergence of economies like India and China, on official statistics, they still pale in comparison to the U.S., as this intriguing map shows.
But the standard GDP comparison is flawed for many purposes. By most intuitive measures of wealth, China and India should rank higher than they do on that map. It turns out that one reason for the discrepancy is exchange rates. If you compare apples to apples using purchasing power parity (a nice apartment in Beijing vs. one in San Francisco, for example), you get a very different picture, as this list from the CIA World Factbook shows.
I suppose there are important reasons why a dollar should buy three times more stuff in, say, Malaysia, than it does here. Many Asian governments don't mind a weak currency vs. the dollar because it's good for exports. America, meanwhile, has a lot of rich older consumers who like buying good stuff cheap. So, in an odd sense, even though cities like Singapore, Hong Kong, and Kuala Lumpur are as 'developed" as, say, Albany, we set our terms of trade as if they were not (if you haven't seen it lately, here is a fairly recent picture of Kuala Lumpur).
Economists have taken to calling this state of affairs "Bretton Woods II" - a reference to the de facto fixed exchange rate system of the post-WW II era.
The world view you choose to believe depends a lot on how long you think the Bretton Woods II arrangement will last. Some view it as benign, even optimal (as this paper suggests). Others have a darker view. I believe it is unravelling gradually - most Asian countries have already abandoned their dollar pegs (China and Hong Kong are big exceptions). And a money manager we know recently reported that a nice house in downtown Hanoi is running about $1 mm.
We Americans are used to being listened to. Other countries benchmark against us and look to us for value-added products and know-how they have not yet developed. As things progress, it's unlikely we'll remain the largest economy in the world. We may retain our technological edge, but the gap will likely narrow. And in some instances, the rest of the world will get ahead of us, and we will find that we have something to learn.
Independence Day is a good time to think hard about what we understand well and what we don't - what we have to teach the world, and what the world has to teach us. But I wouldn't take that map too seriously. As the proverb goes, "do not make yourself so big, you are not so small."
