China overtakes Japan as No.2 economy, US next by 2025.

[Tumisu]

Tank you for the welcome, and for your offer! :-)


PPP is not perfect, I know, but in my opinion it reflects far better the reality of things to compare. China's currency is devalued, so when you compare the chinese economy to the US economy it looks much smaller than what it really is.

[DOR]

Tank you for the welcome, and for your offer! :-)


PPP is not perfect, I know, but in my opinion it reflects far better the reality of things to compare. China's currency is devalued, so when you compare the chinese economy to the US economy it looks much smaller than what it really is.

PPP measures a consumer basket of goods, to determine what might be a fair exchange rate between two highly similar economies.

So, start with consumer . . . and delete China's capital investment and international trade.
Next, find a highly similar economy. That may take a while, so I'll wait until you do.

If you find one, the next steps are very straight forward. However, to extrapolate from consumer baskets to entire economies is a silly use of PPP.

[gunnut]

Tank you for the welcome, and for your offer! :-)


PPP is not perfect, I know, but in my opinion it reflects far better the reality of things to compare. China's currency is devalued, so when you compare the chinese economy to the US economy it looks much smaller than what it really is.

Here's why PPP is irrelevant: it ain't worth nothin' on the international market.

A barrel of oil is still $65. A Boeing jetliner is still $200 million. An F-16 is still $40 million. I want to see some hard currency when someone is looking to buy those.

[DOR]

The official PPP exchange rate is this:

However many real dollars you want to give me = Any number of PPPs you want me to give you.

Let the bidding begin!

[gunnut]

It's nice to know this information that china will overtake japan.
But what will happen to other asian countries in the future?
Will it overtake the economies of other western countries?

It all depends.

China is growing by sheer number of people advancing from poverty to lower middle class, and has already overtook Japan in nominal dollar value.

Japan is saturated already. The population hasn't change much, if not decreasing. Economy is stagnant due to 25 years of Keynesian policy plus a very restrictive market to foreign goods.

I am surprised that South Korea is so far down the list. It may advance, but not as fast as China did over the last 20 years because its internal market is not huge.

India has great potential simply due to the number of people, like China. If everyone in India increased income by $100 per year on the average, that's $120 billion added to GDP.

Another factor is innovation. Asian economies are not very good at innovating. Most are in the "copy and refine" stage. They are always "catching up" to the west. Just when they have perfected what the west had invented decades before, the west comes up with something completely new and revolutionizes the world.

Americans invented the cell phone. Motorola used to be the only player in town. Then Asian companies started to build inexpensive handsets and took over the market. In came the iPhone. It owned the smart phone market until another American company came out with Android to challenge it. Asian companies now build inexpensive Android based phones. What will come next? I don't know. If I did, I wouldn't worry about my retirement.

To be honest, Japanese invent consumer goods all the time. Except they have some weird tastes and their invention are always "quirky" in the eyes of the rest of the world, usually robots, dolls, sex dolls, and sex robots.

[astralis]

gunnut,

Economy is stagnant due to 25 years of Keynesian policy plus a very restrictive market to foreign goods.

actually due to structural factors like no-immigration, demographics, restrictive policies on women in the work place, and an inflexible labor policy than "Keynesian policy". the restrictive market to foreign goods played a role too, but given the size of the Japanese domestic market, this is largely secondary.

the Japanese government tried very hard to stick to neoclassical economics, continually raising tax rates in a desperate bid to balance its budget after the collapse of the Japanese asset bubble in the early '90s.

Abe actually saw some success when he implemented his "Abenomics" program, which was a mix of Keynesian and monetary policy. of course he then raised consumption taxes almost immediately afterwards, which negated the whole point of his stimulative program.

[gunnut]

gunnut,



actually due to structural factors like no-immigration, demographics, restrictive policies on women in the work place, and an inflexible labor policy than "Keynesian policy". the restrictive market to foreign goods played a role too, but given the size of the Japanese domestic market, this is largely secondary.

the Japanese government tried very hard to stick to neoclassical economics, continually raising tax rates in a desperate bid to balance its budget after the collapse of the Japanese asset bubble in the early '90s.

Abe actually saw some success when he implemented his "Abenomics" program, which was a mix of Keynesian and monetary policy. of course he then raised consumption taxes almost immediately afterwards, which negated the whole point of his stimulative program.

Why is Japan's debt so high?

[astralis]

demographics; one of the oldest populations in the world. medical costs + pensions.

if it were continual stimulative policy that caused the debt then Japanese inflation would be high. to put it mildly, that's not the case.

[GVChamp]

Independent Central Banks can be a mixed blessing. BoJ offsets any fiscal stimulus entirely. Can't really stimulate the economy if the Bank is dead set on fighting you.

I'd say that's reason #1 on why Japan's debt is so high. Plus, the Liberal Democratic Party uses pork-barrel spending to continue its reign. Over time, the recession just ate out a whole generation's worth of productivity gains, and inability to clear out the zombie companies (instead just bailing them out more) probably handicapped Japan's productivity growth.

Just my .02

[gunnut]

demographics; one of the oldest populations in the world. medical costs + pensions.

if it were continual stimulative policy that caused the debt then Japanese inflation would be high. to put it mildly, that's not the case.

Maybe the fix is in pension reform rather than continue the course?

Maybe the government should spend less money?

Why spend so much money in the first place? To stimulate the economy?

[astralis]

GVChamp,

over time, the recession just ate out a whole generation's worth of productivity gains, and inability to clear out the zombie companies (instead just bailing them out more) probably handicapped Japan's productivity growth.

Just my .02

yeah, the latter. the zaibatsu system is socially stable but economically inefficient.

japanese society puts a huge premium on stability but that comes at a price that's reflected in poor demographics and role of women in the workplace.

[astralis]

gunnut,

Maybe the fix is in pension reform rather than continue the course? Maybe the government should spend less money?

it's not japan's debt that's dragging their economy down, though. they continue to borrow at very low rates.

instead much of it has to do with labor flexibility, the fact that their women are either housewives or OLs, their allergy towards immigration, and poor demographics.

in short, a lot of factors make up an economy. government spending and tax rates are just two. in the japanese case, one of the previous factors you pointed out (protectionism, particularly in agriculture) probably has a bigger effect than their spending/tax rates.

[gunnut]

gunnut,



it's not japan's debt that's dragging their economy down, though. they continue to borrow at very low rates.

instead much of it has to do with labor flexibility, the fact that their women are either housewives or OLs, their allergy towards immigration, and poor demographics.

in short, a lot of factors make up an economy. government spending and tax rates are just two. in the japanese case, one of the previous factors you pointed out (protectionism, particularly in agriculture) probably has a bigger effect than their spending/tax rates.

I'm not denying any of the other factors. But the humongous debt is not helping. That debt is from government spending, which means a lot of future obligations. It's a drag on the economy.

Instead of trying to "stimulate" the economy by directed spending/tax cuts/incentives, government should remove shackles that weigh on the economy. Just a broad reduction in taxes, for everyone, people and businesses. Reduce welfare and pension. Make people work longer. I don't say that to be mean. Japanese have the longest average life span in the world. Retiring at 55 or 65 still leaves decades of healthy life span left. Just sitting around not working actually is bad for a person. We lose our sense of purpose. Instead of being productive, people start to meticulously managing their finances so the pension money will be enough.

A tangent. When did "retirement" become popular? For as long as humans existed on this planet, we have worked until almost death. I'm not saying we should go back to subsistence living and work 'til death. But people shouldn't expect to retire with decades of good healthy years left just for retirement's sake. People can still work, and play, even in later years. In fact working and maintaining a regular schedule and a sense of purpose in one's life might keep one healthy.

Of course people can choose to retire whenever they want, they just shouldn't expect others to pick up their tabs. Mark Zuckerberg can retire tomorrow and live a very comfortable life without ever having to work another day. But how many Zuckerbergs are there?

[astralis]

gunnut,

But the humongous debt is not helping. That debt is from government spending, which means a lot of future obligations. It's a drag on the economy.

again, if it's a drag on the economy we would see it in the interest rates, a la greece. we haven't. that's how we know that government spending is crowding out private spending. there are other things which would improve the japanese economy significantly more-- things such as actually creating women-friendly workplaces and opening up their immigration, for starters.

Make people work longer. I don't say that to be mean. Japanese have the longest average life span in the world. Retiring at 55 or 65 still leaves decades of healthy life span left. Just sitting around not working actually is bad for a person. We lose our sense of purpose. Instead of being productive, people start to meticulously managing their finances so the pension money will be enough.

you're not going to squeeze a lot of economic efficiency out of old people, if that's what you mean ;)

more seriously, the historical reason for old age pensions in every industrialized country (first in Bismarck's Germany!) was because old people were by far the most destitute and unemployed, which encouraged petty crime. moreover, there's some evidence that it increases labor flexibility as well.

simply put people do -horribly- when it comes to long-term planning and provision. how many people choose to retire at 62 even though retiring, say at 68 or 70, under the current US system would give them -hugely- increased benefits?

for the most part, people wouldn't suddenly start "meticulously managing their finances", they'd simply become destitute. because that's precisely what happened to the vast majority of old people prior to the establishment of basic old age pension.

[gunnut]

gunnut,
more seriously, the historical reason for old age pensions in every industrialized country (first in Bismarck's Germany!) was because old people were by far the most destitute and unemployed,

There was a reason why Bismarck set the "retirement" age to be just beyond the average lifespan of German people.

Life span increased. Retirement age stayed the same. The result is pretty easy to predict.