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October 14, 2012

Another Sputnik moment

The International Monetary Fund is alarmed at the tepid growth among the world’s developed nations. The IMF fears a possible second global recession if nations cannot get together to avert the worst.

The IMF also revised downward to 7.7 percent the annual growth of China’s economy. Recently, the U.S. revised downward our annualized second quarter growth to 1.3 percent.

In other words, China is growing six times faster than we are.

One can point to many reason. Some allow us to deflect attention from our own tepid growth. We can’t replicate some of the other reasons for their growth. We urbanized more than half a century ago, while a lot of urbanization and rural efficiency improvements remain for them.

China has adopted with patriotic zeal the same sentiment that fueled our growth in the 1950s and 1960s. China did not have our Sputnik moment, but instead suddenly realized that economic superpower status was within their reach.

The U.S. has been the undisputed sole global economic superpower for almost a century. We have not seen the end coming because the undisputed champion, the leader of a century-long economic race, fails to look back after a while.

We also focus on a distortionary personal measure of economic success. To individuals, the Gross Domestic Product per capita, or the median household income, is a more relevant measures of personal wealth. According to these measures, Americans remain far wealthier than our Chinese counterparts.

Nations measure wealth differently, though. Economic might comes from total GDP, not GDP per capita. Total GDP measures the ability of a nation to fund national defense and to dictate terms on international economic treaties. A nation’s GDP dictates how effective it can be in formal or informal trade embargoes and sanctions. When economies melt down, they seek out powerful economic benefactors to bail them out. Lately, nations the world over have turned to China as the nation with the deepest pockets.

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