Paul Krugman wrote an article under the title: “How Trump Lost His
Trade War,” and the subtitle: “On speaking loudly and carrying a small stick.”
It was published on December 16, 2019 in The New York Times.
Somewhere in the middle of the article, speaking of China, Krugman
says the following: “America was never going to succeed in bullying a nation
whose economy is by some measures, larger than ours.” What is he talking about
when it is known that America's GDP is 3 or 4 times the size of China's?
Yes, that's what's known. When assessed in accordance with the
current definition of GDP, and when measured in dollar terms, America's GDP
comes up to something like 21 trillion dollars whereas that of China comes up
to a value that's fixed at between 4 or 6 trillion dollars depending on who's
doing the counting, and what the Dollar/Yuan exchange rate is on the day of
counting. But is this accurate?
To get a better idea of what's going on, we imagine the following
scenario about three acquaintances that meet in the opulent home of one of
them, where each tells the story of what he did on that day.
Character # 1: I'm just an upper-middle-class Joe as you
know. So, I went to work at eight o'clock in the morning where I worked till
noon. I took an hour off for lunch, which I spent at the local restaurant. I
returned to work where I did four more hours of chores, and went home at five
o'clock in the afternoon. All in all, my moves on this day, including the
restaurant meal I had and the tip I left for the waitress, contributed about
1,000 dollars-worth of activities to the GDP of the nation.
Character # 2: I own a small business as you know. So, I
went to my office early in the morning and prepared a work schedule for the day
ahead, to be completed by the dozen employees that make-up my team. I explained
the schedule to my shop supervisor, and went with him through the shop to make
sure he was giving the right instructions to each employee. I inspected some of
the products they started making, and they were to specification. This took
half of my day. After that, I went to the shopping mall where I dined, wined
and shopped, and then went home. All in all, my activities on this day, aside
from those of my employees, contributed about 4,000 dollars to the GDP of the
nation.
Character # 3: I own this house as you know, which I
inherited together with a substantial sum of money that's invested in various
instruments. I don't have to do more than keep an eye on my investment –– I
count my money, if you prefer –– and spend the interest that it yields. So, I
woke up late this morning, as I always do, given that I was out till the wee
hours of the morning having a good time. I had a fancy brunch in the Cleopatra
Room of the nearby Caesar Hotel, then went to participate in the discussion
that the local art gallery is having with regard to the possible return of an
artwork, claimed to have been stolen. After that, I went across town where I
had an early dinner in one of those T&A outfits where I tipped a waitress
that was endowed with a magnificent pair, with a pair of hundred-dollar bills.
Then, I came here to meet you guys. All in all, my activities on this day,
including my tip to the waitress, added 8,000 dollars to the GDP of the nation.
As you can see, my dear reader, the first character produced goods
and/or services for eight solid hours during that day. This is actual wealth
that benefits the nation. As to the second character, he acted as a producer of
wealth for only half the day. Even though he acted as a consumer, during the
other half of the day, his activities were counted as wealth-producing, and
were falsely added to the GDP of the nation. As to the third character, he
acted like a consumer all day long, producing no wealth at all. And yet, every
move he made as a consumer, including his fascination with the breast of the
waitress, were counted as wealth that added a big (fictitious) amount to the
GDP of the nation.
In the way that the GDP is counted in America, the activities of
these three men came up to 13,000 dollars for the day. In China, they would
only count the 1,000 dollars of the first character, and half of the second
character's 4,000 dollars for a total of 3,000 dollars –– as opposed to America’s
13,000. And this is why you see a large discrepancy in the GDP of the two
nations even if they enjoy roughly the same standard of living, providing the
same level of health care for their citizens, the same level of education for
their children, and the same level of services for everyone.