The World Bank says within a matter of months, China will be the world's most powerful economic force, greater than the United States. This would be yet another downgrade to U.S. prestige comparable to the recent embarrassment in losing our perfect AAA credit rating.
As bad as things have become on President Obama's watch, they may not be quite as bad as they seem. The World Bank's International Comparison Project report relies on revisions to its "purchasing power parity" (PPP) index, which is a method of accounting for differences in cost of living in different countries.
The latest figures estimate China's 2011 gross domestic product, in PPP terms, at $13.5 trillion, compared to the U.S. figure of $15.5. Because China is growing while the U.S. economy is stagnant, the Middle Kingdom will easily close the $2 trillion gap by year's end. The report also sees India overtaking Japan for the No. 3 spot among the world's largest economies.
Those numbers, however, don't tell the whole story. As any visitor can attest, China and India are still relatively poor countries. Using the more common "exchange rate" measure of gross domestic product, China's economy appears much smaller, at $7.3 trillion, which is half the U.S. figure of $15.5 trillion. India's was a relatively paltry $1.9 trillion, roughly a third of Japan's $5.9 trillion. When measured this way, the United States still holds more than 22 percent of the global economy.
In PPP terms, the people of China have a lot of catching up to do. Their per capita income is about $10,000, which is one-fifth of the average American's $49,800 income. It's also lower than in Brazil ($14,639) and Russia ($22,502). At $4,700, India's gross domestic product per capita is a tiny fraction of Japan's $34,000.
With less money in hand, the people of China and India don't buy as much. The per capita consumption in China is about three-quarters of the global average, while Indian consumption is about one-third. The average American, on the other hand, consumes 370 percent of the global average.
Properity in China and India is on an upward track, and their rapid growth is good news for the rest of the world, lifting millions out of poverty. While some see an economically strong China as bad for America, the growth means there will be more consumers eager for American-made goods and services.
America is only falling behind because policymakers have lost sight of the free-market values that once made our nation great. We're slipping because the administration has abandoned fiscal and monetary restraint and saddled business with the highest tax rate in the developed world. Though we'll still be on top at the end of the year, we must change course before we lose our top position by every measure.