The following graph is based on data taken from the World Bank, although the granularity of the data has been reduced to 5-year increments, which in terms of the ups-and-downs of Gross Domestic Product (GDP) is quite course, but hopefully adequate for the following general discussion. Again, for simplicity, the nation-states have been selected as only being representative of different political and economic ideologies, e.g. free-market capitalism through to state-controlled capitalism. Previous discussions entitled ‘Chinese & Russian Overview’, ‘American & European Overview’ and ‘Economic Considerations’ might also provide some further background information to this discussion.
We might simply accept the GDP growth shown for each nation-state as being generally indicative of the ‘health’ of each economy, although this also needs to be quantified in terms of the GDP per capita to be discussed later. While the data for US and China GDP stretches back to 1970, the collapse of the Soviet Union in 1990 does not provide the GDP for Russia prior to this date. Likewise, the make-up of the member states of the European Union (EU) has been subject to many updates since the early 1970’s. For this reason, two of the larger economies in the EU, e.g. Germany and UK, have simply been used as being representative of GDP growth, although this is undoubtedly biased towards some of the more successful economies. It is also highlighted that the growth in GDP in the chart above has been subject to monetary inflation between 1970 and 2015, which might be estimated based on a US inflation rate of 6.11. If so, the comparative increase in GDP between 1970 and 2015 is shown in the 2015’ column in the table below, such that actual growth is reflected in the Growth’ column.
While this analysis will initially accept the inflation factor of 6.11, based on an average 4% over 45 years, other sources suggest this estimate might be on the low side. If so, then the actual growth figures in the table above might be much lower than estimated, such that few economies may have actually seen any real growth.
Note: It is possible that the perception of economic growth is being confused by a perception of modernity. In part, we might perceive ourselves being ‘better off’ because modernity has provided access to technology that makes many aspects of life more convenient, i.e. less of a chore, although we might question how this has been afforded?
In part, the question contained within the note above might be answered in terms of the following two charts. The first, on the left, shows the increase in household debt and income in the US over the period of interest, i.e. 1970-2015. Based on an approximation taken from the chart on the below, we might estimate US income increasing from $22k to $43k, i.e. a factor of 1.95, while debt rose from $16k to $55k, i.e. a factor of 3.5.
If so, this would suggest an increase in the debt to income ratio of about 1.7, which is also generally reflected in the chart below for various other nation-states up until the 2008 financial crisis.
Again, if we simply accept the general inference outlined above, it might suggest that the benefits of technology in our everyday lives, which we might attribute to economic growth and productivity gains, may in actuality have only been made possible by the increase in household debt fuelling the economy.
Note: There are estimates that the money supply in the US has doubled every 14 years since 1959, which aligns to an interest rate of 5%, not the 4% used in the previous table. If so, the growth in most western economies might be much closer to zero, as previously suggested and provide some more anecdotal evidence that growth in most economies has be driven by debt rather the productivity.
Of course, we might want to question the suggestion in the previous note, because it appears to suggest that despite of all the amazing advances in technology, e.g. computer automation, these advances have had little benefit to economic productivity in terms of real growth – how can this be? However, before any attempt might be made to answer this question, we possibly need to widen the scope of this simplistic economic overview in terms of human population growth over the same period, i.e. 1970-2015, for the nation-states under review.
Clearly, the size of an economy might also be predicated on the number of people that might contribute to the measure of GDP. We might generally surmise from the chart above that the increase in population of the nation-states under review does not appear excessive in many nation-states shown with the exception of China.
How might we attempt to normalise GDP growth with population?
Typically, economists tend to rationalise this issue in terms of a GDP per capita, as shown below, which might also be seen as a measure of the productivity of the overall economy of some nation-state. Of course, in most cases, the per capita figure is not really reflective of actual wealth distribution. In this context, we might initially perceive the economies most closely approximating free-market capitalism, i.e. US, UK, Germany and Japan, outperforming those more closely associated with state-capitalism, at least, when averaged out across the entire population.
Of course, the assumption in the last statement above might be jumping to a premature conclusion as few things in global economics are that simple. For example, the previous estimate of a Chinese growth factor of 19.46 suggests that China has outperformed all western economies by a factor of 10 corresponding to a GDP of $92 billion in 1970 growing to $11,060 billion in 2015, even when normalised by a 4% monetary inflation rate. Clearly, aspects of China’s GDP growth suggest that they have been doing something that other Western economies have not, especially in terms of its investment in infrastructure that have then stimulated growth in other sectors of its economy. However, overall China’s economy still has to be reconcile with its GDP per capita position in the world – see List of GDP per capita for China’s position (72). In part, we might now see a somewhat conflicting picture of the Chinese economy in terms of it being the second largest economy in the world by GDP, but below 70th in the world by GDP per capita. We might also perceive a problem with the Chinese economy in terms of its mounting private debt as illustrated in the next chart – see Debt Dynamics for more details.
What this chart suggests is that China’s private debt now exceeds the private debt of the US as a percentage of its GDP, which has then to be interpreted in terms of its GDP per capita. On this basis, we need to compare the fact that the US has a 2015 GDP per capita figure of $56,199 against China’s per capita figure of $8,067, i.e. a 7-fold difference.
So how does the per capita figure mask the actual distribution of wealth?
The data in the following table is taken from a 2017 Wikipedia source that shows both the ‘mean’ and ‘median’ wealth for the nation-states, in US dollars ($) as previously discussed in terms of economic GDP. For the purpose of this discussion, we will focus on the median value as being the most representative of the distribution of wealth with in each nation-state.
Note: The distribution of wealth reflects the wealth in a given society, which is essentially based on the distribution of asset ownership in a society. However, it might be more generally described as the net worth, or wealth, measured in terms of assets, i.e. money coming in, minus liabilities, i.e. money going out. The issue of asset ownership will be discussed later in the context of a protection mechanism against monetary inflation from which those without assets are at a disadvantage.
While the mean and median values, as outlined in the previous table, are based on 2017 data, no corresponding source data for the general distribution could be found for that year. However, the following data based on a Credit Suisse Report , dated 2013, is assumed to still be generally reflective of wealth distribution in the nation-states of interest. The first table below shows the distribution of wealth divided into 4 groups as a percentage of the adult population in units of thousands (000’s).
The following table is simply the same data, as above, but where the 4 wealth distribution groups now reflect the number of people in each group, which provides a different insight to the scale of wealth distribution in each of these nation-states. For example, we might perceive that only 0.1% of the Russian and Chinese adult population have wealth in excess of $1 million, although the actual numbers involved vary from 110,000 in Russia to 998,000 in China.
What might we conclude from these tables and the previous discussion?
If we liken the US economy as one more orientated toward free-market capitalism, then Russia and China might possibly be more representative of state-capitalism. On this simple divide, the median of wealth distribution results in a figure of $55,876 for the US, while China and Russia compare badly with figures of $6,689 and $3,919 respectively. However, if we describe the UK and Japan as possibly a hybrid of the two extremes above, i.e. in the form of social capitalism, the median wealth appears much better than even the US, i.e. $102,641 and $123,724 respectively. In this context, Russia’s wealth inequality appears particular bad, if over 90% of its population is below $10k, while the figure in Japan is less than 10%.