Dear God Will Hutton’s an idiot

So which is going to be the top economy and when?

Here is a puzzle that preoccupies futurologists, business strategists, economists and the world’s foreign offices. Who is going to do best or worst economically over the next 15 years out of the world’s current top 10 economies? In 2013, the US is comfortably number one, twice the size of China and two-and-half times the size of the number three, Japan. After Germany at fourth comes a cluster of countries with less than a trillion dollars of GDP separating them. France just pips Britain at sixth. Then follow Brazil, Russia, Italy and Canada with India, hurt by the collapse of the rupee, just outside the top 10 at 11.

The conventional wisdom, informed by conventional economics, is clear, represented faithfully by the conservative-leaning Centre for Economics and Business Research (CEBR) in its annual world economic league table released last week. The European economies, especially France and Italy, will sink down the league table, burdened by taxation, welfare and ageing populations. China is inexorably rising to take over the top spot, but in 2028, later than the CEBR thought last year. India will climb to number three. Russia will do well, as will Mexico and eventually Brazil. The UK, if it continues to shrink the state, keeps taxes low, deregulates its labour markets, continues to be open to immigration and disengages with Europe, may only fall one place in the 2028 ranking to seventh. But even though the UK and US will fare better than mainland Europe, the relative decline of the west will continue.

Fucking facepalm or what?

At no point at all does he even hint at the idea that these are gross GDP figures, not GDP per capita figures. Of course China’s going to be one of the top economies: there’s 1.3 billion people there for fuck’s sake. To think that they’re not going to pass the US at some point is to insist that they’re always going to have, per head, less than one quarter of the income of the 300 million in the US.

Germany, Italy (and to a lesser extent France) are simply going to have fewer people in the future in their workforces. The UK is predicted to have more. Same goes for India, Brazil etc.

This isn’t about economic policies (as long as people manage to avoid the usual communist and socialist idiocies) but demographics.

Man’s an idiot.

14 thoughts on “Dear God Will Hutton’s an idiot”

  1. I have long wondered about this one – if the good citizens of the USA are so worried about relative decline and being overtaken by China, they can always vote for immigration reform.

    The US population is growing – quite rapidly for a developed nation, so that it won’t just be 300m in a few decades time. But if government and lawmakers there were prepared to adopt more liberal immigration policies then they could easily reach, say, 500m by the middle of the century. In fact they could probably do that even while being picky about who they let in, with regards to qualifications/experience. Bearing in mind China’s population is declining slightly it would be harder to breach that gap in gross GDP. If there were sufficient political will, and an acceptance of continued increase in population, I don’t think the USA would ever have to sacrifice that lead.

  2. @MBE
    While ago I read a SF (speculative fiction ffs not bloody SciFi) novel had the US as a developing economy with Indian aid workers, Chinese manufacturers looking to offshore. Set 30-40 years uptime. Part of their problems are trying to cope with a country with a wide diversity of language use/culture. Whole place has pretty well fissioned into a mess of warring mini-states & anarchy.
    Very persuasive..

  3. @bis

    I reckon overall the US has done a pretty good job creating a common culture given the scale and variety of immigration. But then again, I did notice that when TV ratings are split by race, aside from sports they had pretty different top 20 shows. So perhaps less cohesive and homogeneous than it looks from the outside.

    To put current growth into perspective – US population was almost exactly 300m when the financial crisis broke in 2007 but they’ve added about 17m since then. That’s equivalent to absorbing the entire Netherlands, or one half of Canada. By this time next year, the appropriate comparison would be incorporating all the Nordic countries. To return to traditional units of measurement, it’s about one Wales Per Annum.

    Facilitating the migration of highly-skilled people would add to that, at minimal risk of creating a ghettoized hell-hole.

  4. @MBE
    Unfortunately, possibly in the past tense. I seem to remember reading, at rate of progress, Spanish will be the most widely spoken language in the US within 20years. But it’s where it’s the only language spoken the wheels begin to fall off. For people to immigrate to the US, the economic gradient has to be up. How long before that gradient’s higher into some of the current fast growing economies for those skilled workers. Take India. English language for employment purposes. Ignore the poverty. Only seen from the car windows & a source of cheap servants. Attractive prospect for a California tech. But the gradient’s still a steep pull from south of the Rio Grande for bean pickers.
    The population can increase but there’s no implication the ratio skilled/unskilled’s a constant. Look at the UK experience.

  5. Suppose real empires come back into fashion. Not just treaty but military empires. Lots of people in asia often disciplined enough for an empire of sorts. Just need the right ‘leader’.
    Not from the decadent west of course.

  6. @bis

    I don’t think bilingualism, or even multilingualism, dooms a country to chaos and poverty. There are several well-functioning parts of Europe where it doesn’t seem to be a big deal, and Canada hasn’t fallen apart despite language politics being a hotter potato there – even in its early history the US had quite a multilingual population with German churches and newspapers being very common, hence Pennsylvania Dutch etc. But there’s an argument that access to home-language media and web make the modern immigrant experience less English-immersive.

    I reckon the litmus test of whether the US is ready for a “Quebec moment” regarding language rights for Spanish, will come in how statehood for Puerto Rico gets handled (or abandoned). Conversely, fear of Spanish-language PR culture being eroded is one of the main drivers of anti-statehood sentiment there.

  7. It’s not just demographics of course, it is also the bog standard belief in convergence – thus Russia for example.

    The problem with the CEBR stuff is that it is bog standard extrapolation with the advantage of demographics + a belief in convergence. I expect that most of South America will end up going backwards when the commodity cycle turns – they elect really dumb politicians and their institutions are terrible. I also expect that Africa will do far worse than people believe today when the commodity cycle turns, but probably better than they did in the 80s (although one really has to try really hard to do quite that badly).

  8. Wrong. Total gdp does matter and there is little reason to believe China will grow purely because it has a large population. After all if that were true China would always have been the largest economy (in fact up until the mid 2000s Britain had a larger economy & nobody ever said that was impossible.

    Incidentally Hutton is wrong – Brazil passed our economy last year so we do not have to wait to be 7th.

    Of course predicting the future growth levels based purely on past is a mugs game. We could at least match China’s growth any time our parasitic political class allow it – or are replaced.

  9. Neil Craig

    Suggests that the UK is still ahead of Brazil (no idea about the methodology – it looks like nominal exchange rates rather than PPP).

    No one in the real world thinks we could match China’s growth rate – China is very far from the PPF, while the UK is very close.

    GDP is a measure of value added, which is produced by inputs of Labour, Capital and Technology. China is in catch up as it redeploys labour to more productive roles and invests extra capital to make productive roles possible. It benefits from using technology that is available. The UK went through this process back in the 19th century. This is what I meant by catch-up.

    Tim is pretty much bang on in his analysis of the relative shifts in gross GDP – Germany and France shrink (comparatively) because of their shrinking populations, whilst others become larger because their governments engage in less crap policies and their larger populations lead to bigger GDP as catch up takes place.

    Of course extrapolation from the past is bad, but I assume that the CEBR bods have tried to do extrapolation + adjustment for catch-up. For example Japan ceased to grow as quickly around the time when its GDP per capita began to hit current Chinese levels and I assume that this is likely to be true for China. Sometimes it will be bollox – if you’d done the same thing back in 1979, LatAm and Africa would have been projected to have grown dramatically through the 1980s.

  10. @ken

    What is the reason most economists suggest for the South American failure to kick on in the 80s? Is it “institutions” (which seems to be the stock answer on this topic) and if so, which institutions in particular are copping the blame – inability to legally protect investors’ property, poor government spending decisions, … ?

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