The IMF has announced that China will surpass the US economically in real terms in 2016 – a mere five years from now.
The report brings new light to US economic debates surrounding American debts, budget debates government spending, investment and the crisis of the US dollar.
Whoever is elected president in 2012 will be the last president to preside over a US economy on top. With only five years to change the outlook, that person has a daunting task ahead.
The report uses purchasing power and other factors to gauge economic growth. It measured what people earn and spend in real terms as opposed to measuring exchange and currency rates.
This has shocked many who did not realize China was so close to surpassing the US.
Economist Max Fraad Wolff from The New School in New York explained that China has a great deal of resources and many more people than the US. Thus, they have the potential to produce more and at a greater rate. In addition, China has a much lower cost of living making quick growth more possible. However, US policies have also assisted in the US decline relative to China.
“Our own policies are behind the rise of China in many ways and the decline of the United States,” he added. “If you do keep importing more than you export, you keep running giant trade deficits, and you consume more than you produce and you outsource and ship those jobs, and import lots of goods from another place, and that place is China, they you are actually sending out your growth and they are receiving it.”
China is thoroughly capitalistic, Wolff explained, Chinese growth is driven by their capitalistic policies and competition.
“The Chinese continue to make basic policy decisions in order to maximize their growth and have a dominate position in the world economy, five, ten and 20 years from now,” he said. “Having much better policy eventually catches up to the people with the worse policy and benefits the people with the better policy.”
Often many assume America will remain strong because it is America, but this is not the case. American decision makers often make decisions based on politics – not on long term policy.
Wolff explained the US is going to remain important in global economics but old habits and assumptions have developed overtime and continue to hurt the US economy.
“Get off a particular path and figure when it’s not working for you anymore. We haven’t been particularly good on that front,” Wolff remarked.
Former Reagan administration official Paul Craig Roberts said American capitalists destroyed the US economy by moving capitalism to China. By outsourcing production and jobs to China the American economy suffered.
“It was only after the demise of the Soviet Union that China had a change of mind and opened its economy,” he said. “All of a sudden the first-world capitalists had large amounts of inexpensive labor and they turned to this labor, deserted their own workforce in order to lower costs and maximize profits.”
Roberts explained that US policies have allowed the US to decline and China to rise. The system of economic policies in place favors the few and the rich and promotes making money abroad as opposed to producing in the US.