Chinese Economics Thread

mossen

mossen

Junior Member
Registered Member
FairAndUnbiased said:
US and EU used to be almost equal in GDP per capita. 2008 financial crisis did not originate in EU. Yet there was a massive divergence in GDP per capita since 2008 between US and EU. Wonder why.
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They were never equal in per capita GDP, or even close. They were fairly close in total GDP, which is a different metric. A major reason why is that the € was overvalued. It has corrected over the 2010s, which resulted in a stagnant GDP. That is ultimately better in the long run. Now it's arguably undervalued, as the EU has a current account surplus even higher than China (as a percentage of GDP).

There were, of course, self-inflicted wounds. Austerity was a failure and set back the continent unnecessarily. I also think lack of deeper fiscal integration ("fiscal union") remains a major issue. I am pessimistic that it will ever happen. German and Dutch taxpayers don't want to share the burden with Italy or Spain. I don't see it changing.
 
FairAndUnbiased

FairAndUnbiased

Brigadier
Registered Member
mossen said:
They were never equal in per capita GDP, or even close. They were fairly close in total GDP, which is a different metric. A major reason why is that the € was overvalued. It has corrected over the 2010s, which resulted in a stagnant GDP. That is ultimately better in the long run. Now it's arguably undervalued, as the EU has a current account surplus even higher than China (as a percentage of GDP).

There were, of course, self-inflicted wounds. Austerity was a failure and set back the continent unnecessarily. I also think lack of deeper fiscal integration ("fiscal union") remains a major issue. I am pessimistic that it will ever happen. German and Dutch taxpayers don't want to share the burden with Italy or Spain. I don't see it changing.
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Let's look at a few comparative EU member groups over time, using the most competitive grouping of EU countries vs. US. We'll call them EU North.

2000: US 36k, NEA/GER/BEL/FRA/UK/FIN: 22k-26k, 64-72% US GDP/capita
2005: US 44k, NEA/GER/BEL/FRA/UK/FIN: 35k-42k, 80-95% US GDP/capita
2007: US 48k, NEA/GER/BEL/FRA/UK/FIN: 42k-52k, 88%-108% US GDP/capta
2010: US 48k, NEA/GER/BEL/FRA/UK/FIN: 45k-51k, 94-106% US GDP/capita

Up to this point, the US had been stuck in the 36-46k range for 10 years. EU North have had higher GDP/capita for 5 years leading up to 2010. EU North had been gaining. Then what followed 2010?

2012: US 50k, NEA/GER/BEL/FRA/UK/FIN: 42k-50k, 84-100% US GDP/capita
2015: US 57k, NEA/GER/BEL/FRA/UK/FIN: 38k-45k, 67-82% US GDP/capita
2018: US 63k, NEA/GER/BEL/FRA/UK/FIN: 43k-53k, 68-84% US GDP/capita

After 2012 the US just gains like crazy with ~2k USD GDP/capita gains per year. EU North declines steeply and stays stuck at ~70-80% US GDP/capita.
 
mossen

mossen

Junior Member
Registered Member
FairAndUnbiased said:
Let's look at a few comparative EU member groups over time, using the most competitive grouping of EU countries vs. US. We'll call them EU North.
Click to expand...
Right, but that doesn't change my point. The Euro was overvalued around 2008. The 2010 decade was a corrective. I do appreciate that you focus on the Northern countries, as I agree that the EU is too heterogeneous to be compared to the US (e.g. the entire East was communist as late as 30 years ago).

Another factor to consider: GDP per capita is influenced by annual hours worked. Germany has around 1350 annual hours worked, whereas the US is at around 1750-1800. If you look at GDP per hour worked, then Germany is a lot closer. Same with France.
The difference is basically that N-Europe has chosen a model where people have chosen more leisure time in exchange for lower GDP per capita. On balance, I think that's the right choice.

More interestingly, perhaps, is the question if the US dollar is overvalued now, just like the euro was in 2008? Certainly, there are signs pointing in that direction, e.g. current account deficit is falling off a cliff.

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And US manufacturing output, in real terms, has failed to reach its 2007 peak - 15 years ago!

1.png

Normally, when countries have such overvalued exchange rates, it would cause downward pressure on their currency. But the US is special, because it enjoys
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.
 
FairAndUnbiased

FairAndUnbiased

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Registered Member
mossen said:
Right, but that doesn't change my point. The Euro was overvalued around 2008. The 2010 decade was a corrective. I do appreciate that you focus on the Northern countries, as I agree that the EU is too heterogeneous to be compared to the US (e.g. the entire East was communist as late as 30 years ago).

Another factor to consider: GDP per capita is influenced by annual hours worked. Germany has around 1350 annual hours worked, whereas the US is at around 1750-1800. If you look at GDP per hour worked, then Germany is a lot closer. Same with France.
The difference is basically that N-Europe has chosen a model where people have chosen more leisure time in exchange for lower GDP per capita. On balance, I think that's the right choice.

More interestingly, perhaps, is the question if the US dollar is overvalued now, just like the euro was in 2008? Certainly, there are signs pointing in that direction, e.g. current account deficit is falling off a cliff.

View attachment 82161


And US manufacturing output, in real terms, has failed to reach its 2007 peak - 15 years ago!

View attachment 82162

Normally, when countries have such overvalued exchange rates, it would cause downward pressure on their currency. But the US is special, because it enjoys
Please, Log in or Register to view URLs content!
.
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GDP isn't wages though. Hours worked doesn't necessarily correlate to GDP. A worker on vacation still buys things like rent, healthcare, electricity, food, fuel, consumer goods, etc.

Yes, USD is overpriced, and it is seen in the massive inflation occuring right now.
 
mossen

mossen

Junior Member
Registered Member
FairAndUnbiased said:
GDP isn't wages though.
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GDP per hours worked is a measure of productivity. High productivity is a condition for high wages. The two are linked; you can't have high wages without high productivity, otherwise you get high inflation and a bloated current account balance, thus leading to a downward pressure on your currency to reach an equilibrium state. The reason why Brazil can't import as many expensive things as Germany is that their exports and productivity can't pay for it.

N-Europe has chosen to take some of their high productivity and work less (e.g. more vacations) instead of maximising income. That's basically a social choice. GDP per capita = GDP per hours worked (productivity) x annual hours worked.
 
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