In the case of the dollar, we need to stop thinking of its value as a marker of economic success. The American economy has its problems, but so far the low value of the dollar has proved more a benefit than a cost.
Read more here.
According to the BEA, the U.S. economy grew by almost 6% (in current dollars) in the third quarter, and by 6.6% in the second quarter (on an annualized basis). In dollar terms, that translates into $200 billion of additional economic output in the third quarter of 2007 (or $800 billion on an annual basis) and $217 billion in the second quarter ($868 billion annually).
This brings up the question: Given the ridiculously large size of the U.S. economy ($14 trillion), what does each percent in nominal GDP growth translate to, in terms of that amount of additional U.S. economic output compared to the size of various national economies? Here is how it breaks down:
1% of current-dollar annual growth in U.S. GDP ($140 billion) would be the equivalent of adding the entire economies of either the Czech Republic ($142b) or Israel ($142b) to the U.S. economy.
2% growth would be like adding Denmark’s entire economy ($276b) to the U.S.
3% growth would be like adding more than Turkey’s entire economy ($401b) to the U.S.
4% growth would be almost like adding the entire Dutch economy ($660b) to the U.S.
5% growth would be almost like adding the entire economy of Australia ($755b) to the U.S.
6% growth would be like adding Mexico’s economy ($840b) to the U.S.
7% growth would be like adding Russia’s entire economy ($985b) to the U.S.
Bottom Line: Over the last year, from the third quarter of 2006 to the third quarter of 2007, the U.S. economy has grown by 5.3% (same as the 10-year average), or more than $700 billion in current dollars, which is almost the equivalent of adding the entire national economy of Australia ($755b) to the U.S. economy. And if the economy were to grow annually at the same rate as the second quarter (6.6%), it would be like adding more than the entire economy of Mexico to the U.S. economy, and almost like adding the entire Russian economy to the U.S.
A slowdown in the U.S. economy to something like 2-4% growth in nominal GDP would mean that instead of increasing output equivalent to adding the economies of Australia or Mexico to the U.S. economy in a given year, we would have to “settle” for only adding output equivalent to an economy like Netherlands, Turkey or Denmark. Still not a bad outcome for the “Dangerfield Economy.”
Following up on the previous CD post below, the chart above (click to enlarge) shows the 20 largest U.S. metropolitan areas by 2006 GDP using BLS data available here and the countries with comparable economic output using GDP data available here from the IMF and World Bank.
Consider that the top 10 cities in the U.S., all with GDP of $224 billion or higher, would rank among the top 30 countries in the world by GDP if they were a separate country. The top 20 American cities would all rank individually in the top 50 countries of the world by economic output if they became a separate country.
Consider also that the 10 largest cities in the U.S. produce the same amount of economic output ($4,300 billion) annually as Japan, and the top 20 largest U.S. cities produce the same output ($6,000 billion) as the economies of U.K., France and Canada combined.
When you consider how ridiculously enormous the U.S. economy is, diversified across a huge number of industries in 50 states, with individual cities producing more economic output than most countries around the world, it’s truly mind-boggling. In the press, America’s “Dangerfield economy” is often portrayed as fragile and delicate, ready to collapse into recession at any moment, when in fact, it’s ridiculously larger and more stable than most people give it credit for.
This previous CD post about the size of the U.S. economy, and Greg Mankiw’s post with a link to a video about the size of the U.S. economy vs. oil-producing Gulf States, inspired me to do the analysis in the chart above (click to enlarge). Data on 2006 GDP by country were obtained here, and data on GDP by metropolitan area were obtained here from the BLS.
Consider that Iran’s entire economy ($222 billion) is about the same size as Detroit ($213 billion), Qatar ($47 billion) is slightly smaller than Birmingham, AL and Jordan is just slightly larger than Flint, MI.
Bottom Line: We lose sight of how enormous the U.S. economy is (GDP of $14,000,000,000,000) in absolute value, and also have probably never even considered that individual cities in the U.S. like San Diego produce as much economic output per year as the U.A.E. And even with the world’s second largest reserves of conventional crude oil, the annual economic output of Iran is barely larger than Detroit’s economy.
The huge size of the U.S. economy ($14 trillion), diversified across a large number of industries and an enormous geographical area, must provide a high degree of economic stability, and should help stabilize the economy against recessionary pressures. When it comes to size, strength and stability, no other country in the world even comes close. A $14 trillion economy can take a lot of shots and remain standing, and it’ll take more than a subprime mortgage crisis and housing troubles to knock Goldilocks down.
Greg Mankiw has an interesting post “A Quick Quiz,” which made me think of the map above (click to enlarge) that was featured on a previous CD post and other blogs and websites about 9 months ago. The map shows the 50 U.S. states renamed for countries that have similar economic output, measured by GDP.
Bottom Line: The $14 trillion of GDP in the U.S. is a LOT of economic output.
TORONTO — Canadians were given fresh evidence yesterday the soaring loonie is wreaking havoc on this country’s trade performance after Statistics Canada reported our current account surplus with the rest of the world plunged by $5.3 billion in the third quarter to $1 billion.
The current account is the broadest measure of Canada’s trade performance and includes trade, services and investments. This latest July-September snapshot shows the higher dollar, averaging about 95.7 cents (U.S.) during the period, pummelled exports and shoved this country’s current account surplus down to its lowest level in four years.
Since the currency only reached parity with its U.S. counterpart during the tail end of the period, some economists are warning what’s left of that surplus could disappear entirely during the current quarter.
A mere 65,000 H-1B visas for foreign professionals are allocated in the U.S. each year. And this year, as in the previous four, the quota was exhausted almost as soon as the applications became available in April. This effectively means that more than half of all foreign nationals who earned advanced degrees in math and science in 2007 have been shut out of the U.S. job market.
It makes little sense for our universities to be educating talented foreign students, only to send them packing after graduation. Current policies have MIT and Stanford educating the next generation of innovators — and then deporting them to create wealth elsewhere.
~From today’s WSJ editorial American Brain Drain