A note of optimism: The U.S. is still the world's largest and strongest economy

The U.S. economy is clearly the world’s largest

2008 U.S. annual Gross Domestic Product in current dollars is $14,264.6 billion
(Source: BEA, Dept. of Commerce).

That’s $14.3 trillion. This is huge.

The numbers make the current stimulus spending seem modest

They should put the current stimulus spending in perspective. The Obama stimulus package was $747 billion, spread out over several years. The TARP rescue funds were $700 billion. The Federal Reserve has been trying to pump $800 billion into consumer and mortgage credit markets. The total amounts to less than $2.3 trillion, or 16 percent of annual GDP.

Even the U.S. government debt appears manageable

The total of the U.S. government debt is now at $11.1 trillion, a few trillion less than U.S. annual GDP. And even this overstates the debt burden. About $7 trillion of the debt is ‘owed to the public,’ where public refers to U.S. citizens, citizens of foreign countries, and foreign governments. The remainder is owed internally within the U.S. government to various trust funds that have been set up to finance various public policies, e.g., to the Social Security Trust Fund and the unemployment benefit trust funds. Of the $7 trillion owed to the public, a 2007 Brookings Institution report noted that $2.5 trillion is owed to “Foreigners, mainly foreign central banks and government investment funds,” Much of it is held by China, Japan, Germany and the oil exporting countries.

The real measure of U.S. economic strength

But the real measure of the income generating power of the U.S. economy should be measured in relation to our population. If we divide U.S. GDP by population we get GDP per capita. According to data from the Bureau of Labor Statistics, 2007 U.S. Real GDP per capita was $45,800. 2007 is the latest year for which GDP per capita is available. BLS provides comparable GDP per capita figures for 17 countries. The U.S. is ranked second in 2007 GDP per capita, behind Norway. Ireland ranked third, just behind the U.S.

Japan, often referred to as the second largest economy after the U.S., based on overall GDP, is ranked 13th on the BLS list of rankings by GDP per capita. Chart 1 lists GDP per capita for all 17 countries for which BLS calculates the estimates.

Chart 1: GDP per capita, 2007
Converted to U.S. dollars using 2007 Purchasing Power Parity

Norway  55.2
United States  45.8
Ireland   42.7
Netherlands  38.6
Canada   38.2
Austria   37.8
Denmark  36.5
Sweden  36.3
Australia  36.1
Belgium  35.2
United Kingdom 34.8
Germany  33.7
Japan   33.5
France   32.7
Spain   30.3
Italy   29.8
Rep. of Korea  24.8

The World Bank publishes a chart of its estimates of GDP for national economies. In terms of GDP without accounting for population China ranks as the world's second largest economy after the United States, with Japan in third place:

Gross domestic product 2007, World Bank Estimates
(millions of international dollars)
Ranking Economy international

1 United States 13,811,200
2 China 7,055,079
3 Japan 4,283,529
4 India 3,092,126
5 Germany 2,727,514
6 Russian Federation 2,088,207
7 France 2,061,884
8 United Kingdom 2,046,780
9 Brazil 1,833,601
10 Italy 1,777,353
11 Spain 1,405,262
12 Mexico 1,345,530
13 Korea, Rep. 1,199,270
14 Canada 1,178,205
15 Turkey 922,189
16 Indonesia 841,140

But the recession is causing real misery

While these numbers can put our current economic troubles in perspective, they cannot dismiss real misery some U.S. citizens are now facing. GDP, in real terms after adjusting for the change in prices of goods and services, decreased at an annual rate of 6.3 percent in the fourth quarter of 2008, (that is, from the third quarter to the fourth quarter), according to estimates released by the Bureau of Economic Analysis of the U.S. Department of Commerce. First quarter 2009 figures are certain to show further decline in our real GDP. This translates into millions of lost jobs. And the fall in financial wealth resulting from the decline in retirement fund accounts and lost equity in the value of housing is causing painful readjustment decisions, including some life changing plans for the furture for homeowners and retirees and near retirees.

Nonetheless, the U.S. economy is still the largest in the world and a leader in income per capita. The dollar remains strong, precisely because the U.S. is still a relatively safe place for investors.

We will pull out of this recession. The only question is when. Hopefully we are near the bottom, and a recovery is underway.