Headlines today broadcast the news from the IMF: the US is no longer the world's largest economy, for the first time since the Grant (that's Ulysses S.) Administration. Is this news legitimate cause for concern, or just a blow to national pride?
My view is that it is a blow to national pride only. A more relevant measure of the prosperity a society has is not just nominal GDP, but rather GDP Per Capita. In other words, the per-person size of an economy. This directly translates into a standard of living. By way of contrasting GDP with the per-capita GDP, consider the case of India. (I will use Purchasing Power Parity figures, which is the convention rather than nominal figures).
In just a pure GDP basis, India falls just behind China and the US, at about $6.76T. India is the world's third largest economy.
But when we correct for the massive population of India, it drops to 126th place, just after Nigeria and slightly better than Viet Nam.
The first point here is that China should be a massive economy with such a massive population, and the fact that only now is it passing the United States when it has four times the population illustrates just how inefficient their economy really is.
The second point is that the Chinese economy really isn't what it is purported to be. Much of what counts in Chinese economic figures shouldn't. The money spent to build massive cities that produce nothing counts as economic production. The Chinese economy is also artificially inflated by depressed wages and artificially cheap currency (aided and abetted by American deficit spending).
In short, China is presently the largest economic bubble ever to exist. It cannot go on forever-- and because it cannot, it will not.