Choosing Between Income and Purchasing Power

One hears many comments with varying degrees of sophistication about the inevitability of China's economy overtaking that of the US in respect to absolute size. This blogger considers that forecasts in the growth of GDP based on today's rates are bound to be highly inaccurate over the medium to long term. Therefore, I am quite circumspect and consider that the probability of that happening to be slim.

What one hardly hears is the possibility that incomes of residents of the UK will catch up and overtake those of US citizens. Reading this piece from the BBC News site, I was astonished by the claim that that UK incomes will surpass that of US residents. Knowing that the US economy is especially vibrant, the reasons cited for that fact are even more telling. One of the reasons has been that the UK economy has grown consistently since 2001 and the other is the relative weakness of the US dollar.

Surprisingly, while the average income for the UK resident has passed that of the US resident for the first time since the 19th century, the relative openness and competitive nature of the US economy implies that the US resident maintains the higher purchasing power. Sustained growth and intense internal competition appear to be the harbingers of high income and meaningful purchasing power.