Exciting Visions of a Bright Future

Fund Managers, economists and politicians agree on the exciting future they see in the Third World. According to them, the engine of the world’s economic growth has moved from the West to what were once the poverty-stricken societies of the Third World. They feel mushy about the rapid increase in the size of the Middle Class in the Third World, and how poverty is becoming history.

 

GDP of India vs. UK in 2016 – crossing over.

 

Just one of the scores of countries that the British once ruled over, India, is now believed to be richer than its colonial master. What used to be colonized countries, believed to have had an inherent problem that prevented them from ever growing intellectually and economically, are finally seen to be emerging from under the yolk. But are they?

Between 2002 to 2012, the combined GDP of the Third World rose by ~90%, whereas that of the developed world grew by a “mere” ~15%.

 

GDP growth of developed vs developing world

 

The reason has been the faster rate of growth in the third world, which has outstripped that of the developed world for most of the last three decades. Future projections look even more exciting:

 

Annual real GDP growth, emerging markets vs developed markets

 

The end result has been that that while the combined GDP of the Third World on a purchasing power parity (PPP) basis was half as much as that of the developed world in 1980, it is now higher. This is nothing but astounding according to  international organizations and the media. It is simply an impressive achievement of the third world, as they will say:

 

EM vs. DM cumulative GDP adjusted for purchasing power parity

 

Lies, Damned Lies, and Statistics

Except for China, Third World countries, erroneously known as “emerging markets”, haven’t achieved what the preceding graphs show. The graphs suffer from four statistical flaws, which are unhesitatingly repeated and regurgitated by the media, the World Bank, the IMF, the developed world, and the Third World.

Those from the developed world desperately want to be seen as self-deprecating and non-racist, while preserving their own jobs and even enhancing their career prospects. As Marc Faber experienced, even a glimmer of expression of facts that go against the conventional, politically-correct wisdom leads to vehement opposition.

In the boardrooms and discussion meetings of big organizations, it is hard to imagine that anyone has a chair to point out the statistical flaws. In our current institutional set-up dominated by virtue-signaling and political correctness, the truth and doing good are of no value.

The Third World fails to challenge the statistical flaws for they love being seen as geniuses and want to feel proud of their ancient cultures and religions which have shackled and ossified them mentally, socially and politically, resulting in their failure to contribute humanity in the areas of science, literature or arts.

In the end, this grave problem underlies the future of the Third World.

Let us consider the flaws before reinterpreting the same data:

 

Comparing growth rates: Mathematically, this is utter non-sense, for growth rates can be compared only and only if the entities being compared have the same base or at least similar bases.

According to the Economist,  India and Ethiopia are among the fastest growing economies of the world, China is facing low growth and the US is struggling:

 

Comparison of economic output growth across the world by the Economist magazine.

 

Let’s look at the absolute numbers to understand what the assertion of the Economist translates into:

 

Per capita growth rates translated to actual dollars.

 

If Ethiopia grows at the rate of 8.5%, it will add a mere US$72 to its per capita GDP. Similarly, India, if it grows by 7.7%, will add US$164. The US, despite its seemingly low growth rate, will add US$1,367.

Or quite in contrast with the assertions of superior growth of Ethiopia, the US is growing 1,900% faster and has GDP per capita that is 7,300% larger.

Comparing GDP figures: Comparing GDP figures coveys nothing of value in economic terms. India’s GDP is comparable with that of the UK, but India’s population is 2,000% that of the UK. What is relevant is GDP per capita. That makes the UK 2,300% richer than India on per capita basis. Any data that tries to reach a conclusion based on comparing aggregate UK and Indian GDP numbers is intentionally deceptive.

Looking at GDP growth rates within a society: Populations of the developed world are stagnating and those of the developing world are exploding.

 

IMF population growth projections

 

In 2016, the sub-Saharan economy grew at 1.4%. This isn’t something to worry much about until you look at population growth, which was 2.8%. This takes GDP per capita into negative territory, at minus 1.4%.

The difference between what is communicated and the reality is the difference between slowly getting rich, and going bankrupt and returning to a Malthusian equilibrium. What should be looked at to understand a country is its GDP growth rate on per capita basis.

Over use of Purchasing Power Parity: To make the GDP figures of the Third World look larger, indiscriminate use of PPP is made. For example, it is assumed that in India, where half the population goes out into the open to relieve itself, fecal matter containing Mac Burger sold at half the price in nominal terms should be valued the same as it is in the US.

Most people I know would happily pay much more in nominal terms to avoid fecal matter. What those who over-use PPP to explain economic performance fail to understand that to change the value-chain to reduce fecal matter from entering the food-chain would make food more expensive in India than it is in the US.

Every seasoned traveler knows that in poor countries, as you go up the value-chain, things become rapidly expensive, eventually becoming much more expensive than they are in the richer countries. A badly constructed middle class house with the ever-pervading smell of sewage in Mumbai will set you back more than it would in New York.

 

Historical Growth

With an understanding of the above flaws, let’s look at the same data provided by exactly the same organizations:

 

Historical GDP per capita data at PPP

 

The top three lines in the above graphs are of developed countries: the US, Japan and the UK. What one immediately gets — unless one is trained not to see facts — is that the developed world has grown much faster than the Third World. This happened not just before 1990s, when the Third World was stagnating anyway, but even since then, during the time when it is erroneously supposed to be growing faster.

 

EM vs DM cumulative per capita GDP in PPP terms

 

The consolidated situation between the developed world and the Third World is shown in the above graph, although were it not adjusted for the politically correct measure of PPP, the line depicting Third World economic growth would have been at least lower by half.

Moreover, had they isolated China, which is indeed changing and is the only “emerging market”, the situation of the Third World would have made you cry. Whatever way we look at the Third World it hasn’t achieved what everybody  insists we should believe it has.

There is another fatal flaw that international organizations have inculcated in their projections. They believe that the growth rates of economies of cattle-herders and subsistence farmers in the Third World will continue to stay high in the near and foreseeable future. This cannot happen unless the Third World shows the capability to accumulate intellectual and financial capital to not only leverage its current skills, but add even more.

As time has passed, it has also become clear that growth rates of Third World countries have been falling for the last several years, as the following graph shows. This graph would look worse had they used growth rates on a per capita basis. As mentioned above, in sub-Saharan Africa, GDP grew by 1.4% in 2016. Its population grew by 2.8%. The net result was negative GDP per capita growth.

 

An EM growth slowdown

 

A none-too subtle headline in an Indian newspaper

 

To look to the future, we must understand the nature of the trend. As shown above, while the growth rate of the Third World has been hugely exaggerated, there is no doubt that it has done better in recent years.

The problem, alas, is that this growth has been the trend only for the last two or three decades, the time during which the Third World benefited from the advent of the internet and the rise of China, which is the only emerging market and which is growing due to intrinsic reasons of its own.

Zooming out to see the larger trend shows a different story. After the end of WWII,  Third World countries at best grew slowly. They often stagnated. Most of them declined economically, going into negative growth. Despite starting from a very low base, their growth rates were lower than those of developed countries.

Across of the board, tyranny erupted — often murderous — in these so-called newly independent Third World countries. Their economies and societies suffered because they had lost a vital element in the equation of growth and social stability: European management.

 

This is what today’s leadership in the proud and free India is like, in which a great leader was recently seen teaching poor people not to defecate in the open.

 

No More Low-Hanging Fruit

Recent growth rates in the Third World were made possible by the advent of a new factor in the equation: rapid transfer of technology from the West to the Third World using the new technology of the internet, and a real change happening in China, which enabled growth of natural resource exporting nations.

Also, directly or indirectly, the West, particularly the US, has economically subsidized the Third World, and provided their citizens security by keeping  murderous tyrants in check. As Trump pulls back on that subsidy and international conflicts, by insisting that many of these countries play fair, the reality is emerging. The currencies of Third World countries have plummeted and so have their stock markets, a double whammy.

 

EM currency index.

 

The low-hanging fruit the internet offered have now been plucked. What emerges is an extremely ugly future for the Third World. Venezuela, Syria, Iraq, Libya, Zimbabwe, Pakistan, Iran and the rapidly worsening South Africa aren’t isolated countries but a part of the Third World trend. Apart from the “noise” of the last three decades, which cannot and should not be seen as a fundamental change in the long-term trend that started after the Europeans left at the end of WWII, the social and political situation of the Third World has continued to worsen.

 

PPP adjusted GDP per capita of Turkey, China, Brazil and India.

 

Turkey, which was among the better examples of the Third World, was one of the fastest growing economies. As Turkey has grown economically, so has religious fundamentalism. Ironically economic growth has aided their tribalism — this correlation is something to sit back and think about. Dogmatic nationalism is sweeping across the Third World.

The resilience of tribalism is the fundamental reason why Third World growth is not sustainable. The concept of reason, the glue that enables accumulation of financial and intellectual assets, continues to be conspicuous by its absence in the Third World. For now, at the very least, we should stop exaggerating economic growth of the Third World.

 

Charts by: India Eye, Jayant Bhandari, the Economist, IMF, Economompic-data, FT/Thomson-Reuters

 

Chart and image captions by PT

 

Jayant Bhandari grew up in India. He advises institutional investors on investing in the junior mining industry. He writes on political, economic and cultural issues for several publications. He is a contributing editor of the Liberty magazine. He runs a yearly seminar in Vancouver titled Capitalism & Morality.

 

 

 

Emigrate While You Can... Learn More

 


 

 
 

Dear Readers!

You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.

   

Bitcoin address: 12vB2LeWQNjWh59tyfWw23ySqJ9kTfJifA

   
 

2 Responses to “Exaggerated Economic Growth of the Third World”

  • None:

    And Jayant Bhandari reprises the same topic over again like a dog to its vomit. How many times have you brought up this asinine comparison of GDP, you idiot? Most of your writings and videos are about vilifying India and the ‘third world’. None gives shit whether the growth of the third world is exaggerated or not. This is just another one of your hate screeds.

    This pathetic, immature ugly old man, having obtained a taxpayer subsidized education in India, emigrated to the west and spends his spare time slandering his homeland due to some childhood trauma on obscure websites. Only this imbecile would claim that India has contributed nothing to art and literature.

  • Kreditanstalt:

    But…what if “GDP” numbers themselves – a contrived, collective, massive-scale attempt by government to quantify and measure something absolutely ENORMOUS, comprising billions of individual actors’ often irrational actions and which can never be distilled – is meaningless and useless in itself?

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • A Surprise Move in Gold
      Traders and Analysts Caught Wrong-Footed Over the past week gold and gold stocks have been on a tear. It is probably fair to say that most market participants were surprised by this development. Although sentiment on gold was not extremely bearish and several observers expected a bounce, to our knowledge no-one expected this:   Gold stocks (HUI Index) and gold, daily. As noted in the annotation above, a Wells Fargo gold analyst turned bearish at the worst possible moment...
  • May Away
      May Gone in June... Yes, now that June is here, it is indeed the end of May. Theresa May, to be precise, the henceforth former British Prime Minister. After delivering her unparalleled masterclass in “how to completely botch Brexit”, British cartoonists are giving her a well-deserved send-off, which we are documenting below. But first, in case you don't know anything about Ms. May's heroic “Brexit”-related efforts, here is an explanation of how she tried to finagle the best...
  • US Money Supply Growth and the Production Structure – Signs of an Aging Boom
      Money Supply Growth Continues to Decelerate Here is a brief update of recent developments in US true money supply growth as well as the trend in the ratio of industrial production of capital goods versus consumer goods (we use the latter as a proxy for the effects of credit expansion on the economy's production structure). First, a chart of the y/y growth rate of the broad US money supply TMS-2 vs. y/y growth in industrial & commercial loans extended by US banks.   At...
  • Elizabeth Warren’s Plan to Bamboozle American Voters
      A Plan for Everything! The run-up to the presidential primaries offers a funhouse reflection of American life.  Presidential hopefuls, hacks, and has-beens turn to focus groups to discover what they think the American electorate wants. Then they distill it down to hollow bumper stickers. After that, they pump their fists and reflect it back with mindless repetition.   A plea for clemency from Mr. 1/1024th crow. [PT]   Change We Can Believe In.  Feel the...
  • The Ugly End of Globalization
      The Ugly End of Globalization Sometime in the fall of 2018 a lowly gofer at the New York Stock Exchange was sweating  bullets.  He had made an honest mistake.  One that could forever tag him a buffoon.   Art Cashin the living hat-stand, going through a succession of DJIA milestone hats. He promised was going to crack a smile for the Dow 27,000 hat photo, alas, it was not to be. [PT]   After trading sideways for most of the spring, the Dow Jones Industrial...
  • Gold vs. Silver - Precious Metals Supply and Demand
      Is Silver Still Useful as a Monetary Metal? The price of gold jumped a whole twenty bucks last week. We imagine that the marginal gold bug is relieved to be rid of his gold, in this opportunity afforded by the highest price since early April. OK, all kidding aside, the price of silver went up a penny.     The gold-silver ratio keeps hitting new highs recently (this is actually a long-term trend, frequently interrupted by strong rallies of silver against gold). Is silver...
  • Fed Chair Powell’s Plan to Pickle the Economy
      A Loose Relationship The Dow Jones Industrial Average made another concerted run at the elusive 27,000 milestone over the last several weeks.  But, as of this writing, the index has stalled out short of this psychosomatic barrier.  By our estimation, this is for the best.   Since early 2018 the DJIA has gone nowhere, albeit in interesting ways... [PT]   While not always apparent, the stock market generally maintains a loose connection to the underlying...
  • The Italian Job - Precious Metals Supply and Demand
      Lira Comeback? The price of gold jumped 35 bucks last week, and that of silver 48 cents. The dollar is now down to 23 milligrams of gold. Keith is on the road this week, so we will just comment on one thing. If Italy is serious about moving back to the lira, that will make the euro less sound (to say nothing of the lira). That will drive people mostly to the dollar, but also to gold.   Italian deputy prime minister Matteo Salvini (as the leader of the Lega party he is...
  • Paul Tudor Jones Likes Gold
      Gold is Paul Tudor Jones' Favorite Trade Over the Coming 12-24 Months In a recent Bloomberg interview, legendary trader and hedge fund manager Paul Tudor Jones was asked what areas of the markets currently offer the best opportunities in his opinion. His reply: “As a macro trader I think the best trade is going to be gold”. The relevant excerpt from the interview can be viewed below (in case the embedded video doesn't work for you, here is a link to the video on...
  • Bitcoin: What is the Best Day of the Week to Buy?
      Shifting Patterns In the last issue of Seasonal Insights I have discussed Bitcoin’s seasonal pattern in the course of a year. In this issue I will show an analysis of the returns of bitcoin on individual days of the week.   Bitcoin, daily – since bottoming in early December, BTC has advanced quite a bit. It remains an excellent trading sardine. [PT]   It seems to me that Bitcoin is particularly interesting for this type of study: it exhibits spectacular price...
  • Silver Remains a Monetary Metal - Precious Metals Supply and Demand
      Silver Price Driven by Reservation Demand The price of gold went up a buck last week, but the price of silver dropped back 13 cents. And the gold-silver ratio marches further upwards. Keith spoke at a conference this week, about how to analyze the fundamentals of supply and demand in gold and silver. He talked about the basis of course.   Silver coins – silver prices are partly influenced by an industrial demand component, but the fact that they move most of the time with...

Support Acting Man

Austrian Theory and Investment

j9TJzzN

The Review Insider

Archive

Dog Blow

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

Realtime Charts

 

Gold in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Gold in EUR:

[Most Recent Quotes from www.kitco.com]

 


 

Silver in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Platinum in USD:

[Most Recent Quotes from www.kitco.com]

 


 

USD - Index:

[Most Recent USD from www.kitco.com]

 

Mish Talk

 
Buy Silver Now!
 
Buy Gold Now!