THE MYTH OF WESTERN ECONOMIC SUPERIORITY

A recent debate between right-wing pundits Tucker Carlson and Jacob Rees-Mogg produced an angry disagreement. Carlson maintained that the Russian economy was bigger than Britain's. Rees-Mogg haughtily disagreed. LBC ‘liberal’ talk-show host James O'Brien subsequently ridiculed Carlson.

What the exchange demonstrated was the inability of Rees-Mogg and O'Brien to understand how conventional GDP figures underestimate Russia's economic weight. Why is this?

Gross Domestic Product (GDP) measures the value of everything produced by an economy. It can be expressed in two ways: at market exchange rates or using Purchasing Power Parity (PPP).

Market GDP converts output into US dollars using currency exchange rates. On this basis, the US is by far the world's largest economy. World Bank figures for 2024 put US GDP at $28.75 trillion, compared with $18.74 trillion for China. Britain was $3.69 trillion and Russia $2.17 trillion.

But exchange rates do not reflect what money can buy inside a country. Many goods and services, such as food and housing, cost less in Russia or China than in Britain or America. PPP attempts to correct this by asking what a comparable basket of goods and services would cost in different countries.

On a PPP basis, the World Bank puts China's 2024 economy at $38.19 trillion, compared with $29.18 trillion for the US. Russia rises to $6.92 trillion. Britain reaches $4.20 trillion.

Thus, at market exchange rates, the US economy appears about 53% larger than China's. At PPP, China is about 31% larger than America. Meanwhile, Russia's economy is more than three times larger under PPP than at market exchange rates and 60% bigger than the UK economy.

Market GDP remains important for international trade, investment, financial markets, foreign-currency debt and purchasing internationally priced commodities. PPP provides a better indication of the real volume of economic activity taking place within a country, including its domestic purchasing power and productive resources.

Both measures have weaknesses. Market GDP can make countries with low domestic prices appear artificially small, while exchange-rate movements can alter rankings without corresponding changes in production. PPP involves difficult judgements about comparing thousands of goods and services across countries. The IMF and World Bank publish both measures, and the IMF uses PPP weights in calculations of world economic output.

There is an important political point here. Britain and America have shifted away from manufacturing towards a ‘financialised economy’ in which markets and financial institutions predominate. At the same time, much manufacturing has moved abroad.

Russia, by contrast, retains substantial industrial, energy, agricultural and military-production capacity. This helps explain its resilience against Western sanctions. The issue is not simply how much an economy is worth in dollars, but what it produces, how much it can produce and what that production costs domestically.

To judge economic power by dollar GDP is therefore to confuse financial valuation with productive capacity.

The condescension of people like O'Brien and Rees-Mogg reflects Western complacency. They look at nominal GDP and see superiority. Meanwhile, the material foundations of global power are shifting. They—and much of Britain—need to wake up.