Washington’s “Most Important Story?”

”The most important story to come out of Washington recently had nothing to do with the endless presidential campaign. And although the media largely ignored it, the story changes the world.”

That’s what Walter Russell Mead, a senior fellow at the Council on Foreign Relations, said in an LA Times op-ed today.

Mead continued:

The story's unlikely source was the staid World Bank, which published updated statistics on the economic output of 146 countries. China's economy, said the bank, is smaller than it thought.

About 40% smaller.

China, it turns out, isn't a $10-trillion economy on the brink of catching up with the United States. It is a $6-trillion economy, less than half our size.

For the foreseeable future, China will have far less money to spend on its military and will face much deeper social and economic problems at home than experts previously believed.

What happened to $4 trillion in Chinese gross domestic product?

Statistics.

When economists calculate a country's gross domestic product, they add up the prices of the goods and services its economy produces and get a total -- in dollars for the United States, euros for such countries as Germany and France and yuan for China. To compare countries' GDP, they typically convert each country's product into dollars.

Mead explains how tricky comparing countries’ GDPs can be.

For one thing, China artificially manipulates the value of its currency.

For another, Mead notes, “many goods in less developed economies such as China and Mexico are much cheaper than they are in countries such as the United States.”

He explains more about the difficulties of comparing countries’ GDPs and then gets to what’s on many of our minds: what are the political consequences of this “most important story?"

The political consequences will be felt far and wide.

To begin with, the U.S. will remain the world's largest economy well into the future.

Given that fact, fears that China will challenge the U.S. for global political leadership seem overblown. Under the old figures, China was predicted to pass the United States as the world's largest economy in 2012. That isn't going to happen.

Also, the difference in U.S. and Chinese living standards is much larger than previously thought.

Average income per Chinese is less than one-tenth the U.S. level. With its people this poor, China will have a hard time raising enough revenue for the vast military buildup needed to challenge the United States.

The balance of power in Asia looks more secure. Japan's economy was not affected by the World Bank revisions. China's economy has shrunk by 40% compared with Japan too.

And although India's economy was downgraded by 40%, the United States, Japan and India will be more than capable of balancing China's military power in Asia for a very long time to come.

But don't pop the champagne corks.

It is bad news that billions of people are significantly poorer than we thought.

China and India are not the only countries whose GDP has been revised downward. The World Bank figures show sub-Saharan Africa's economy to be 25% smaller.

One consequence is that the ambitious campaign to reduce world poverty by 2015 through the United Nations Millennium Development Goals will surely fail.

We have underestimated the size of the world's poverty problem, and we have overestimated our progress in attacking it. This is not good.

There is more bad news. U.S. businesses and entrepreneurs hoping to crack the Chinese and Indian markets must come to terms with a middle class that is significantly smaller than thought. . . .

China's political stability may be more fragile than thought.

The country faces huge domestic challenges -- an aging population lacking any form of social security, wholesale problems in the financial system that dwarf those revealed in the U.S. sub-prime loan mess and the breakdown of its health system. These problems are as big as ever, but China has fewer resources to meet them than we thought. . . .

There’s more before Mead ends with:

For Americans, the new numbers from the World Bank bring good news and bad.

On the plus side, U.S. leadership in the global system seems more secure and more likely to endure through the next generation.

On the other hand, the world we are called on to lead is poorer and more troubled than we anticipated.

Maybe the old Chinese curse says it best: We seem to be headed for interesting times.

Mead’s entire op-ed is here. I hope you all find time to read it.

And as for our media missing this "most important story," who's surprised?

I mean, if you're chasing a front page story about a strand of toilet paper that seems shaped like a noose discovered in a college bathroom, do you really have time to report and explain World Bank statistics, even ones which challenge existing assuptions about the global economy and international power balances?

C'mon folks, there's only so much Katie Couric, Brian Williams and the others can do.