I have discovered a new blog by Dean Baker, an economist who co-directs the Center for Economic Policy and Research, and who formerly edited a periodical that analyzed the way financial numbers were reported in the New York Times and the Washington Post.

In his blog, Beat the Press, Dean writes about the context of financial numbers and provides insightful yet readable contextual analysis of financial issues. You see, it is one thing to report a financial number in a news story, it is quite another to put it in an accurate context that conveys the proper, precise meaning of the number in the real world. Dean Baker analyzes the context to demystify these numbers for the general reader.

Today, he reports on the real size of the Chinese economy. He explains that even though the press regularly reports that China's economy will surpass the United States' in the next several decades, the actual size of the Chinese economy is regularly underestimated.

In the press, most economies are measured by a process of taking the nation's GDP in its own currency, and then converting it to a standard such as the American dollar. However, economies are properly compared according to "purchasing power parity," which means that if the same product is produced or service delivered in two different countries, the value of it is considered the same. So, he explains, a haircut in Guangzhou is priced the same, for analysis purposes, as the same haircut in New York, even though on the street one costs far less than the other. If you think about it, this makes sense, because why should a New York barber's standard haircut be considered inherently more valuable than another stylist's, who makes the same number of snips somewhere else?

The implication of this simple issue of financial context is profound. Instead of the common ranking of China's GDP as the fourth-largest economy (just below Germany's), Baker demonstrates how it is actually the second-largest, having just surpassed Japan. Furthermore, he estimates that China will surpass the United States much sooner than is popularly imagined: as early as 2015. This change in the interpretation of a single number in context has serious geopolitical ramifications, especially for how the Unites States perceives the rise of a Chinese power more rapidly than expected, and its accompanying political response.

Many thanks to New Economist for reporting on the existence of Beat the Press.