4 ms·

GDP per capita fails to take in account purchasing power parity and deflation of currency.

Retric 6y ago
Real GDP does take into account inflation or deflation. PPP is tricky as it depends on a specific basket of goods. It does seem to paint Japan in a better light, but digging into things it’s not quite that simple. For example Japan’s housing is treated as more disposable than most of the world which makes direct comparisons difficult. PS: Deflation is also a very very bad thing economically, trying to gloss over it is a very bad idea.
- benrbray 6y ago
  > Deflation is also a very very bad thing economically Why? I'd be interested in reading more if you have sources. Genuinely asking, I know almost nothing about deflation other than what I just read on Wikipedia [1]. My generation has had to grapple with the negative effects of inflation combined with low interest rates and wage stagnation, so I'm genuinely curious to hear about a different time/place where long-term deflation caused problems. [1] https://en.wikipedia.org/wiki/Deflation https://en.wikipedia.org/wiki/Deflation
  - barry-cotter 6y ago
    Deflation causes the economy to seize up as borrower’s debts grow in real terms even as they pay off the nominal balance and consumers put off consumption in the expectation things will be cheaper later. Demand collapses and the economy goes into a recession. It’s bad monetary policy. If you have deflation you should print more money until you don’t. https://www.thebalance.com/what-is-deflation-definition-causes-and-why-it-s-bad-3306169 https://www.thebalance.com/what-is-deflation-definition-caus... > Deflation occurs when asset and consumer prices fall over time. While this may seem like a great thing for shoppers, the actual cause of widespread deflation is a long-term drop in demand. > Deflation often signals an impending recession. With a recession comes declining wages, job losses, and big hits to most investment portfolios. As a recession worsens, so does deflation. Businesses hawk ever-lower prices in desperate attempts to get consumers to buy their products and services.
    - gumby 6y ago
      And fixed-volume currencies are inherently deflationary (e.g. gold, Bitcoin, etc). Actually gold is worse; back in the gold standard days economies suffered deflationary squeezes bunctuated by boom/bust as new goldfield strikes occurred and the supply suddenly shot up (California, Yukon, Victoria, etc just to look at the mid-late 1800s). You end up with a liquidity trap in the amount of money doesn’t increase/decrease roughly in proportion to the size of economic activity. Fortunately “roughly” as it’s hard to measure.
  - imtringued 6y ago
    You have to know the definition of inflation. Central bankers generally refer to consumer inflation as the measure of inflation they target. It's based on a basket of consumer goods. According to that definition we don't have inflation. I tend to say consumer inflation in my comments to make it less ambiguous. By that logic asset inflation can actually act as a deflationary force because the relative value of consumer goods shrinks compared to the rest of the economy and the surplus can be used to provide an excess of consumer goods which further drives down prices. Of course this assumes that asset holders are not planning on spending their capital gains domestically. Considering current demographics (the retired own houses but don't spend as much) and globalization (Chinese workers can do your job) it is pretty much assured though. Anyway. The reason why deflation is bad is highly obvious. Imagine a highly simplified economy consisting of one factory. Some initial event happened that caused demand to go down. The factory has trouble selling its inventory. It lowers its prices over time to attract more customers. People looking to buy the latest gadget just put it off because they can buy it later for even less money. At some point the factory has to close because nobody is buying. Then suddenly everyone wants a gadget but there is no factory. If you want a business to operate in 2025 then it has to also operate in the years before that. Deflation sets up the exact opposite incentive. It makes sure everything you did in the past cannot be topped in the future without extreme effort. It means your best years are already behind you because there is less money to be made in 2021 than in 2020. It tends to reward hoarders, those who don't need to be productive. Inflation is the opposite. It makes sure that the future is always brighter than the past. There is more money to be made in 2021 than in 2020. It tends to reward workers, those who do productive work. The answer to deflationary problems? Give people a reason to work. It's why we have so many "gig economy" companies. It's nothing new. It's just day labor with some software lipstick applied to it. There is an overabundance of unskilled workers so there must be some way to economically deploy that workforce even if its not enough for a full time position. Converting unskilled workers into skilled workers would be even better but it would mean the government or the employer has to foot the bill. It's just not going to happen even though there is plenty of money around to fund education.
    - benrbray 6y ago
      > Consumer inflation is based on a basket of consumer goods. According to that definition we don't have inflation. Do you mean something like the Consumer Price Index? If I'm reading this graph [1] correctly, CPI has been increasing at a rate of +1-2% since 2010, and--except for a brief dip below zero during the 2008 financial crisis--at a rate of 2-4% between 2000-2010. This is consistent with my own experience that the price of groceries / home goods / basic services has increased quite substantially in the past ~15 years. Doesn't this mean we have consumer inflation after all? Certainly buying power has decreased. Metrics like CPI also do not account for the phenomenon of shrinkflation [2], which may necessitate consumers to buy cheaply-made goods more often when they break or cannot be repaired. > Imagine a highly simplified economy consisting of one factory. Some initial event happened that caused demand to go down. The factory has trouble selling its inventory. It lowers its prices over time to attract more customers. People looking to buy the latest gadget just put it off because they can buy it later for even less money. At some point the factory has to close because nobody is buying. Then suddenly everyone wants a gadget but there is no factory. This example seems too simple to be useful. It also seems pretty logically inconsistent, since * If there is only one factory, all of the consumers must work for that one factory in order to have money to spend on gadgets * The factory doesn't just poof gadgets into existence -- it must obtain raw materials somehow, either by employing workers or purchasing them from another company. * Is the gadget a luxury item with no functional value? if so, who's to say that the factory closing is a bad thing? * If it's not a luxury item, it must serve some functional purpose? If so, that purpose is probably to increase the rate at which gadgets can be made, since there are is literally no other economic activity. So if the factory closes, then no one needs gadgets anymore. I'm not necessarily saying that you're wrong, just that your example is far from convincing. > Deflation...makes sure everything you did in the past cannot be topped in the future without extreme effort. It means your best years are already behind you because there is less money to be made in 2021 than in 2020. It tends to reward hoarders, those who don't need to be productive. Ok, I can see your argument here. I will need to ponder it for a while. However... > Inflation is the opposite. It makes sure that the future is always brighter than the past. There is more money to be made in 2021 than in 2020. It tends to reward workers, those who do productive work. ...I think it is dangerous to characterize inflation as a good thing. It seems that 1) inflation encourages as much spending as possible today, since your money will have less value tomorrow, 2) inflation discourages working today, since the same effort will earn me more money tomorrow, so why bother? I guess maybe you can say inflation is abstractly "good for the economy" whatever that means, without reference to the impact on the life satisfaction of real people. But it seems like we should all be able to agree that 0% inflation is the best scenario. I'd be curious to hear an argument for 1% inflation over 0%. [1] https://www.bls.gov/charts/consumer-price-index/consumer-price-index-by-category-line-chart.htm https://www.bls.gov/charts/consumer-price-index/consumer-pri... [2] https://en.wikipedia.org/wiki/Shrinkflation https://en.wikipedia.org/wiki/Shrinkflation
- harpratap 6y ago
  Couldn't find any authoritative data on real GDP figures but this - https://fred.stlouisfed.org/series/JPNRGDPEXP https://fred.stlouisfed.org/series/JPNRGDPEXP shows a good upward trend since 1995, and considering the population has been going downwards, real GDP per capita is going up by your metrics.

Real GDP does take into account inflation or deflation. PPP is tricky as it depends on a specific basket of goods. It does seem to paint Japan in a better light, but digging into things it’s not quite that simple. For example Japan’s housing is treated as more disposable than most of the world which makes direct comparisons difficult. PS: Deflation is also a very very bad thing economically, trying to gloss over it is a very bad idea.

benrbray 6y ago
> Deflation is also a very very bad thing economically Why? I'd be interested in reading more if you have sources. Genuinely asking, I know almost nothing about deflation other than what I just read on Wikipedia [1]. My generation has had to grapple with the negative effects of inflation combined with low interest rates and wage stagnation, so I'm genuinely curious to hear about a different time/place where long-term deflation caused problems. [1] https://en.wikipedia.org/wiki/Deflation https://en.wikipedia.org/wiki/Deflation
- barry-cotter 6y ago
  Deflation causes the economy to seize up as borrower’s debts grow in real terms even as they pay off the nominal balance and consumers put off consumption in the expectation things will be cheaper later. Demand collapses and the economy goes into a recession. It’s bad monetary policy. If you have deflation you should print more money until you don’t. https://www.thebalance.com/what-is-deflation-definition-causes-and-why-it-s-bad-3306169 https://www.thebalance.com/what-is-deflation-definition-caus... > Deflation occurs when asset and consumer prices fall over time. While this may seem like a great thing for shoppers, the actual cause of widespread deflation is a long-term drop in demand. > Deflation often signals an impending recession. With a recession comes declining wages, job losses, and big hits to most investment portfolios. As a recession worsens, so does deflation. Businesses hawk ever-lower prices in desperate attempts to get consumers to buy their products and services.
  - gumby 6y ago
    And fixed-volume currencies are inherently deflationary (e.g. gold, Bitcoin, etc). Actually gold is worse; back in the gold standard days economies suffered deflationary squeezes bunctuated by boom/bust as new goldfield strikes occurred and the supply suddenly shot up (California, Yukon, Victoria, etc just to look at the mid-late 1800s). You end up with a liquidity trap in the amount of money doesn’t increase/decrease roughly in proportion to the size of economic activity. Fortunately “roughly” as it’s hard to measure.
- imtringued 6y ago
  You have to know the definition of inflation. Central bankers generally refer to consumer inflation as the measure of inflation they target. It's based on a basket of consumer goods. According to that definition we don't have inflation. I tend to say consumer inflation in my comments to make it less ambiguous. By that logic asset inflation can actually act as a deflationary force because the relative value of consumer goods shrinks compared to the rest of the economy and the surplus can be used to provide an excess of consumer goods which further drives down prices. Of course this assumes that asset holders are not planning on spending their capital gains domestically. Considering current demographics (the retired own houses but don't spend as much) and globalization (Chinese workers can do your job) it is pretty much assured though. Anyway. The reason why deflation is bad is highly obvious. Imagine a highly simplified economy consisting of one factory. Some initial event happened that caused demand to go down. The factory has trouble selling its inventory. It lowers its prices over time to attract more customers. People looking to buy the latest gadget just put it off because they can buy it later for even less money. At some point the factory has to close because nobody is buying. Then suddenly everyone wants a gadget but there is no factory. If you want a business to operate in 2025 then it has to also operate in the years before that. Deflation sets up the exact opposite incentive. It makes sure everything you did in the past cannot be topped in the future without extreme effort. It means your best years are already behind you because there is less money to be made in 2021 than in 2020. It tends to reward hoarders, those who don't need to be productive. Inflation is the opposite. It makes sure that the future is always brighter than the past. There is more money to be made in 2021 than in 2020. It tends to reward workers, those who do productive work. The answer to deflationary problems? Give people a reason to work. It's why we have so many "gig economy" companies. It's nothing new. It's just day labor with some software lipstick applied to it. There is an overabundance of unskilled workers so there must be some way to economically deploy that workforce even if its not enough for a full time position. Converting unskilled workers into skilled workers would be even better but it would mean the government or the employer has to foot the bill. It's just not going to happen even though there is plenty of money around to fund education.
  - benrbray 6y ago
    > Consumer inflation is based on a basket of consumer goods. According to that definition we don't have inflation. Do you mean something like the Consumer Price Index? If I'm reading this graph [1] correctly, CPI has been increasing at a rate of +1-2% since 2010, and--except for a brief dip below zero during the 2008 financial crisis--at a rate of 2-4% between 2000-2010. This is consistent with my own experience that the price of groceries / home goods / basic services has increased quite substantially in the past ~15 years. Doesn't this mean we have consumer inflation after all? Certainly buying power has decreased. Metrics like CPI also do not account for the phenomenon of shrinkflation [2], which may necessitate consumers to buy cheaply-made goods more often when they break or cannot be repaired. > Imagine a highly simplified economy consisting of one factory. Some initial event happened that caused demand to go down. The factory has trouble selling its inventory. It lowers its prices over time to attract more customers. People looking to buy the latest gadget just put it off because they can buy it later for even less money. At some point the factory has to close because nobody is buying. Then suddenly everyone wants a gadget but there is no factory. This example seems too simple to be useful. It also seems pretty logically inconsistent, since * If there is only one factory, all of the consumers must work for that one factory in order to have money to spend on gadgets * The factory doesn't just poof gadgets into existence -- it must obtain raw materials somehow, either by employing workers or purchasing them from another company. * Is the gadget a luxury item with no functional value? if so, who's to say that the factory closing is a bad thing? * If it's not a luxury item, it must serve some functional purpose? If so, that purpose is probably to increase the rate at which gadgets can be made, since there are is literally no other economic activity. So if the factory closes, then no one needs gadgets anymore. I'm not necessarily saying that you're wrong, just that your example is far from convincing. > Deflation...makes sure everything you did in the past cannot be topped in the future without extreme effort. It means your best years are already behind you because there is less money to be made in 2021 than in 2020. It tends to reward hoarders, those who don't need to be productive. Ok, I can see your argument here. I will need to ponder it for a while. However... > Inflation is the opposite. It makes sure that the future is always brighter than the past. There is more money to be made in 2021 than in 2020. It tends to reward workers, those who do productive work. ...I think it is dangerous to characterize inflation as a good thing. It seems that 1) inflation encourages as much spending as possible today, since your money will have less value tomorrow, 2) inflation discourages working today, since the same effort will earn me more money tomorrow, so why bother? I guess maybe you can say inflation is abstractly "good for the economy" whatever that means, without reference to the impact on the life satisfaction of real people. But it seems like we should all be able to agree that 0% inflation is the best scenario. I'd be curious to hear an argument for 1% inflation over 0%. [1] https://www.bls.gov/charts/consumer-price-index/consumer-price-index-by-category-line-chart.htm https://www.bls.gov/charts/consumer-price-index/consumer-pri... [2] https://en.wikipedia.org/wiki/Shrinkflation https://en.wikipedia.org/wiki/Shrinkflation
harpratap 6y ago
Couldn't find any authoritative data on real GDP figures but this - https://fred.stlouisfed.org/series/JPNRGDPEXP https://fred.stlouisfed.org/series/JPNRGDPEXP shows a good upward trend since 1995, and considering the population has been going downwards, real GDP per capita is going up by your metrics.