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> GDP adjusted for purchasing power parity (PPP) is the proper way to compare economies. Except that it really isn't. PPP is a way to forecast long term exchan

by zhdc1 5y ago

> GDP adjusted for purchasing power parity (PPP) is the proper way to compare economies. Except that it really isn't. PPP is a way to forecast long term exchange rate convergence and not make "short run" comparisons. See Taylor, A. M., & Taylor, M. P. (2004). The purchasing power parity debate. Journal of Economic Perspectives, 18(4), 135-158. Going to my original point, Russian GDP from manufacturing in 2019 was $219.22 billion. Italy's GDP from manufacturing in 2019 was $298.4 billion. Italy does not have a domestic nuclear weapons program. Russia does. I don't hear about the Italian military in the news. Russia's is mentioned almost every day.

mrep 5y ago
To be fair, for militaries it is quite relevant as you generally don't want to outsource any of your military production so local labor rates which ppp approximates are highly relevant to military output.
- zhdc1 5y ago
  > so local labor rates which ppp approximates This is a short run comparison. See the article I mentioned earlier. There is little evidence that PPP comparisons, over a short period of time, are meaningful. PPP is calculated by a basket of goods. There are valid reasons for why the price of, e.g., flour costs X in one country and Y in another country that have little to do with the purchasing power of their respective currencies. This is why there are a disproportionate number of island nations that have high price level ratios - it is expensive to import 'stuff', and this inadvertently increases how much this 'stuff' and what it is eventually processed into costs.
gdy 5y ago
"it really isn't" You can't say 'really' and at the same time refer to an article with the word 'debate' in its title. Between World Bank's position and a single article I would take World Bank any time. Take a look at the drop of the ruble to dollar exchange rate in 2014. Without adjusting for PPP this would mean that everything produced in Russia suddenly lost half of its value, which is absurd.

by zhdc1 5y ago

mrep 5y ago

To be fair, for militaries it is quite relevant as you generally don't want to outsource any of your military production so local labor rates which ppp approximates are highly relevant to military output.

zhdc1 5y ago
> so local labor rates which ppp approximates This is a short run comparison. See the article I mentioned earlier. There is little evidence that PPP comparisons, over a short period of time, are meaningful. PPP is calculated by a basket of goods. There are valid reasons for why the price of, e.g., flour costs X in one country and Y in another country that have little to do with the purchasing power of their respective currencies. This is why there are a disproportionate number of island nations that have high price level ratios - it is expensive to import 'stuff', and this inadvertently increases how much this 'stuff' and what it is eventually processed into costs.

gdy 5y ago

"it really isn't" You can't say 'really' and at the same time refer to an article with the word 'debate' in its title. Between World Bank's position and a single article I would take World Bank any time. Take a look at the drop of the ruble to dollar exchange rate in 2014. Without adjusting for PPP this would mean that everything produced in Russia suddenly lost half of its value, which is absurd.