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The entire article can basically summarized in one sentence "Using PPP instead of USD to measure GDP, significantly shrinks the gap between the EU and the US"

The entire article can basically summarized in one sentence "Using PPP instead of USD to measure GDP, significantly shrinks the gap between the EU and the US" Now, using USD has its problems, but PPP's primary purpose is living standard comparisons, and doesn't work as a national strength comparator. When in a war, you are buying ammunition and weaponry with USD, not PPP. When there's a energy shock, you are importing oil and gas with USD, not PPP. When you are in a AI race, you are buying GPUs with USD, not PPP. There'll be some people who argue that 'only living standards' matter. If the two simultaneous hot modern wars in Ukraine, Gaza, and soon Taiwan can't convince that hard power matters, then don't complain when the draft officer knocks on your door.

Rinzler89 2y ago
>When in a war, you are buying ammunition and weaponry with USD, not PPP. Not if you're buying it locally. >When there's a energy shock, you are importing oil and gas with USD, not PPP. When you are in a AI race, you are buying GPUs with USD, not PPP. Pretty much. PPP is useful for the stuff you can source locally like groceries, rents, local cars and groceries, etc. but a lot of stuff needs to be imported so then the EU's financially weaker position shows, especially when bidding internationally for scarce items.
- spywaregorilla 2y ago
  Not if you're buying it locally from an entirely domestic supply chain which is approximately nothing
  - dukeyukey 2y ago
    You'd be surprised, Europe has a massive industrial base. European steel can be made with European iron and coal to make European weapons in European factories from European designs.
    - spywaregorilla 2y ago
      Sourced with european energy produced by european produced infrastructure and by workers eating european food grown with european resources? It's "possible" for this to happen. And in the event of a large global war, we'll even go as far as to say it's plausible. But given that the world is heavily globalized and not at war, it's not actually what happens because it is cheaper to trade with others.
      - dukeyukey 2y ago
        We're talking about this in the context of PPP versus nominal GDP when buying military equipment. Most countries _have_ to buy at nominal prices cos they either don't have a domestic arms industry, or they have one, which uses resources bought at nominal, global prices. But the EU has both a domestic arms industry _and_ the inputs locally, so it's probably cheaper to go the domestic route, hence they can buy at PPP rates rather than nominal.
        spywaregorilla 2y ago
        I'm not an expert in arms production but I find it extremely unlikely that the eu arms industry is not heavily globalized
pjmorris 2y ago
What do you think of the notion that hard power is measured in manufacturing capacity rather than in financial terms?
- anonylizard 2y ago
  Manufacturing is not a magical lamp that craps out guns. It is merely a part of a value chain. Namely, minerals and petrochemicals have to be produced upstream. Financial GDP captures the ability to produce or purchase the upstream resources, manufacturing alone does not. Now manufacturing capacity is illiquid, and it takes time to convert financial power to manufacturing capacity, see the Ukraine ammunition crisis. While manufacturing capacity is more war-ready. However, China hasn't invaded Ukraine yet, because US choking off the sea lanes will be catastrophic for China's economy and offensive war capacity. Without trade, the factories have no resource inputs, and no markets to export to. So in the end, financial power does slightly underestimate the hard-power benefits of manufacturing, but GDP (USD) should still be used as the primary determinant of hard power, not amount of factories built.
  - pjmorris 2y ago
    > Financial GDP captures the ability to produce or purchase the upstream resources, manufacturing alone does not Sure, manufacturing depends on its inputs. My take is that the material economy (manufacturing and all its inputs) is the actual source of hard power, finance is a proxy, and maybe not the most helpful one in a case where war materials are controlled by an opponent.
- nordsieck 2y ago
  > What do you think of the notion that hard power is measured in manufacturing capacity rather than in financial terms? That's too reductive. 1. That ignores established stores. One of the enormous advantages that Russia has over Ukraine is its enormous store of tanks, artillery pieces, and armored vehicles. Not all of them are state of the art, but they're a lot more effective than a rifle. 2. That ignores the pace of innovation during long wars. Just look at the pace of innovation during WWII. Or even later wars. New designs for rifles, tanks, planes, etc. come out quickly when people start dying en masse. Existing manufacturing lines may not be very relevant if they can't be modified to support new equipment types. In a sense, you have to go 1-2 steps back to "the machine that builds the machine". How quickly can tooling be brought on line. How innovative and productive of a workforce do you have? Those things are related to manufacturing capacity, but are not the same thing. 3. Access to raw materials. One of the major reasons Russia is able to maintain its war against Ukraine is because it is a net exporter of petroleum products. If they were a net importer instead, global sanctions would be able to make them effectively stop within a few months. Petroleum, steel, food, etc. are all necessary commodities. If any of them can be embargoed, that is a massive weakness that is hard to compensate for with manufacturing. There are probably other factors, but those are the main ones I could think of off the top of my head.
Scarblac 2y ago
> When in a war, you are buying ammunition and weaponry with USD, not PPP. That depends on if you import the weapons or make them yourself, right? In the Ukraine war, a common heard argument is that Russia can manufacture more weapons than its GDP suggests, because of PPP.
- alephnerd 2y ago
  > In the Ukraine war, a common heard argument is that Russia can manufacture more weapons than its GDP suggests, because of PPP. You are still dependent on foreign inputs that are dependent on the Dollar or Yuan payments, and even domestic commodities and goods are impacted by global prices. PPP in isolation is useless, and I'm honestly surprised Bruegel even published this article.
  - deleted 2y ago
    [deleted]
  - sapiogram 2y ago
    > You are still dependent on foreign inputs that are dependent on the Dollar or Yuan payments For Russia in particular, do we have some idea of how true this actually is? Russia lacks a lot of things, but natural resources is generally not one of them.
    - alephnerd 2y ago
      > For Russia in particular, do we have some idea of how true this actually is? Russia lacks a lot of things, but natural resources is generally not one of them. This isn't a game of Civ 4 where access to resources automatically grants you production. For example, the Oktyabrsky Mine is one of the largest nickel mines in the world, yet Russia has to export that nickel abroad to be processed in order to be used in batteries or integrated circuits. And resources are not interchangeable - oil from Dharan has an entirely different set of specs to process compared to oil from northern Alberta. Resources aren't that rare - most countries just choose not to exploit resources because they might not be an efficient deployment of capital (why should I spend billions subsidizing a commodity product whose margins are near 0 or even negative when I can use that money to build a hospital instead) There's a reason people get PhDs in Chemical Engineering, Chemistry, Geology, Mining Engineering, Physics, Geophysics, Petroleum Engineering, etc - these are very complex and specialized problems, and no country has a complete monopoly on human capital in these spaces. Moments like this make me wish HN was shut down - it's gotten so braindead.
jonwinstanley 2y ago
National strength only matters if you're the government, for the population of the countries living standards are probably what you want to be higher
Barrin92 2y ago
that is very true but looking at PPP and demographics at least identifies the correct problem which is as you point out the problem of autonomy and capacity in key industries and strategic goods where the EU is dependent on foreign sources. Given that I have, in the last week alone, read about a dozen articles about whether German workers have lost their will to work, taxes and regulations and whether Europe is impoverished this article is pretty important. The same has been true for discourse about Japan. Where the common narrative was that the country somehow has not grown in 30 years, but in terms of real output and adjusted for working age the gap even to the US is much smaller.
oytis 2y ago
I generally agree except for the war. Personnel costs, energy, manufacturing costs, costs of specific weaponry used vary vastly across countries. Russia or China can deliver much more firepower per USD than US.
- hollerith 2y ago
  Energy costs are much lower in the US than in China which must import most of its energy from the Persian Gulf (and most of the energy it gets from Russia leaves Russia from Russia's European ports). The US has environmental policies that increase the cost of energy, but in a sufficiently serious war, those would get suspended. Personnel costs though are vastly higher in the US especially if "costs" included the political costs of instituting a draft.
  - maxglute 2y ago
    Most of PRC energy mix is cheap domestic coal, which they have in essentially endless amount. PRC also generates ~2x more power, that's not something US relaxing enviromental policies can overcome. PRC has many cost advantages stacked in energy/inputs/capex/labour/production/process and just sheer scale. That's where you get into personell costs, moving bodies to build new capex, assuming there's even enough qualified expertise. That said, in a sufficiently serious war, IMO there'd be homeland attacks on critical infra, be it cyber or long range strikes, so it's really about who can survive/operate/recover from capex attrition fastest.
    - hollerith 2y ago
      Interesting. Can they run their navy and air force during a war on fuel synthesized from coal?
      - maxglute 2y ago
        PRC is not Japan, they're a continental sized land power with associated resources. They don't need to synthesize fuel from coal - they extract ~4 million barrels per day, IIRC US military consumes 90 million barrels per year / 240k barrels per day. PRC domestic consumption is 14m barrels per day.~6m goes to transportation, 2m goes to heating, both in process of being electrified. 2m goes to other. Industry, uses ~4m barrels, of which PRC MIC uses relatively little as % of output. They can sustain military multiple their current size on wartime economy. There's also estimated 300m barrels and growing in strategic reserves,. Coal is useful in that coal gassification useful to make fertilizer. Which PRC did - they were NET fertlizer exporter ~10 years ago before they clamped down on coal and curtailed sector. Utimately it's not just a US+co navy+airforce vs PRC navy+airforce fight, it's a whatever US military logistics can bring in theatre vs entire Chinese industrial homefront pivotting into MIC fight with their various PPP advantages using domestic inputs, which is looking more and more to be more substantial relative to what US+co is projected/planned to muster.
FpUser 2y ago
>"PPP's primary purpose is living standard comparisons" Which is the only thing that matters to people. >"When in a war, you are buying ammunition and weaponry with USD, not PPP. When there's a energy shock, you are importing oil and gas with USD, not PPP. When you are in a AI race, you are buying GPUs with USD, not PPP." Thank you for confirming the purpose of USD - make every other country into a servant. Practically speaking nobody has attacked the EU country. Rather quite the opposite. EU also happens to have their own weaponry. And in a worst case they can just produce whole bunch of nukes and declare simple policy: do not attack us or else you will be nuked.
- GartzenDeHaes 2y ago
  > they can just produce whole bunch of nukes That might be a bit difficult with no uranium reserves. https://world-nuclear.org/information-library/nuclear-fuel-cycle/uranium-resources/supply-of-uranium https://world-nuclear.org/information-library/nuclear-fuel-c...
- CuriousSkeptic 2y ago
  > do not attack us or else you will be nuked This sentiment has been expressed a few times in this thread now. Is it really true? From my understanding nuclear war at any scale will be devastating for the entire planet, not just the aggressor. So the threat of nuclear retaliation hinges on the aggressor believing the defender to be either be suicidal a or mad. The default assumption of people being rational means it should be quite safe to attack despite talks of nuclear retaliation.
  - nordsieck 2y ago
    > From my understanding nuclear war at any scale will be devastating for the entire planet, not just the aggressor. So the threat of nuclear retaliation hinges on the aggressor believing the defender to be either be suicidal a or mad. It kind of depends on which countries you're talking about. The US and Russia have enough nukes that if they're involved, that's definitely true. But what about Pakistan? Or Israel? There are several nuclear powers who would have a hard time devastating a single country, not to mention the entire world.
gnfargbl 2y ago
> ...don't complain when the draft officer knocks on your door. As long as my country has an independent nuclear deterrent and a functionally democratic government then I feel that my son is safe from the draft officer. The places you're listing lack one or both of those things.
- pixl97 2y ago
  When large wars start breaking out and spreading over the planet the entire 'functionally democratic government' thing can come in to question very quick.
ryukoposting 2y ago
I agree with you in principle. Every time someone brings this kind of thing up, I'm also reminded of how odd it is that the country flanked by oceans and mountains to the east and west and two staunch allies to the north and south, is the one that's apparently better equipped for war from an economic perspective.
paganel 2y ago
> When in a war, you are buying ammunition and weaponry with USD, not PPP That depends on your geo-political allies, for example I'm sure Russia had no problems in purchasing artillery shells from North Korea without using USD. The fact that Europe has become dependent on using the USD for its vital interests (like purchasing artillery shells, for example) is a major strategic weakness, but that's the bed that they have laid out for themselves.
brabel 2y ago
PPP is not only about living standards, it accounts also for the fluctuation of currency exchange rates, as you should've understood if you read the article. The reason the EU seems to have fallen by 1/3 compared to the US is that the dollar got stronger, not that EU suddenly became 1/3 less productive. Your point of view is just completely wrong and it's funny how you think it's the article that has it wrong.
lostlogin 2y ago
> If the two simultaneous hot modern wars in Ukraine, Gaza, and soon Taiwan can't convince that hard power matters I’m not sure that Ukraine has been a good example of US power. Things may have turned a corner but it’s been a hell of a show of US internal division and turmoil.

Rinzler89 2y ago

>When in a war, you are buying ammunition and weaponry with USD, not PPP. Not if you're buying it locally. >When there's a energy shock, you are importing oil and gas with USD, not PPP. When you are in a AI race, you are buying GPUs with USD, not PPP. Pretty much. PPP is useful for the stuff you can source locally like groceries, rents, local cars and groceries, etc. but a lot of stuff needs to be imported so then the EU's financially weaker position shows, especially when bidding internationally for scarce items.

spywaregorilla 2y ago
Not if you're buying it locally from an entirely domestic supply chain which is approximately nothing
- dukeyukey 2y ago
  You'd be surprised, Europe has a massive industrial base. European steel can be made with European iron and coal to make European weapons in European factories from European designs.
  - spywaregorilla 2y ago
    Sourced with european energy produced by european produced infrastructure and by workers eating european food grown with european resources? It's "possible" for this to happen. And in the event of a large global war, we'll even go as far as to say it's plausible. But given that the world is heavily globalized and not at war, it's not actually what happens because it is cheaper to trade with others.
    - dukeyukey 2y ago
      We're talking about this in the context of PPP versus nominal GDP when buying military equipment. Most countries _have_ to buy at nominal prices cos they either don't have a domestic arms industry, or they have one, which uses resources bought at nominal, global prices. But the EU has both a domestic arms industry _and_ the inputs locally, so it's probably cheaper to go the domestic route, hence they can buy at PPP rates rather than nominal.
      - spywaregorilla 2y ago
        I'm not an expert in arms production but I find it extremely unlikely that the eu arms industry is not heavily globalized

pjmorris 2y ago

What do you think of the notion that hard power is measured in manufacturing capacity rather than in financial terms?

anonylizard 2y ago
Manufacturing is not a magical lamp that craps out guns. It is merely a part of a value chain. Namely, minerals and petrochemicals have to be produced upstream. Financial GDP captures the ability to produce or purchase the upstream resources, manufacturing alone does not. Now manufacturing capacity is illiquid, and it takes time to convert financial power to manufacturing capacity, see the Ukraine ammunition crisis. While manufacturing capacity is more war-ready. However, China hasn't invaded Ukraine yet, because US choking off the sea lanes will be catastrophic for China's economy and offensive war capacity. Without trade, the factories have no resource inputs, and no markets to export to. So in the end, financial power does slightly underestimate the hard-power benefits of manufacturing, but GDP (USD) should still be used as the primary determinant of hard power, not amount of factories built.
- pjmorris 2y ago
  > Financial GDP captures the ability to produce or purchase the upstream resources, manufacturing alone does not Sure, manufacturing depends on its inputs. My take is that the material economy (manufacturing and all its inputs) is the actual source of hard power, finance is a proxy, and maybe not the most helpful one in a case where war materials are controlled by an opponent.
nordsieck 2y ago
> What do you think of the notion that hard power is measured in manufacturing capacity rather than in financial terms? That's too reductive. 1. That ignores established stores. One of the enormous advantages that Russia has over Ukraine is its enormous store of tanks, artillery pieces, and armored vehicles. Not all of them are state of the art, but they're a lot more effective than a rifle. 2. That ignores the pace of innovation during long wars. Just look at the pace of innovation during WWII. Or even later wars. New designs for rifles, tanks, planes, etc. come out quickly when people start dying en masse. Existing manufacturing lines may not be very relevant if they can't be modified to support new equipment types. In a sense, you have to go 1-2 steps back to "the machine that builds the machine". How quickly can tooling be brought on line. How innovative and productive of a workforce do you have? Those things are related to manufacturing capacity, but are not the same thing. 3. Access to raw materials. One of the major reasons Russia is able to maintain its war against Ukraine is because it is a net exporter of petroleum products. If they were a net importer instead, global sanctions would be able to make them effectively stop within a few months. Petroleum, steel, food, etc. are all necessary commodities. If any of them can be embargoed, that is a massive weakness that is hard to compensate for with manufacturing. There are probably other factors, but those are the main ones I could think of off the top of my head.

Scarblac 2y ago

> When in a war, you are buying ammunition and weaponry with USD, not PPP. That depends on if you import the weapons or make them yourself, right? In the Ukraine war, a common heard argument is that Russia can manufacture more weapons than its GDP suggests, because of PPP.

alephnerd 2y ago
> In the Ukraine war, a common heard argument is that Russia can manufacture more weapons than its GDP suggests, because of PPP. You are still dependent on foreign inputs that are dependent on the Dollar or Yuan payments, and even domestic commodities and goods are impacted by global prices. PPP in isolation is useless, and I'm honestly surprised Bruegel even published this article.
- deleted 2y ago
  [deleted]
- sapiogram 2y ago
  > You are still dependent on foreign inputs that are dependent on the Dollar or Yuan payments For Russia in particular, do we have some idea of how true this actually is? Russia lacks a lot of things, but natural resources is generally not one of them.
  - alephnerd 2y ago
    > For Russia in particular, do we have some idea of how true this actually is? Russia lacks a lot of things, but natural resources is generally not one of them. This isn't a game of Civ 4 where access to resources automatically grants you production. For example, the Oktyabrsky Mine is one of the largest nickel mines in the world, yet Russia has to export that nickel abroad to be processed in order to be used in batteries or integrated circuits. And resources are not interchangeable - oil from Dharan has an entirely different set of specs to process compared to oil from northern Alberta. Resources aren't that rare - most countries just choose not to exploit resources because they might not be an efficient deployment of capital (why should I spend billions subsidizing a commodity product whose margins are near 0 or even negative when I can use that money to build a hospital instead) There's a reason people get PhDs in Chemical Engineering, Chemistry, Geology, Mining Engineering, Physics, Geophysics, Petroleum Engineering, etc - these are very complex and specialized problems, and no country has a complete monopoly on human capital in these spaces. Moments like this make me wish HN was shut down - it's gotten so braindead.

jonwinstanley 2y ago

National strength only matters if you're the government, for the population of the countries living standards are probably what you want to be higher

Barrin92 2y ago

that is very true but looking at PPP and demographics at least identifies the correct problem which is as you point out the problem of autonomy and capacity in key industries and strategic goods where the EU is dependent on foreign sources. Given that I have, in the last week alone, read about a dozen articles about whether German workers have lost their will to work, taxes and regulations and whether Europe is impoverished this article is pretty important. The same has been true for discourse about Japan. Where the common narrative was that the country somehow has not grown in 30 years, but in terms of real output and adjusted for working age the gap even to the US is much smaller.

oytis 2y ago

I generally agree except for the war. Personnel costs, energy, manufacturing costs, costs of specific weaponry used vary vastly across countries. Russia or China can deliver much more firepower per USD than US.

hollerith 2y ago
Energy costs are much lower in the US than in China which must import most of its energy from the Persian Gulf (and most of the energy it gets from Russia leaves Russia from Russia's European ports). The US has environmental policies that increase the cost of energy, but in a sufficiently serious war, those would get suspended. Personnel costs though are vastly higher in the US especially if "costs" included the political costs of instituting a draft.
- maxglute 2y ago
  Most of PRC energy mix is cheap domestic coal, which they have in essentially endless amount. PRC also generates ~2x more power, that's not something US relaxing enviromental policies can overcome. PRC has many cost advantages stacked in energy/inputs/capex/labour/production/process and just sheer scale. That's where you get into personell costs, moving bodies to build new capex, assuming there's even enough qualified expertise. That said, in a sufficiently serious war, IMO there'd be homeland attacks on critical infra, be it cyber or long range strikes, so it's really about who can survive/operate/recover from capex attrition fastest.
  - hollerith 2y ago
    Interesting. Can they run their navy and air force during a war on fuel synthesized from coal?
    - maxglute 2y ago
      PRC is not Japan, they're a continental sized land power with associated resources. They don't need to synthesize fuel from coal - they extract ~4 million barrels per day, IIRC US military consumes 90 million barrels per year / 240k barrels per day. PRC domestic consumption is 14m barrels per day.~6m goes to transportation, 2m goes to heating, both in process of being electrified. 2m goes to other. Industry, uses ~4m barrels, of which PRC MIC uses relatively little as % of output. They can sustain military multiple their current size on wartime economy. There's also estimated 300m barrels and growing in strategic reserves,. Coal is useful in that coal gassification useful to make fertilizer. Which PRC did - they were NET fertlizer exporter ~10 years ago before they clamped down on coal and curtailed sector. Utimately it's not just a US+co navy+airforce vs PRC navy+airforce fight, it's a whatever US military logistics can bring in theatre vs entire Chinese industrial homefront pivotting into MIC fight with their various PPP advantages using domestic inputs, which is looking more and more to be more substantial relative to what US+co is projected/planned to muster.

FpUser 2y ago

>"PPP's primary purpose is living standard comparisons" Which is the only thing that matters to people. >"When in a war, you are buying ammunition and weaponry with USD, not PPP. When there's a energy shock, you are importing oil and gas with USD, not PPP. When you are in a AI race, you are buying GPUs with USD, not PPP." Thank you for confirming the purpose of USD - make every other country into a servant. Practically speaking nobody has attacked the EU country. Rather quite the opposite. EU also happens to have their own weaponry. And in a worst case they can just produce whole bunch of nukes and declare simple policy: do not attack us or else you will be nuked.

GartzenDeHaes 2y ago
> they can just produce whole bunch of nukes That might be a bit difficult with no uranium reserves. https://world-nuclear.org/information-library/nuclear-fuel-cycle/uranium-resources/supply-of-uranium https://world-nuclear.org/information-library/nuclear-fuel-c...
CuriousSkeptic 2y ago
> do not attack us or else you will be nuked This sentiment has been expressed a few times in this thread now. Is it really true? From my understanding nuclear war at any scale will be devastating for the entire planet, not just the aggressor. So the threat of nuclear retaliation hinges on the aggressor believing the defender to be either be suicidal a or mad. The default assumption of people being rational means it should be quite safe to attack despite talks of nuclear retaliation.
- nordsieck 2y ago
  > From my understanding nuclear war at any scale will be devastating for the entire planet, not just the aggressor. So the threat of nuclear retaliation hinges on the aggressor believing the defender to be either be suicidal a or mad. It kind of depends on which countries you're talking about. The US and Russia have enough nukes that if they're involved, that's definitely true. But what about Pakistan? Or Israel? There are several nuclear powers who would have a hard time devastating a single country, not to mention the entire world.

gnfargbl 2y ago

> ...don't complain when the draft officer knocks on your door. As long as my country has an independent nuclear deterrent and a functionally democratic government then I feel that my son is safe from the draft officer. The places you're listing lack one or both of those things.

pixl97 2y ago
When large wars start breaking out and spreading over the planet the entire 'functionally democratic government' thing can come in to question very quick.

ryukoposting 2y ago

I agree with you in principle. Every time someone brings this kind of thing up, I'm also reminded of how odd it is that the country flanked by oceans and mountains to the east and west and two staunch allies to the north and south, is the one that's apparently better equipped for war from an economic perspective.

paganel 2y ago

> When in a war, you are buying ammunition and weaponry with USD, not PPP That depends on your geo-political allies, for example I'm sure Russia had no problems in purchasing artillery shells from North Korea without using USD. The fact that Europe has become dependent on using the USD for its vital interests (like purchasing artillery shells, for example) is a major strategic weakness, but that's the bed that they have laid out for themselves.

brabel 2y ago

PPP is not only about living standards, it accounts also for the fluctuation of currency exchange rates, as you should've understood if you read the article. The reason the EU seems to have fallen by 1/3 compared to the US is that the dollar got stronger, not that EU suddenly became 1/3 less productive. Your point of view is just completely wrong and it's funny how you think it's the article that has it wrong.

lostlogin 2y ago

> If the two simultaneous hot modern wars in Ukraine, Gaza, and soon Taiwan can't convince that hard power matters I’m not sure that Ukraine has been a good example of US power. Things may have turned a corner but it’s been a hell of a show of US internal division and turmoil.