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PPP seems like a weird attempt to decide what the exchange rate "should" be for things to be "equivalent". Why not let the market decide? DKK vis-a-vis USD is a

PPP seems like a weird attempt to decide what the exchange rate "should" be for things to be "equivalent". Why not let the market decide? DKK vis-a-vis USD is a floating exchange rate, where the market can decide how much they think is equivalent. Obviously a house in Copenhagen costs more than one in Nebraska, but that's because it's a better product, just like a good car costs more than a cheap car, and a fine restaurant with ocean view costs more than a taco truck. You can even apply it within countries: the cost of living is higher in Half Moon Bay than Detroit, but that's because living in Half Moon Bay is actually more desirable in real terms, not because dollars in Half Moon Bay are somehow devalued.

spikels 13y ago
PPP was developed for exactly this purpose - to understand differences across areas with different currencies. While it is not perfect it attempts to take things like quality differences into account. Real estate if pretty difficult to compare as it is unique but for many other goods it is much easier. For example you mention cars. The almost identical VW Golf (know as a Rabbit in the US) cost more than twice as much in Denmark as in the US. http://www.numbeo.com/cost-of-living/compare_countries_result.jsp?country1=United+States&country2=Denmark http://www.numbeo.com/cost-of-living/compare_countries_resul...
- _delirium 13y ago
  > The almost identical VW Golf (know as a Rabbit in the US) cost more than twice as much in Denmark as in the US. Yes, but the VW Golf is relevant in the U.S., and irrelevant in Denmark. In the U.S. you have to drive, and in Denmark you don't (and most people don't). The modal share of bicycle commuting in Copenhagen is >50%, because the bike infrastructure is good. I sold my car when I moved from the SF Bay Area to Copenhagen, and now I spend less on transportation, with a better quality of commute (in my subjective estimation). Yet PPP would probably claim transportation costs more! Besides the nice bike infrastructure, I have an unlimited-rides metro pass for $50/mo, which includes very good 24/7 service. How much would it cost me to buy 24/7 transportation in the SF Bay Area, where I don't have to drive the vehicle myself? (Night buses that come once an hour don't count.)
  - judk 13y ago
    You are highlighting a fundamental brokenness of he concept of GDP, the fallacy that only market transactions contribute to quality of life. I would rather work for 10 months in NY and live in Maui for 2months vacation than spend $15000 traveling to Maui five times for a week each, but GDP says the latter is a higher standard of living.
    - spikels 13y ago
      There is not perfect way to measure output. If you can come up with something better please let everyone know. There are thousands of experts who have spent their entire professional lives on these issues. Good luck!
      - Retric 13y ago
        There are plenty of alternatives out there GDP is simply vary generic and became the most well known outside the field of economics. Depending on what your trying to measure other other tools are much more accurate. Sort of like your doctor wanting to know your blood pressure for somethings and your weight for others. They can both tell say something about your risk of heart attack but blood pressure also indicates other more immediate issues and your weight is vital when prescribing medication. EX: Subtracting exports and adding imports is useful when tracking quality of life adding exports and subtracting imports is useful when measuring economic strength. However, the difference between exports and imports tends to make up a small fraction of the economy so it's not that important.
bradleyjg 13y ago
It's difficult to arb those opportunities though, because while we have pretty decent freedom of capital and goods between the US and DK, we still have pretty piss poor free movement of labor -- both as a matter of formal barriers (i.e. immigration rules) and informal ones (e.g. different languages).

spikels 13y ago

PPP was developed for exactly this purpose - to understand differences across areas with different currencies. While it is not perfect it attempts to take things like quality differences into account. Real estate if pretty difficult to compare as it is unique but for many other goods it is much easier. For example you mention cars. The almost identical VW Golf (know as a Rabbit in the US) cost more than twice as much in Denmark as in the US. http://www.numbeo.com/cost-of-living/compare_countries_result.jsp?country1=United+States&country2=Denmark http://www.numbeo.com/cost-of-living/compare_countries_resul...

_delirium 13y ago
> The almost identical VW Golf (know as a Rabbit in the US) cost more than twice as much in Denmark as in the US. Yes, but the VW Golf is relevant in the U.S., and irrelevant in Denmark. In the U.S. you have to drive, and in Denmark you don't (and most people don't). The modal share of bicycle commuting in Copenhagen is >50%, because the bike infrastructure is good. I sold my car when I moved from the SF Bay Area to Copenhagen, and now I spend less on transportation, with a better quality of commute (in my subjective estimation). Yet PPP would probably claim transportation costs more! Besides the nice bike infrastructure, I have an unlimited-rides metro pass for $50/mo, which includes very good 24/7 service. How much would it cost me to buy 24/7 transportation in the SF Bay Area, where I don't have to drive the vehicle myself? (Night buses that come once an hour don't count.)
- judk 13y ago
  You are highlighting a fundamental brokenness of he concept of GDP, the fallacy that only market transactions contribute to quality of life. I would rather work for 10 months in NY and live in Maui for 2months vacation than spend $15000 traveling to Maui five times for a week each, but GDP says the latter is a higher standard of living.
  - spikels 13y ago
    There is not perfect way to measure output. If you can come up with something better please let everyone know. There are thousands of experts who have spent their entire professional lives on these issues. Good luck!
    - Retric 13y ago
      There are plenty of alternatives out there GDP is simply vary generic and became the most well known outside the field of economics. Depending on what your trying to measure other other tools are much more accurate. Sort of like your doctor wanting to know your blood pressure for somethings and your weight for others. They can both tell say something about your risk of heart attack but blood pressure also indicates other more immediate issues and your weight is vital when prescribing medication. EX: Subtracting exports and adding imports is useful when tracking quality of life adding exports and subtracting imports is useful when measuring economic strength. However, the difference between exports and imports tends to make up a small fraction of the economy so it's not that important.

bradleyjg 13y ago

It's difficult to arb those opportunities though, because while we have pretty decent freedom of capital and goods between the US and DK, we still have pretty piss poor free movement of labor -- both as a matter of formal barriers (i.e. immigration rules) and informal ones (e.g. different languages).