"“Most people believe that the dollar value of global G.D.P. is a critically important indicator of the health of the global economy.”" -- Believe what you like, but don't expect to profit from beliefs that are inconsistent with reality.
Either purchasing power parity or a basket of global currencies are sensible approaches to measuring global GDP.
It makes no sense whatsoever to measure global GDP in just one global currency. That exercise is meaningless.
It makes no sense whatsoever to measure global GDP in just one global currency. That exercise is meaningless.
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What I don't understand about economics is that economists seem to search the world over to find bad news somewhere (Dr. Krugman being an exception): "The US stock market is down today because of fears that the drought in China will worsen..." What?! Meanwhile life goes on for the 99% except when the 1% misplay their hand and mess things up for the rest of us who are just trying to get by. For example, the house I bought 11 years ago is still underwater. Two of my four neighbors have been foreclosed on and their houses sit vacant. I'm beginning to worry I won't be able to retire without the nest egg that most people have from living in their house for 20 years. All I do is get up and go to work everyday, but somehow my retirement is in jeopardy because the 1% are searching the world over for ways to maximize the growth of the 50% of the wealth they currently own.
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I feel ya. Maximizing savings and increasing income appears a top priority for the wealthy. But this is not uncovered bad news. The U.S. economy is a powerful indicator that shouldn't be calculated out of the world's economic health.
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It would be instructive to see graphs of international GDP for each of the three measures described.
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What it really means is that the Americans can buy a bigger share of that global output with their money, while the Europeans can buy less, reflecting the dynamics of their relative economic power. PPP GDP is not an ideal indication of growth either. It would be only if changes in exchange rates reflected only relative inflation rates in the two countries (one of them being the US). But they do not. For instance, inflation in both US and Australia is about the same at around 2%, yet the Australian dollar lost about 20% vs the greenback in a year. PPP is OK in this case, since the prices were stable in both countries. But consider a country which had 25% inflation and whose currency lost 50% vs USD. Even if it produced exactly the same amount of goods and services as last year at 25% higher local prices, its local currency GDP needs to be inflation-adjusted first before applying the PPP coefficient to keep the PPP GDP the same. So what's the problem here, you may ask. The problem is that the baskets used by different countries for calculating inflation is different from each other and also different from the basket used by IMF to calculate their PPP coefficients. So it all ends up being very imprecise with errors on the order of one or two percent. With real growth rates in the same range the difference between growth and contraction may be just in how you do your math. Not an exact science to be sure.
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Very true. There is really no perfect way to measure global GDP. I would say that PPP is a good attempt to solve a very difficult problem. In reality, I would not rely on one metric and instead look at GDP in terms of a variety of currencies. I would also look at that GPS of select nations (or blocs), such as the US, EU, China, Russia, Japan, Nigeria, Brazil, and a smattering of smaller economies.
Every statistic is to some extent approximate and uncertain. A statistic expressed as a bare number without a measure of that uncertainty is incomplete. Saying flatly that the world economy grew by 2.4% (or 3.1%) is meaningless; saying that there is a 90% probability that it grew, e.g., by an amount between 2.2% and 2.6% would be meaningful.
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Dollars and other currencies are just numbers with no intrinsic worth.They clearly are at sixes and sevens trying to get a handle on what growth means.
Some other parameter needs to be used. GDP is very imperfect as subsistence economies cannot be measured, yet for all we know they are no less satisfied with their lot in life even on the equivalent 1dollar per day income. This sort of scale has been tried. Maybe its time to take one on.
Some other parameter needs to be used. GDP is very imperfect as subsistence economies cannot be measured, yet for all we know they are no less satisfied with their lot in life even on the equivalent 1dollar per day income. This sort of scale has been tried. Maybe its time to take one on.
Sadly, it is the best measure we have. We can try to develop a new one, but that is hard to do.
"Measured in dollars, global growth recorded the first drop since the end of the financial crisis late in the last decade, declining by nearly 5 percent, from $77.3 trillion to $73.5 trillion".
What is that supposed to mean? Was it really "global growth" or "global output" that "recorded the first drop"? From the numbers it seems like the article means "output". One would hope that the Paper of Record could manage to keep such a simple yet important thing straight.
What is that supposed to mean? Was it really "global growth" or "global output" that "recorded the first drop"? From the numbers it seems like the article means "output". One would hope that the Paper of Record could manage to keep such a simple yet important thing straight.
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It is more difficult to take something away than to give people something they want.
This implies that giving everyone a paycheck is easier to do than taking away the wealth of the top few. Reducing inequality by Paycheck for All is more feasible than reducing inequality by confiscating great wealth.
And it has a side effect of increasing demand, which promotes jobs. One approach is to give every American a monthly payment equal to the poverty line. It would cost less than the Wall St Bailouts and the Middle East wars.
The rest of the world could do something similar but probably gradually.
This approach is also called Welfare for All. Go to YouTube and watch Comedy Party Platform (2 min 9 sec) and Benton-Comedy2 (3 min 43 sec). Then send a buck to Bernie Sanders and invite me to speak. Thanks!
This implies that giving everyone a paycheck is easier to do than taking away the wealth of the top few. Reducing inequality by Paycheck for All is more feasible than reducing inequality by confiscating great wealth.
And it has a side effect of increasing demand, which promotes jobs. One approach is to give every American a monthly payment equal to the poverty line. It would cost less than the Wall St Bailouts and the Middle East wars.
The rest of the world could do something similar but probably gradually.
This approach is also called Welfare for All. Go to YouTube and watch Comedy Party Platform (2 min 9 sec) and Benton-Comedy2 (3 min 43 sec). Then send a buck to Bernie Sanders and invite me to speak. Thanks!
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And your comment relates to this article how?
The U.S. is living on a credit card with trillions in debt. Yes, everything is great if one intentionally wants to ignore the facts.
It isn't a credit card when you own the only printing press.
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We should be concerned about our national debt and work to reduce it. On the other hand, most of that debt has been borrowed at 2 or 3% interest which is very different from typical credit card interest.
There's another way to measure GDP--by measuring the actual quantities of goods produced and consumed. Maybe a barrel of oil really is worth only half a dozen or so Big Mac meals at McDonald's, or four hours of minimum wage labor, but it'd be easy to figure out what is going on with overall economic activity--the metric that measures of GDP are trying to capture--by just measuring output and/or consumption.
By measuring quantity rather value currency fluctuations are stripped out and a clearer picture emerges. For instance, it doesn't matter what a bushel of wheat costs in a GDP quantity calculation; if you know that x amount were produced and y amount consumed in a given year, then the health of the wheat market can be readily ascertained. Do that for industries the globe over and the direction and magnitude of growth is revealed.
By measuring quantity rather value currency fluctuations are stripped out and a clearer picture emerges. For instance, it doesn't matter what a bushel of wheat costs in a GDP quantity calculation; if you know that x amount were produced and y amount consumed in a given year, then the health of the wheat market can be readily ascertained. Do that for industries the globe over and the direction and magnitude of growth is revealed.
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Getting equally accurate figures on consumption and storage is the difficult part there. Maybe the world's going gluten free all at once.
This could be a teachable moment regarding the lack of connections between currency exchange rates and the real economy (production, sales, and prices of goods and services). The author could review the luck analysts have (or have not) had with theories that try to predict market exchange rates using real variables.
Come now it not only matters what currency you use but if you actually believe the numbers. China is probably cheating a lot both by lying and pumping their output with government spending. The underground economy in many areas can't be measured. Believing any of this enough to make major decisions is foolish.
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What system is dying unless it fails to grow continuously? Cancer. A Ponzi scheme. Capitalism.
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maybe the point of evolution is change....
Without economic growth, an ever growing population means each person gets a smaller "piece of the pie." It means less house, less money, less stuff. Most people aren't going to agree to that.
Would be interesting to see reported the global personal wealth and income, inflation adjusted by economic class.
My income in the USA top 10% was really stagnant or declining for the last decades, while my hours worked increased. So the Corporation may have seen record profits, but the workers, not so much.
I welcome the decline in prices for natural resources if it reduces my expenses and improves my personal cash flow. The long term investments and real property value of my estate will fluctuate, but long term will probably rise. My vacation this spring will be less expensive. The local farmer's market produce will be priced within reason.
Economists are from Mars, real people are from Venus.
My income in the USA top 10% was really stagnant or declining for the last decades, while my hours worked increased. So the Corporation may have seen record profits, but the workers, not so much.
I welcome the decline in prices for natural resources if it reduces my expenses and improves my personal cash flow. The long term investments and real property value of my estate will fluctuate, but long term will probably rise. My vacation this spring will be less expensive. The local farmer's market produce will be priced within reason.
Economists are from Mars, real people are from Venus.
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A dollar today is only worth fifteen cents in 1970 money. It's how insurance companies can afford to pay out settlements with inflation-deflated dollars. We should put Lady Gaga on the twenty dollar bill.
What's a dollar worth compared to the gold standard? Bad specie drives out good specie every time.
Is gold really worth anything when you come down to it? It is just a metal that you can't eat or use (practically) as clothing or housing material. Gold only has value as long as people are willing to give you something for it. Same as dollars or rubles.
A currency has value as a means of exchanging goods of material or survival value. Hence the measure of Purchasing Power Parity. Ultimately, we can only really measure economies in terms of what that economy can provide in food, clothing, shelter, and material goods. And gold doesn't have any advantages over dollars in this regard.
A currency has value as a means of exchanging goods of material or survival value. Hence the measure of Purchasing Power Parity. Ultimately, we can only really measure economies in terms of what that economy can provide in food, clothing, shelter, and material goods. And gold doesn't have any advantages over dollars in this regard.
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It amazes me how few people ask this question about gold or any other store of value. As far as I can see, Andy from Texas is exactly right: it's all based on perception. PPP may not be perfect, but it seems the best relative measure of national economies. Check out the Big Mac Index at The Economist. Simple & fast to measure. Easy to Understand. Hard to fake (I'm looking at you, PBOC... and IBS, WB, etc., etc.).
Really interesting beginning discussion, that I would like to have expanded. I do hope Mr. Hakim will continue this analysis.
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