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Comment by berserk1010 | Hacker News Reader

PPP is a stupid metric, especially in a country like China, with tofu dreg buildings, gutter oil, fake food, gym membership that could expire overnight with business and gym equipments disappearing overnight, electric cars that catch on fire and explode, etc.

Yes, all these things are real and googleable

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There are actual issues with comparing PPP numbers[1], but "tofu dreg buildings, gutter oil, fake food, [...]" isn't one of them.

[1] specifically that on the world market, it doesn't really matter what the value of your goods PPP adjusted is. In the end buyers only care about the absolute value of the goods. The fact that it was made in China (and therefore gets a PPP adjustment up) is irrelevant.

Ok, gdp by ppp is also googleable. So why are people saying its fake news. It's also quite a useful metric when you need to understand what, say, the Chinese military budget buys.

>So why are people saying its fake news.

It's "fake news" insofar as playing fast and loose with definitions. "GDP" without any qualifiers means nominal GDP, not PPP adjusted GDP. It'd be like claiming the unemployment rate is 6.7% (U-6 rate) when most people agree that "unemployment" refers to the U-3 rate, which currently sits at 3.6%.

PPP doesn’t produce a different GDP number it’s a different approximation of the same thing. Few people complain about historic GDP in constant dollars which is really a PPP adjustment.

You can make the same argument about u-3 vs u-6 unemployment

Not really when people talk about GDP abstractly they generally mean PPP or some equivalent of it. It’s just we are often talking in our own currency so it only applies for inflation adjustments.

Look at the GDP growth rate at the bottom of this page: https://www.macrotrends.net/countries/USA/united-states/gdp-...

If you take year X * growth rate you don’t get next years number. IE: 20,460.47 in 2020 * 1.0595 = 21,677.87 but 2021 actually shows 23,315.08 showing a growth rate is calculated in constant dollars not nominal ones.

Nowhere do they say they aren’t directly using the GDP figures on the page to calculate growth rates, it’s just assumed because that’s the way they are generally calculated.

Contrived example:

US Produces 1,000 pounds of butter, sells at $1/unit China Produces 1,300 pounds of butter, sells at $0.7/unit

Nominal: The US economy is bigger, because they produce more US dollars. PPP: The Chinese economy is bigger, because they produce more goods.

It's obvious to me that PPP is the more accurate metric.

PPP is the real metric of GDP. Nominal is the metric you get after you adjust for the market price in dollars.

If the US dollar lost half of its value internationally, yet the US economy still produced the same quantity and quality of goods, did the US economy shrink by half? I think not.

There are problems with PPP but it does try to address some real (no pun intended) issues with nominal GDP.

A US resident might be able to afford a lot of Chinese goods and services but can't get many of them. For a Chinese consumer, the average price of goods or services is less relevant than the price of the subset of goods and services that are actually accessible to them.

It attempts to address the very real problem that a Chinese resident can buy a Chang Li truck for around $2,000 but an American consumer spends over $9000 once the realities of international shipping are factored in.

A theoretical economist might abstract these differences away and just claim that arbitrage will eventually balance out these price differences but empirically we can see that's not what actually happens.

It’s stupid in exactly the same way looking at historic US GDP inflation adjusted is stupid.

If you want to compare actual economic growth rates you want to remove currency fluctuations from your numbers.

The US has lists of random bad things, too, that seems like a very poor argument against using PPP.

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