Chinese economy overtakes the U.S.’s to become the largest • Hacker News Board

Re: Chinese economy overtakes the U.S.’s to become the largest

#51

Post by AmirS2 » Fri, Dec 05, 2014, 10:50 AM UTC

tomp wrote: post #2

> These calculations are based on a well-established and widely used economic measure known as purchasing-power parity (or PPP), which measures the actual output as opposed to fluctuations in exchange rates. So a Starbucks venti Frappucino served in Beijing counts the same as a venti Frappucino served in Minneapolis, regardless of what happens to be going on among foreign-exchange traders. > PPP is the real way of co…

>Sure, maybe a Chinese middle-class person can buy more Beijing Frappucinos than a middle-class person in Minneapolis,

No, this isn't what's being said as the number we're talking about isn't per capita.

I guess you could read it as approx 4.3 (1.3bn / 300m) middle class Chinese people, between them, can buy more Beijing Frappucinos than a single middle-class person in Minneapolis ...

(of course this still isn't true as GDP is still only a crude proxy for individual income, it really measures the total of a particular subset of all _transactions_ in the economy).

Re: Chinese economy overtakes the U.S.’s to become the largest

#52

Post by halflings » Fri, Dec 05, 2014, 10:50 AM UTC

Tyrannosaurs wrote: post #42

pmontra wrote: post #17

This is a ranking about PPP. There are about five Chinese persons for every American. The sum of their income will keep getting larger and so will their economy. GDP and economic output don't automatically relate to how well people live but they do relate to the influence a country has over the world. If we care about how happy people are in their country then maybe we should look at http://www.oecdbetterlifeindex.or…

Interestingly if you put in the cliche American free market priorities (jobs, income high, safety, work life balance, environment low, everything else in the middle) the US does come out top (as opposed to high but not top on a more even measure). The same things seems to happen if you put in the sort of priorities other countries are generally believed to hold (so put in the environment, satisfaction, work life bala…

Their health index seems... unreliable.

http://www.oecdbetterlifeindex.org/topics/health/

Re: Chinese economy overtakes the U.S.’s to become the largest

#53

Post by crdoconnor » Fri, Dec 05, 2014, 10:50 AM UTC

jvm wrote: post #45

tomp wrote: post #2

> These calculations are based on a well-established and widely used economic measure known as purchasing-power parity (or PPP), which measures the actual output as opposed to fluctuations in exchange rates. So a Starbucks venti Frappucino served in Beijing counts the same as a venti Frappucino served in Minneapolis, regardless of what happens to be going on among foreign-exchange traders. > PPP is the real way of co…

> So, it's not entirely clear if China is really the biggest economy, or just by using an accounting trick called PPP GDP. There is no objective way of measuring the size of an economy. Imagine some hyper-simplified economies where the only asset produced is computers. Economy A sells 1000 Apple IIs* per year at $3k each. That means it has a nominal GDP of $3m. Economy B sells 1000 Retina Macbook Airs at $1k each, fo…

>It gets even crazier: > >Economy C, the government pays workers $5m total to dig unwanted ditches. Nobody gets a computer.

Because GDP is not nor was it ever meant to be a measure of how great your country is. It is simply a measure of the total volume of transactions (which correlates to wealth but is far from being the same thing).

Re: Chinese economy overtakes the U.S.’s to become the largest

#54

Post by austinz » Fri, Dec 05, 2014, 10:51 AM UTC

jvm wrote: post #45

tomp wrote: post #2

> These calculations are based on a well-established and widely used economic measure known as purchasing-power parity (or PPP), which measures the actual output as opposed to fluctuations in exchange rates. So a Starbucks venti Frappucino served in Beijing counts the same as a venti Frappucino served in Minneapolis, regardless of what happens to be going on among foreign-exchange traders. > PPP is the real way of co…

> So, it's not entirely clear if China is really the biggest economy, or just by using an accounting trick called PPP GDP. There is no objective way of measuring the size of an economy. Imagine some hyper-simplified economies where the only asset produced is computers. Economy A sells 1000 Apple IIs* per year at $3k each. That means it has a nominal GDP of $3m. Economy B sells 1000 Retina Macbook Airs at $1k each, fo…

Basically, all forms of measuring GDP are 'accounting tricks' to some extent, or to be more charitable they are estimates based on necessarily incomplete data. For example, by its nature the informal sector can't be precisely measured, but its contribution to total economic output can't be ignored.

http://en.wikipedia.org/wiki/Informal_sector

Re: Chinese economy overtakes the U.S.’s to become the largest

#55

Post by crdoconnor » Fri, Dec 05, 2014, 10:52 AM UTC

NoPiece wrote: post #47

jsprogrammer wrote: post #40

Earlier quoted context omitted.

Just curious how you think the US economy could expand without increasing debt. My understanding is that the amount of transactions occurring is dependent on the amount of money in circulation. The amount of money in circulation is directly dependent on debt through the fractional reserve banking system. Under the current system, the only way to 'grow the economy' is to increase the volume of transactions or use mone…

Money is created via debt, but the economy expands when people create things of value.

False. The economy expands when the volume of transactions increases.

The GDP hero is a chain-smoking terminal cancer patient going through an expensive divorce whose car is totaled in a 20-car pileup, while munching on fast-take-out-food and chatting on a cell phone. All add to GDP growth. The GDP villain is non-smoking, eats home-cooked wholesome meals and cycles to work.

Re: Chinese economy overtakes the U.S.’s to become the largest

#56

Post by jvm » Fri, Dec 05, 2014, 10:56 AM UTC

crdoconnor wrote: post #53

jvm wrote: post #45

Earlier quoted context omitted.

> So, it's not entirely clear if China is really the biggest economy, or just by using an accounting trick called PPP GDP. There is no objective way of measuring the size of an economy. Imagine some hyper-simplified economies where the only asset produced is computers. Economy A sells 1000 Apple IIs* per year at $3k each. That means it has a nominal GDP of $3m. Economy B sells 1000 Retina Macbook Airs at $1k each, fo…

>It gets even crazier: > >Economy C, the government pays workers $5m total to dig unwanted ditches. Nobody gets a computer. Because GDP is not nor was it ever meant to be a measure of how great your country is. It is simply a measure of the total volume of transactions (which correlates to wealth but is far from being the same thing).

Certainly Nominal GDP is a measure of the volume of transactions.

However, PPP-adjusted GDP is intended to be a measure of national income in real terms, or put another way, the amount of value actually produced. Which is how people often intuitively think of GDP.

Re: Chinese economy overtakes the U.S.’s to become the largest

#57

Post by AmirS2 » Fri, Dec 05, 2014, 10:56 AM UTC

jvm wrote: post #45

tomp wrote: post #2

> These calculations are based on a well-established and widely used economic measure known as purchasing-power parity (or PPP), which measures the actual output as opposed to fluctuations in exchange rates. So a Starbucks venti Frappucino served in Beijing counts the same as a venti Frappucino served in Minneapolis, regardless of what happens to be going on among foreign-exchange traders. > PPP is the real way of co…

> So, it's not entirely clear if China is really the biggest economy, or just by using an accounting trick called PPP GDP. There is no objective way of measuring the size of an economy. Imagine some hyper-simplified economies where the only asset produced is computers. Economy A sells 1000 Apple IIs* per year at $3k each. That means it has a nominal GDP of $3m. Economy B sells 1000 Retina Macbook Airs at $1k each, fo…

In Economy C, the workers who've been paid by the govt can then purchase 5000 Retina Macbook Airs at $1k each, the govt receives sales tax, apple employees get paid and pay income tax, and apple employees then spend their remaining money buying more Macbook Airs (going by your simpification that the only asset produced is computers) ... net GDP is then some way over $10m and everybody has a computer and is employed either producing computers or digging ditches

I would suggest that hyper-simplified economies are probably not a good model for anything ...

Re: Chinese economy overtakes the U.S.’s to become the largest

#58

Post by vorg » Fri, Dec 05, 2014, 10:57 AM UTC

Tyrannosaurs wrote: post #42

pmontra wrote: post #17

This is a ranking about PPP. There are about five Chinese persons for every American. The sum of their income will keep getting larger and so will their economy. GDP and economic output don't automatically relate to how well people live but they do relate to the influence a country has over the world. If we care about how happy people are in their country then maybe we should look at http://www.oecdbetterlifeindex.or…

Interestingly if you put in the cliche American free market priorities (jobs, income high, safety, work life balance, environment low, everything else in the middle) the US does come out top (as opposed to high but not top on a more even measure). The same things seems to happen if you put in the sort of priorities other countries are generally believed to hold (so put in the environment, satisfaction, work life bala…

> Australia being a great place to live - they don't have a slider for "Deadly animals"

Australia has poisonous snakes and America has grizzly bears -- only New Zealand can claim no deadly animals.

Re: Chinese economy overtakes the U.S.’s to become the largest

#59

Post by crdoconnor » Fri, Dec 05, 2014, 11:01 AM UTC

simonh wrote: post #32

tinco wrote: post #18

Earlier quoted context omitted.

Because on the global power scale it doesn't really matter if half your population is starving or not. And if you want to compare the peoples wealth, remember the one percent rule. How much richer does the US have to be for its bottom 50% to be as wealthy as The Netherlands' bottom 50%? It's all numbers games, this number is about global economic power, the sort that could have all sorts of real (nasty) consequences.

It's not at all about real global power, it's about domestic economic capacity. As soon as China tries to start exerting it's economic muscle abroad, it has to compete on international terms which means adjusting costs to take advantage of domestic costs doesn't matter anymore. For example, does China's GDP at PPP 'equality' with the US mean it can fford as many nuclear submarines as the US, as many aircraft carriers…

>It's not at all about real global power, it's about domestic economic capacity. As soon as China tries to start exerting it's economic muscle abroad, it has to compete on international terms which means adjusting costs to take advantage of domestic costs doesn't matter anymore.

The entire reason the GDP and PPP GDP is so out of whack in China is because it intentionally suppresses the value of its currency to subsidize its exports.

>For example, does China's GDP at PPP 'equality' with the US mean it can fford as many nuclear submarines as the US, as many aircraft carriers? As many advanced state of the art stealth bombers, fighters, tanks, spy satelites and naval bases? No, it doesn't

Yes it does because all of these things require domestic manufacturing capacity. It's doubly true for military hardware in fact - just as the US doesn't want its submarine parts made in China (especially chips), China doesn't want its submarine parts made in the US.

>As soon as China starts investing in, developing or buying international standard technology

China is becoming international standard technology. Its mercantilist strategy has paid off since it has become the manufacturing hub of the world.

>Even in the case of 'soft power' such as financial support and investment in other countries, that has to be done in foreign currency.

Only if the foreign country doesn't want your currency. China just started buying $400 billion in gas from Russia in RMB though, so...

Re: Chinese economy overtakes the U.S.’s to become the largest

#60

Post by simonh » Fri, Dec 05, 2014, 11:04 AM UTC

tomp wrote: post #13

seanmcdirmid wrote: post #8

Earlier quoted context omitted.

Frappuccinos are more expensive in Beijing than Seattle (I know, I have a habit...). Actually, many things in China are more expensive than in the states: if you want the "lower cost of living", you have to be willing to endure the "lower standard of living" that is possible in China without as much stigma as in the US. If you want a nice apartment, nice safe food, decent education for your kids, a car, medical care,…

What about compared to NY? Also, it might make sense to compare Starbucks in China to a non-us company in the US. Midn you, I understand that PPP does matter (e.g. products imported to both China and USA, such as German cars, will probably be priced lower in China than in USA precisely because of PPP difference), but nonetheless it's just one way of measuring the size of economy, not necessarily the right one.

All other things equal, german cars are going to cost as much in China as they do in the USA because China gets no discount because of it's weak currency, in fact when buying abroad it works against them. They still need to pay the germans just as much hard cash as americans do.

The advantage PPP gives poorer countries is that goods that depend on domestic labour, which is very cheap, get to be equally cheap. Any goods or services that don't depend on that cheap pool of domestic labour don't get that benefit. German labour in Germany isn't cheaper to buy in China than it is to buy in the USA, so PPP is irrelevant.

As an aside, German cars are actualy vastly more expensive (up to 2x or 3x for high end models) to buy in China than in most countries due to severe import taxes, but the base cost of buying the car from Germany to ship to China would be about the same.

[Re. Some BMWs made in China - in which case they're not really German cars]