Sunday, May 29, 2022

Look at PPP, not GDP

It's a side-note in a longer essay on the current world war (disguised as a regional conflict) but it's a side-note worth noting.

...I have pointed out for years that all discussions of the Russian economy in terms of nominal GDP are bogus. Nominal GDP is spending within the Russian economy converted through the RUB/USD exchange rate.

But that metric is irrelevant. It doesn’t say anything about what that spending buys the average Russian.

GDP is a stupid metric. It should be called GNS, Gross National Spending. It is a dumb way to measure the ‘output’ of a society. It’s at best a very gross approximation but it is, again, just aggregated spending.

This is the fundamental fallacy of Keynesian demand-side economics and all theories about which economies are expanding or contracting based on spending are literally bogus.

But we have all been trained to believe in GDP as some all-powerful measure of growth and power. It’s not anything of the sort. When you have the ability to print money at will to bid up the cost of the goods purchased with that money, how is that telling you anything about the health of the country, the people… or frankly anything at all?
...Luongo quoted at Wauck's place.

He would prefer PPP (purchasing power parity) which is measured based on 'bang for the buck.'  Example:  the ruble.

...Kopylov explained that the strengthening of the ruble is due to the fact that it is now based purely on exports and imports, and its value is determined by its purchasing power parity (PPP). The International Monetary Fund (IMF) estimated the Russian currency’s PPP at the end of 2021 at 29.127 rubles per one dollar. According to the Big Mac Index, that rate stood at 23.24 rubles to the dollar....

Whereas measured by GDP, the ruble is 66 to the dollar.


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