
Do we understand the math behind the PPP calculations? - dang
http://blog.mpettis.com/2014/05/do-we-understand-the-math-behind-the-ppp-calculations/
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PeterWhittaker
tl;dr: Comparing the size of two or more economies, e.g., China and the US, is
fraught with peril. Traditional comparison tools, such as the Gross Domestic
Product (GDP) are neither precise nor accurate and involve considerable
nuance. More recent tools such as PPP (Purchasing Power Parity) give the
appearance of validity and reliability since they appear to have greater
precision - but no one, perhaps least of all the economists using them - can
make advance sufficiently meaningful claims as to their accuracy. In other
words, PPP may be just as flawed and just as nuanced as GDP. Or it may not. No
one really knows.

So take with a grain of salt any claims that the Chinese economy is set to
overtake the US economy. It may be about to do so. It may not. It may have
already done so. It might never do so.

Whether or not it does, did, or never will cannot be reliably established with
GDP or PPP or any other tools yet known to economists.

On a personal note, I'd assert that just as currency strength is a measure of
faith in an economy, so goes the importance of whether one economy is
perceived as larger than another, with the same vicious/virtuous circle
implications: If the Chinese economy is perceived as larger the US and likely
to yet larger get, then speculators will put their money in China and remove
it from the US, with virtuous and vicious implications for the two economies.
Alternatively, if China and the US are perceived as being of a size, then both
will for a time rise and fall with the perception of whether or not their
being of a size is a good thing or not. In other words, why isn't China
growing, let's put our money in the US, both are growing, both are fair picks,
both are stagnating, Europe looks good, etc.

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pessimizer
PPP certainly isn't perfect to evaluate the "size" of an economy, but it's
definitely better than USD GDP in the case of China.

[http://www.cepr.net/index.php/blogs/beat-the-
press/serious-a...](http://www.cepr.net/index.php/blogs/beat-the-
press/serious-arithmetic-problems-at-the-nyt)

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ExpiredLink
>> _The US is on the brink of losing its status as the world’s largest
economy_

Ahem, the EU has been the world’s largest economy for a while:
[http://en.wikipedia.org/wiki/List_of_countries_by_GDP_%28nom...](http://en.wikipedia.org/wiki/List_of_countries_by_GDP_%28nominal%29#Lists)

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mooreds
Why does the EU count as an economy? It's not a nation state.

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taejo
The important thing is that it's not a state. The US and China are arguably
not nation states either. Wikipedia says: _nation_ can refer to "a people,
race, or tribe; those having the same descent, language, and history." A
nation state is where the nation and state coincide. For example, Japan is a
nation state: it is a state comprised almost entirely of a single nation (the
Japanese people), and almost all of the members of that nation live in the
state. South Korea is not, because the Korean people are split between two
states; the United States is not, because it is comprised of multiple
nations/peoples/tribes.

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pimlottc
Given the tech focus of this site, you might want provide better context,
since it doesn't look like the article is talking about the Point-to-Point
Protocol.

