[RN7]

Yes, but what amount of goods do you buy in China with 4,909 billion US$ and what amount of goods do you buy in US with 14,245 billion US$? Forget about GDP and do it by PPP (purchasing power parity). Then you get: EU (14,793), US (14,256) and China (8,765). Quite different isn't it? And more accurate. Looking at GDPs is an illusion.

I was hoping you would use the PPP model. Purchasing Power Parity is the idea that adjustments to exchange rates will cause the value of a particular good in two different countries to be equal, and therefore is the amount of a certain basket of basic goods which can be bought in any one country with the standard international currency which is basically the US$. But the same good is not worth the same amount everywhere, in fact it’s not always the same even within the same country. Add geographic distance along with variations in laws and tax rates, price differences can become quite substantial. PPP exchange-rate calculation is considered controversial because of the difficulties of finding comparable items to compare purchasing power across countries. PPP estimations is complicated by the fact that countries do not simply differ in a uniform price levels, as differences can be greater between food prices and house prices but less than the difference in entertainment prices. It is necessary to use a price index for comparisons which is difficult because purchasing patterns and even the goods available differ across countries and it is necessary to make adjustments for differences in the quality of goods and services, and additional difficulties arise when more than two countries are to be compared.

The main reasons why different measures do not perfectly reflect standards of living are that PPP numbers can vary even within one specific good used, making it a rough estimate and differences in quality of goods are hard to measure. The goods that the currency can buy are categorised into different types. Local, non-tradable goods and services like electric power that are produced and sold domestically, and tradable goods such as non-perishable commodities sold on the international market. The more a product falls into the first category the further its price will be from the currency exchange model such as PPP, while the second category products tend to trade close to the currency exchange rate. Processed and expensive products are likely to fall into the second category and drift away from the PPP model. To answer your question about how much would 4,909 billion US$ buy in China and how much would 14,245 billion US$ buy in America, even if the PPP value of China’s currency is five times stronger than the currency exchange rate, it won’t buy five times as much of internationally traded goods. PPP calculations tend to overemphasise the primary sector contribution, and underemphasise the industrial and service sector contributions to the economy of a nation. Basically PPP is an artificial and inaccurate way to measure the economy of countries, and the nature and geography of supply and demand leads to natural inequalities among countries and a calculation based on the assumption of PPP must be viewed with suspicion. However some think it’s a good calculation system, but other prefer using nominal GDP and the fact that China has the second largest economy in the world is only validated by PPP, and not by any other measurement system. What is the estimate for China by GDP for 2011?

And if you want to feel quite bad, look at the estimates. I can't wait for 2011 to know if the planned evolution is right or not.

If the average per capita income of an American in 2010 is about $47,000, and the average for a Chinese is $3,700, which country do you think is doing the best? And why would I feel bad, I’m not American.

I'll get back to you on the other posts later Mo