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Rooster_2006
Joined: 24 Sep 2007
Posts: 984
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 Posted: Thu Jul 25, 2013 3:05 am Post subject: |
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CNN clearly used PPP (Purchasing Power Parity) GDP per capita, not nominal, in this article.
The "nominal" GDP per capita is how many US dollars a person in that country makes, on average, at the current exchange rate. It is a precise number that can be calculated with a calculator. If an average South Korean went to the bank right now, plopped an envelope full of all the money he got this year (before taxes) onto the counter, and said "Convert all my money to US dollars right now!" he'd get precisely $25,051.
The "PPP" GDP per capita is an estimate made by economists. It is not a "real" number. It takes the cost of living into account and tries to adjust the "nominal" GDP per capita so it can be compared with the GDP per capita in another country. Taxes and government services are also factored into the PPP GDP per capita. Countries with lots of government services like free housing or health care will often get a boost. For example, the average North Korean only makes $506 at the current exchange rate, but due to the government providing most people with free (albeit crappy) housing and free (albeit crappy) medical care, the average North Korean has purchasing power of $1,800 per year, more than three times the nominal number.
For example, the average Vietnamese person makes $1,527 a year in nominal GDP per capita at the current exchange rate. Now, Americans (or Japanese, or British) will look at that number and say "Wait a minute! With incomes that low, how do they avoid starving to death and being homeless?" Well, the answer is, in short, a much lower cost of living. That $1,527 per year actually has an overall buying power of ~$3,547 per year because the prices are so low, which is enough to afford basic food and shelter, hence why most Vietnamese are not starving or homeless. In the Vietnam example, the nominal GDP per capita is $1,527 and the PPP GDP per capita is $3,547.
PPP GDP per capita is useful for making broad comparisons. We can say "South Koreans have as much buying power, on average, as Japanese." However, when comparing specific item prices, we must use nominal GDP per capita.
Generally, CNN uses PPP. This is because it's easier to say "$35,406" than to say "only $25,051, but with a lower cost of living that results in an overall buying power that is approximately the same as an American worker making $35,406." |
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JRJohn
Joined: 21 Jun 2006
Posts: 175
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| Posted: Sun Jul 28, 2013 12:34 pm Post subject: Japanese Prices |
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You are right that the cost of some products in Japan is too high. It is partly due to the fact that the Liberal Democratic party of Japan is protecting Japanese farmers. Since the 1950s, they found that Japanese farmers voted for them. The party encouraged and rewarded this loyalty by protecting the farmers from foreign competition, and by arranging it so that electoral constituencies were weighted by land area and not population, thus giving farmers and villagers a larger vote. This ensured that the party stayed in power more or less from the 50s till 2009. There is sometimes sense in protecting local business from foreign competition, but this model is costly.
Of course when I lived in Japan the cost of food from the supermarket, esppecially fruit, would have mattered less if my eikaiwa hadn't taken 40% of my salary for rent. |
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