Gross Domestic Product is normally used to measure the wealth of nations. But few know that there is more than one way to calculate a nations's GDP. The usual way is to sum the cost of services and products of a country in the local currency. The sum total is then converted to the dollar according to the rate of the moment.
But this is not universal, because there are better ways to measure wealth using purchasing power parity (PPP) of different countries..
Suppose Country A sells internally a sack of cement by 40 units of the local currency, and the US sells the same sack of cement by US$ 10. A panoplia of goods and services in Country A will be sold internally by a local price. The final sum total of these components will then be converted into US$ according the exchange rate of a certain day of the year. And the result will be called the GDP of country A.
But this is not very accurate for various reasons. The currency exchange rate, for example, is subject to factors like the humour of the financial investors and other parameters having nothing to do with any measure of wealth.
For this reason the GDP-PPP was created, as the traditional way was (and is) seen as randomly biased.
The PPP way works differently. Let's take the sack of cement mentioned earlier. The prices quoted indicate that cement has its own exchange rate, 1/4 in this case. If the market-defined exchange rate between the two currencies is, for example, 1 dollar for 8 Country A currency units, the number is 8 by 1, the exchange rate is 8 and needs to be corrected by the factor 1/4 corresponding to the sack of cement to give the exchange rate of cement, that is:
cement exchange rate - 8 x 1/4 = 2
In this way, each product and service has its own exchange rate. When all services and products have been subjected to this form of calculation, they are summed up and the result is expressed in dollars, so that there is no need of another conversion.
This is the GDP-PPP of Country A. To see the differences between the two methods, two tables of ranking countries GDP will be shown, one for each method.
Ranking 1-10 biggest nominal GDP Ranking 1-10 biggest PPP-GDP
USA.......................................................................CHINA
CHINA...................................................................USA
GERMANY.............................................................INDIA
JAPAN....................................................................JAPAN
INDIA....................................................................GERMANY
UK.........................................................................RUSSIA
FRANCE................................................................BRAZIL
ITALY.....................................................................INDONESIA
CANADA...............................................................UK
SOUTH KOREA....................................................FRANCE
The tables speak for themselves. A clear displacement of the geopolitical centre from the American-European area towards the East can be seen when the more realistic PPP
method is adopted. This is in accordance with the local shocks between the old and the new world, a crisis os transformation.
A further use of the GDP is in the analysis of the GDP per capita. The ranking is completely different and permits new conclusions. Here it is for 2022:
Monaco
Lichtenstein
Luxembourg
Bermuda
Switzerland
Ireland
Cayman Islands
Isle of Man (UK)
Norway
Singapore
These countries have something in common. They are havens for money laundering. Their GDP is so high because financial transactions take place within them that would not be allowed in other places. So, he GDP is artificially raised by means of gigantic financial transit, and not by any material production. It is wroth mentioning that these tax heavens are accepted as a part of the capitalist system. This means that any talk about taxes in the US, for example, is 100% vitiated by a corrupt system. The poor have to pay and toil. The rich just enjoy. It looks like a good idea to change the system for something less centred on momey and more centred in humanity.
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