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Old December 8th, 2016, 07:04 PM   #31

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Originally Posted by tomar View Post
Already been explained several times... But here we go again.

In summary, PPP is a multiplier applied to the GDP to reflect the alleged superior buying power in certain (poorer) countries.... This unfortunately has no relation to real life...

Just one example why it does not work, but there are many

PPP multiplier for Morocco is above 3..... Because moroccans supposedly have superior buying power.... This however applies only to a few locally made products such as agricultural products....

But take a Renault car.. There is a Renault factory in Morocco making the same cars as in France... Let's take a 20 000 euro car sold in France...
According to PPP that car should sell for less than 7 000 euros in Morocco... But it sells for the almost exact same 20 000 euros (give or take a few percent)... If you apply PPP then than car will magically contribute 60 000 euros to Morocco's PPP GDP instead of the real 20 000

I can multiply such examples at infinitum....

PPP is simply a fantasy figure
Thanks for the elaboration.
I have mentioned other metrics such as genuine progress indicator,
Genuine Progress Indicator
Since many things are subtracted in GPI, the picture will not be pretty for sure!
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Old December 8th, 2016, 07:09 PM   #32
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Businesses owners change their behavior in relation to tax rates. The best thing Trump can do is to get Congress to lower the corporate tax rate. When it is a lot cheaper to produce outside the US companies will do it. If the tax rate drops bigly there will be an improvement in the economy. I don't like Trump's big tarriff idea but I am excited to see lower rates.
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Old December 8th, 2016, 08:09 PM   #33

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Businesses owners change their behavior in relation to tax rates. The best thing Trump can do is to get Congress to lower the corporate tax rate. When it is a lot cheaper to produce outside the US companies will do it. If the tax rate drops bigly there will be an improvement in the economy. I don't like Trump's big tarriff idea but I am excited to see lower rates.
Taxes are usually less than 1/4 the cost of labor in most industries so for many companies to move jobs back to the U.S. the cost of labor in the U.S. would need to decrease by about half. Sure there would be more jobs but most of those jobs would be paying only slightly more than 3rd world countries.

Taxes are not why companies don't keep jobs in the U.S. most of the time. There are of course some cases where the marginal productivity difference is less than the taxes but the cost of labor is the main reason for a company to move away from one location to another.

Where taxes and government regulation can be lessened and make some difference is in the creation of new businesses but the U.S. already creates more startups than most other nations and those nations ahead of the U.S. all have higher taxes except for a couple so decreasing taxes isn't some magic formula.

Cutting taxes AND spending trillions on new infrastructure, building walls, increasing military and anti-terrorism budgets... that is recipe for exponential debt growth but I guess that doesn't matter so long as the right party is in charge and can blame the other side for their excesses.

On topic-

I often see people equate the stock market to the economy and that is a mistake.

On PPP and economic metrics- any aggregate measure is going to have mistakes as even basic things like inflation are quite difficult to describe let alone measure since the government typically eliminates volatile goods like energy yet in the real world budgets of the average consumer a tank of cost doubling or halving in cost makes quite a difference in disposable income.

As for PPP- the costs of large imported durable goods are usually not a big part of monthly consumer spending. Housing and food which are influenced most by local pricing are almost always the by far largest portions of what people spend and in places with a low cost of living people can live relatively well even with lower incomes. Sure maybe not buying nice imported cars but eating well, taking local vacations, building houses, etc.

The other thing is something I was just reading earlier today about how for the first time since the beginning of the 20th century in the U.S. that children are half as likely to make the same more greater income as their parents. I haven't had time to look deeply into this study but it would match other economic indicators such as children living with parents longer, greater debt loads, delaying starting a family, and such.
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Old December 8th, 2016, 09:41 PM   #34

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Originally Posted by Ichon View Post
Taxes are usually less than 1/4 the cost of labor in most industries so for many companies to move jobs back to the U.S. the cost of labor in the U.S. would need to decrease by about half. Sure there would be more jobs but most of those jobs would be paying only slightly more than 3rd world countries.

Taxes are not why companies don't keep jobs in the U.S. most of the time. There are of course some cases where the marginal productivity difference is less than the taxes but the cost of labor is the main reason for a company to move away from one location to another.

Where taxes and government regulation can be lessened and make some difference is in the creation of new businesses but the U.S. already creates more startups than most other nations and those nations ahead of the U.S. all have higher taxes except for a couple so decreasing taxes isn't some magic formula.

Cutting taxes AND spending trillions on new infrastructure, building walls, increasing military and anti-terrorism budgets... that is recipe for exponential debt growth but I guess that doesn't matter so long as the right party is in charge and can blame the other side for their excesses.

On topic-

I often see people equate the stock market to the economy and that is a mistake.

On PPP and economic metrics- any aggregate measure is going to have mistakes as even basic things like inflation are quite difficult to describe let alone measure since the government typically eliminates volatile goods like energy yet in the real world budgets of the average consumer a tank of cost doubling or halving in cost makes quite a difference in disposable income.

As for PPP- the costs of large imported durable goods are usually not a big part of monthly consumer spending. Housing and food which are influenced most by local pricing are almost always the by far largest portions of what people spend and in places with a low cost of living people can live relatively well even with lower incomes. Sure maybe not buying nice imported cars but eating well, taking local vacations, building houses, etc.

The other thing is something I was just reading earlier today about how for the first time since the beginning of the 20th century in the U.S. that children are half as likely to make the same more greater income as their parents. I haven't had time to look deeply into this study but it would match other economic indicators such as children living with parents longer, greater debt loads, delaying starting a family, and such.
North Americans often fall into the nostalgic trap easily.


We have taken the lion's share of world resources and our standards of living are unusually high.
If our next generation lives thriftier than we do, we call it regression; still, this is exactly what we need to do.
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Old December 9th, 2016, 12:24 AM   #35
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Mellon cut taxes and the economy boomed.
As did JFK and Reagan. But as I said, tax cuts are not the issue in themselves(as implied by the leftist term trickle down economics). The idea behind tax cuts for the rich is part of a wide variety of policies to promote supply side economics.
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Old December 10th, 2016, 08:59 AM   #36

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As did JFK and Reagan. But as I said, tax cuts are not the issue in themselves(as implied by the leftist term trickle down economics). The idea behind tax cuts for the rich is part of a wide variety of policies to promote supply side economics.
What alot of people seem to willfully forget about Reagan is that while he adjusted tax brackets and did several other changes in taxes lowering taxes overall when he came into office, due to the explosive growth of the federal debt by the time Reagan left office he had raised taxes again to a point higher than the previous administration (or current taxes!) and the debt still was growing... then his former Vice President raised taxes again due to debt growth handing the White House to Clinton who initially raised taxes then ended up cutting several taxes particularly capital gains so that by the end of Clinton administration overall taxes were lower than under Reagan despite Clinton raising income tax rates on the highest brackets.

What all this means is that not all modest tax increases have large negative effects on the economy and certain types of taxes are more important for economic growth than others and most importantly that economists still don't understand large economies let alone global economies since the business cycle operates on its own speed with taxes and regulation mostly enhancing or flattening the curves but not initiating the business cycle.
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Old December 10th, 2016, 06:44 PM   #37

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What alot of people seem to willfully forget about Reagan is that while he adjusted tax brackets and did several other changes in taxes lowering taxes overall when he came into office, due to the explosive growth of the federal debt by the time Reagan left office he had raised taxes again to a point higher than the previous administration (or current taxes!) and the debt still was growing... then his former Vice President raised taxes again due to debt growth handing the White House to Clinton who initially raised taxes then ended up cutting several taxes particularly capital gains so that by the end of Clinton administration overall taxes were lower than under Reagan despite Clinton raising income tax rates on the highest brackets.

What all this means is that not all modest tax increases have large negative effects on the economy and certain types of taxes are more important for economic growth than others and most importantly that economists still don't understand large economies let alone global economies since the business cycle operates on its own speed with taxes and regulation mostly enhancing or flattening the curves but not initiating the business cycle.
Was Reagan really responsible for the fact that the USA is the largest debtor of the world?
In Canada, we can often talk of the administrations of Mulroney and Trudeau the Senior.
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Old December 10th, 2016, 09:55 PM   #38
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Originally Posted by Ichon View Post

On PPP and economic metrics- any aggregate measure is going to have mistakes as even basic things like inflation are quite difficult to describe let alone measure since the government typically eliminates volatile goods like energy yet in the real world budgets of the average consumer a tank of cost doubling or halving in cost makes quite a difference in disposable income.

As for PPP- the costs of large imported durable goods are usually not a big part of monthly consumer spending. Housing and food which are influenced most by local pricing are almost always the by far largest portions of what people spend and in places with a low cost of living people can live relatively well even with lower incomes. Sure maybe not buying nice imported cars but eating well, taking local vacations, building houses, etc.
Common mistake

In a globalized economy most manufactured goods have a similar price (small deltas are due to transport costs, local taxes and in special cases different pricing policy)... And most people use such goods..... for example mobile phones, tvs etc.... Therefore applying a mysterious PPP multiple has no sense

Re housing, housing will be of a much lesser quality in poorer countries.. For that matter I can move to a desolate region of any rich country, and find very cheap housing there... This will not instantly multiply my income, nor the GDP of the country... Likewise, if I take a vacation in my backyard that does not instantly multiply my income nor the GDP of the country...

15 Detroit Houses You Can Buy For $100 - Business Insider

Conversely desirable quality houses in -say again- Morocco (PPP multiplier above 3) sell...... for about the same prices as villas on the french or italian riviera

That's even before we take into account the fact that in many countries (such as that same Morocco) the currency is NOT freely convertible.. Meaning that for anybody moving outside the country that currency is useless , its buying power is zero....

PPP has not got a leg to stand on....

Last edited by tomar; December 10th, 2016 at 11:02 PM.
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Old December 10th, 2016, 11:26 PM   #39
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Was Reagan really responsible for the fact that the USA is the largest debtor of the world?
In Canada, we can often talk of the administrations of Mulroney and Trudeau the Senior.
The US's debt position is linked to her function in the global economy. She is basically a consumer of last resort. I explained, in the above, how manufacturing is a declining industry with many over-capacities. Nonetheless, as advanced nations try to save their manufacturing, and advancing nations try to build up manufacturing, the demand for manufactured goods is not growing at the same rate as capacities. This is true, especially, on the domestic level. Thus, many countries try to save on imports and increase their exports. However, if too many countries lower imports and raise exports, demand only keeps diminishing. Now, the US is consuming much of the over-capacity in global manufacturing and doing so, stabilises the world economy. Who is responsible for this? Well, no one, really. Maybe the ones who allow American consumers and companies to spend money they don't have. But it's a structural issue that wasn't caused by any one administration.
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Old December 11th, 2016, 09:21 PM   #40

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Originally Posted by tomar View Post
Common mistake

In a globalized economy most manufactured goods have a similar price (small deltas are due to transport costs, local taxes and in special cases different pricing policy)... And most people use such goods..... for example mobile phones, tvs etc.... Therefore applying a mysterious PPP multiple has no sense

Re housing, housing will be of a much lesser quality in poorer countries.. For that matter I can move to a desolate region of any rich country, and find very cheap housing there... This will not instantly multiply my income, nor the GDP of the country... Likewise, if I take a vacation in my backyard that does not instantly multiply my income nor the GDP of the country...

15 Detroit Houses You Can Buy For $100 - Business Insider

Conversely desirable quality houses in -say again- Morocco (PPP multiplier above 3) sell...... for about the same prices as villas on the french or italian riviera

That's even before we take into account the fact that in many countries (such as that same Morocco) the currency is NOT freely convertible.. Meaning that for anybody moving outside the country that currency is useless , its buying power is zero....

PPP has not got a leg to stand on....
I don't entirely disagree with you but I can't imagine what budget you think people have where manufactured goods are such a large portion.

The value proposition you state may well be true as inferior goods are less preferred BUT still purchased due to price and availability. Huawei mobile phones might be inferior to iPhones but still consumers purchase and use them in the tens of millions to accomplish most of the same tasks as users of iPhones. Just because a good is inferior doesn't necessarily mean quality of life populated by inferior goods is also inferior because an inferior good isn't necessarily inferior due to function but often due to marketing preferences or VERY small functional differences where 90% of the functions are the same and the remaining 10% might be used by consumers less than 10% of the time they are making use of the product.

There is the common example in measuring inflation where the basket of goods includes electronics which advance in capability every year while their prices decrease relative to that capability. Should a TV bought this year be valued less than the TV bought 3 years prior even though having 4" larger screen and more advanced features BUT costing less?

Using less extreme examples you can make similar arguments about durable goods frequently included in the cost of houses both in the equipment to build the house and the appliances in those houses.

Then there is the problem of market pricing... some markets like pharmaceuticals have extreme distortions but many goods DO have different price points in different markets even without taking into account taxes.

Vehicles are priced fairly evenly due to competition compared to some other goods but how do you compare a motorcycle in Vietnam to one in Italy? The Vietnamese driving the motorcycle in Vietnam might not be having as good of an experience as the Italian riding in Tuscany but functionally they can accomplish the same things so from PPP perspective the quality of life is going to be roughly similar despite the Italian motorcycle costing 10x as much.

As for housing... there are some examples that support your position but many that do not. I used to live in Texas and for 200,000 USD in many parts of Texas you can get a ranch style house of 15,000 ft area. Not that far away in Phoenix that same house would be 300,000 USD and in Denver which has a hot housing market that is a half million USD home. Your argument essentially is saying the house in Denver IS more than twice as nice as the house in Texas despite both houses being located near communities with similar avg incomes and amenities. Just that Denver has a slightly different climate and legal marijuana laws along with more educated workforce in a wider area (Austin, Houston, some areas in Texas match Denver but overall Texas doesn't yet even in Texas communities matching Denver housing prices are lower).

Last edited by Ichon; December 11th, 2016 at 09:28 PM.
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