PPP version of income, GDP, etc.: - To adjust or not to adjust?

In My Humble Opinion
1

In the 20th century, a country’s GDP or other stat (e.g. median wage) was calculated in the local currency and converted to U.S. Dollars at the currency exchange rate at the time of list compilation. (I think.) Nowadays, the numbers are often adjusted (via PPP) based on the country’s cost of living.

My question is: Do economists and policy makers use only the PPP-adjusted numbers? Or do they find various uses for both the adjusted and non-adjusted numbers?

My main question is bolded above. The rest of this post is commentary and rant.

The idea of adjusting for cost-of-living has been around for decades of course. The U.N. published numbers for most of the world’s major cities (as recommendation for compensating executives working abroad). Bangkok and New York had about the same numbers! Not surprising, perhaps, since the basket of goods used by the U.N. for comparison included Marlboro cigarettes and Johnny Walker whiskey. (Most Bangkok locals consume much cheaper brands.) Even sillier is the “Big Mac” index.

The PPP “basket” includes thousands of items but varies country to country depending on what the people in that country actually purchase. If one Googles for “PPP” one might read that it’s to avoid the confusion of fluctuating exchange rates, but of course that’s simply not true. I noticed one country with average annual wage of $7000 but this became $25,000 with the PPP adjustment. (This was a country whose currency is easily exchanged with dollars in either direction.) And of course, there are a broad range of goods (iPhones, other imports, gold) where the NON-adjusted price must be paid.

So I Googled. Nearly every list that turned up already used the PPP adjustment. In many cases, the fact that the numbers were adjusted was barely mentioned, almost hidden. I had to check a country whose wage I was familiar with just to learn whether the PPP adjustment had been made or not! In almost every single case that adjustment had been made. (OECD-based Lists restricted mostly to Western countries may be an exception, but they didn’t suit my purpose.)

I enjoy playing with numbers, and wanted to see median wage (or some close alternative) for a long list of countries. I’d be happy to see the numbers both with and without the PPP adjustment, but ‘without’ would please me more if only one list was available.

Wikipedia still offers GDP lists in both forms; so I could use those two lists to calculate the PPP adjustment factor, and then convert a list of PPP-adjusted wage to the other form. (This will work well enough for many countries, which have relatively stable exchange rates.)

I was surprised to see the unadjusted numbers so very hard to find. Surely there are many experts (and businesses thinking of doing business abroad) who want those unadjusted numbers. Is this yet another example of Internet information becoming dumber? Or should I blame Google? --: The numbers I seek are probably available on-line, but Google Search presents me with dumber websites with which Google is on friendly terms?

2

You (generally speaking…) never actually pay adjusted numbers. They are used to compare (ideally) equivalent sums over distances of time and/or space. Saying that 100 francs in 1947 were worth something like 10 Euros [or whatever] in 2024 therefore means something. There may be a genuine need for some sort of “adjustment” between physically separated places because you can not buy the exact same things. So you need some kind of a “basket” — a tomato is a tomato but a Big Mac may not be available at all in certain places.

I do not think it is unreasonable to include Marlboros and iPhones, per se, if many people actually smoke and use consumer electronics. If you only have $7000 to work with then your money will not go as far and you may end up consuming cheaper brands. You can’t adjust so that 1 pack of Marlboros = 1 pack of Panamas. [Again: a dollar is a dollar, though; your Benjamins are not adjusted.]

So the PPP is supposed to have something to do with what you can actually buy locally (which is important data), and it is possible to screw with it by imposing tariffs, for example. In conclusion, you need to know all the numbers. I am not a policy-maker, unfortunately. (Or fortunately? But if you want to give me carte blanche over your economy, I shall see what I can do.)

3

It wasn’t completely clear to me what data you’re looking for. However, the World Bank’s International Comparison Program compiles the data upon which PPP’s are calculated. Their database is searchable online for a variety of specifics. It’s pretty wonky, but maybe with a clear idea of what you’re after you can pull the data from it.

4

I’m surprised my question was unclear. I even wrote it in bold-face! :slight_smile:

The question was somewhat open-ended in that experts might opine about the specifics of “various uses.”

ETA: The questions may seem to have obvious answers (“No”, “Yes”) but some on-line comments and Google results imply the opposite. Hence the question.

5

I responded to your last paragraph because that indicated you wanted the raw data.

I don’t think there’s a very good answer to what users do.

Comparisons across countries call for PPP-adjusted data, because that’s basically their entire point, a set of universalized numbers that are designed for the purpose of making comparisons globally.

But raw data is important internally. PPP-numbers will include variations imposed by other currencies that would confuse trends.

Economists and policy makers are also two separate, only somewhat overlapping, groups. They have different concerns and need to make different decisions about different things. What data would work best in any given case is probably unknown ahead of time. If one is cynical, one could say that the data that would work best is irrelevant if policy makers want a predetermined policy. But that’s a different rant.

6

I have an economics degree and worked in the 1990’s in investment banking at UBS, Lehman’s and Nikko Securities with real world economists. All the pros I know use a kind of dashboard that varies from one handed economists to another, and over time. PPP is one indicator, as is the Big Mac Index. Most adjust or haircut the indicators into a melange. As in “according to PPP, Bangkok and NY are equivalent. Based on Big Mac, Bangkok is about 10% relatively cheaper. Having lived in Bangkok and drank a lot of Mekong whiskey, I would adjust it to middle class Bangkok is about 20% than middle class NYC. YMMV.”

The PPP basket is not a good indicator of local substitutes. I can remember being in Taipei in 1982, where imported corn starch for the basket was about $5, and the local potato starch used by 99.9% of locals was more like $0.25. Maybe PPP is better now, but one always needs to take it with a big grain of salt.