International comparisons

Not that long ago, international comparisons of income levels and so on were always done using market exchange rates. If this were still the standard practice, there would be some surprising news to report. On an exchange rate basis, Australia has a higher GDP per person than does the US (I’d guess the same would be true of more relevant measures like national income per person, though the gap would be a bit smaller because of our greater indebtedness).

Currently US GDP per person is around $US 44000. Australia’s is about $A51 300, which at a market exchange rate of 0.93 converts to about $US47700.

Before we break out the champagne, I’ll point out that these exchange rate comparisons aren’t really useful – this is obvious given that the $US/$a rate was heading for $0.50 not long ago, and is now headng for parity . Standard practice these days is to use a “Purchasing Power Parity” measure, based on the estimated relative cost of a standard bundle of goods and services. The estimated $UA/$A rate is around 0.70 which leaves us a fair way behind the US.

Although PPP estimates are better than those based on market exchange rates, they shouldn’t be treated as exact. They are statistical estimates, with a large margin of error, and the underlying economic theory (revealed preference) implies that even with perfect data, there is always a range of possible values for index numbers like this. Typical international comparisons should be taken to have a margin of error of 10 to 20 per cent.

In passing, a useful tip for students of the economy. If you want a round number estimate of the magnitude of any economic variable, you can approximate GDP as $1 trillion, population as 20 million, and income per person as $50 000. These will be accurate to within 10 per cent for another year or two.

Update In comments, Matthew Turner reminds me that he’s been making this point for years. I think I came up with it independently, but he was certainly first. Interestingly, Matthew calculates that the critical value for the euro/$ exchange rate, at which euro GDP per person exceeds US is $1.46. Yesterday, it hit 1.457.

32 thoughts on “International comparisons

  1. I don’t what planet you live on melanie, but on the one I do, 35% or so of the population is obese in the US, and obesity leads to things like diabetes, high blood pressure, sleep apnia etc. In case the drugs are good enough now to stop obsese people dieing a lot earlier than the normal population, then thats great.

  2. Thanks for your thoughts in comment 24, Melanie – they may well be correct. However, I was hoping that someone could point me to a study of the various issues involved, as it seems to me that simply comparing health care expenditure with life expectancy is a fairly superfiscial way of determining the effectiveness or otherwise of health care, and is particularly fraught when being used as a means of assessing standard of living.

  3. jquiggin Says: November 8th, 2007 at 6:10 am

    More importantly, for most comparative purposes, it doesn’t much matter how low life expectancy is caused. Causation is certainly not relevant in looking at the question “who has hte higher living standard�. And, unless you can attribute the cause to something that is location-specific, or deeply embedded in the culture, it’s also not relevant to the question “whose socio-economic system delivers the best outcomes�.

    I disagree. For comparative purposes you must make apples to apples comparisons. The USA’s demographic composition is massively different to the USE’s. Near to 30% of the population is Mestizo or African in heritage. These ethnic groups have a markedly different health profile to Caucasians.

    The problem with US health care can be traced back to institutional social structures and individual biologocal natures. I daresay I will cop a storm of abuse for pointing out these facts, from both New Rightists and New Leftists. But the facts more or less speak for themselves.

    THe US’s private institutions are dysfunctional at health care: inefficient and inequitable. THey are inefficient at provision due to excessive bureaucracy and spurious technology, inequitable at delivery due to risk-averse refusal of sick clients.

    But the US’s private individuals are also somewhat dysfunctional in their health care efforts. Minorities take relatively poor care of themselves due to their relatively lower IQ. This “intelligence effect on health” is still pronounced, even controlling for SES (which itself corresponds positively to IQ).

    Minorities tend to pursue unhealthy life-styles and not conform to medical prescriptions. THis is evident in their much higher rates of addiction to drugs and junk food. No one forces them to do this.

    Also, minority geneology is even less well-adapted to the temptations of affluence. They are also more prone to cardiac and carcogenic diseases of affluence, whatever their life-styles and environment. It is generally assumed that diverse drug reactions are caused by diverse genetic endowments.

    To improve the health outcomes for minorities we need to account for what is causing their sub-par performance. That would require doing genetic and psychometric analysis. But we have seen from the Watson brouha that anyone who does this is committing career suicide.

    Liberal-leftists appear to prefer to sacrifice the lives of individuals they feign to care for rather than give up their “social constructivist” ideology.

  4. “Minorities take relatively poor care of themselves due to their relatively lower IQ. This “intelligence effect on healthâ€? is still pronounced, even controlling for SES (which itself corresponds positively to IQ).”

    And to think I always thought that the main reason East Asians live longer than whites in rich countries was due to diet (white people eat too much garbage). Next time I’m in HK or Japan I’ll make sure I tell the whites I see that they should start picking pleas fleas off themselves more often.

  5. […] I mentioned a few days ago on my blog, using current market exchange rates, Australia now has a higher income per person than the US. Matthew Turner observed the UK passing the US a few months ago and estimated several years ago […]

  6. Can anyone direct me to a site that would give comparisons of many elements in the ‘quality of life’, understood to be such as chronic diseases,incidence of depression, life expectancy, etc, etc.??

    Grateful for a reply or a search trail (I’ve tries WHO but they are too complicated)

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