837 sats \ 10 replies \ @Undisciplined 18 Jul \ parent \ on: Please explain PPP and the numbers in the chart charts_and_numbers
I can add a little detail here.
PPP specifically takes into account price differences of non-tradable (internationally) goods and services.
We expect exchange rates to account for the price differences in things like apples or oil, because they trade internationally and should have the same real price everywhere. However, haircuts and restaurant meals cannot be traded, which means their real prices vary by location.
Realistically though apples in one city in country A won't cost the same as apples in another city in country B, especially if you're comparing imported apples in one location to local apples in another.
I've been interested for a while in comparing the real cost of living between locations, kind of like what the PPP tries to do. A collective project to capture this data per city would be pretty cool.
reply
If you dive into the literature on this, it gets really complicated, really fast. That's one reason why simple crude measures are used. PPP is pretty unambiguously an improvement from just doing exchange rate conversions.
Once you try to go deeper than that, there's a ton of stuff you have to take account of and some of it is unknowable (like people's actual preference differences internationally).
If you make any headway, I'll be super interested in hearing about your methodology.
reply
I'm thinking about building a basket of goods that roughly applies to me and then doing some research on local prices around the world.
I get that doing this research on the PPP scale is a very large task but what I'm interested in seems doable.
reply
CPI basket of goods lol
reply
I like that. This is a much more tractable question at the individual level than the aggregate.
I've thought of doing something similar with all the different US tax rates. I want to have a tool where you can input your personal details and get a granular map of what your tax burden would be in every single place in America.
reply
Combining the local price data with local salary data would give you a usable cost of living comparison.
reply
When you say apples and oil should. have the same price everywhere, this is ex-tranaportation expenses, yes?
reply
You'd think so, but I don't think PPP accounts for that. It's basically just an upgrade over purely using exchange rates to make cost of living comparisons.
reply
PPP is not a bad way to adjust for comparisons.
There has to be a better way
reply
I agree. PPP is not perfect, but it makes crude comparisons better.
There are conceptually better ways, but they tend to require data that no one keeps in many of these places.
reply