>Richard Foy wrote: > >> It said the GDP per capita of Norway is $35,808 and of the US is >> $28,505. >> It also talks about the many things are socialized in Norway. >> How do the people who think that socialism is a fate worse than death >> explain this large difference in GDP/capita?. Grinch: They explain it by purchasing power parities -- how much their money buys. Norway's GDP per person by PPP is $22,627. US GDP by PPP remains the highest of all the developed countries in the OECD -- other than for the superpower of Luxembourg. http://www.oecd.org Hi, In case this is not clear, I will expand on it. In Norway people are not paid in dollars, but in krone. So how much is a krone worth? Well the official exchange rate on August 29, 97 was 7.425 krone to the dollar. One year earlier, it was 6.40 to the dollar, which says something about the long term value of the krone. But this is just the "official exchange rate" that banks will use (usually minus a handling fee). But prices are also different in Norway, usually higher for most items. ESPECIALLY higher for gasoline, beer, alcohol, cigarettes, and other luxuries. Near Madison Wisconsin there are some small towns that were established by immigrants from Norway; they still celebrate Syndt Mai and some even speak Norwegian. The current US ambassador to Norway, Tom Loftus, is from this part of Wisconsin. Just about every year they have an exchange of high school students with Norway. When the Norwegian kids come to Wisconsin, they are usually interviewed by the local press. They always remark about how inexpensive everything is in the US as compared to back home. Especially food, clothes, compact discs, radios, and the sort of things that teenagers buy. The PPP is an attempt to relate wages to prices, and to express the result in equivalent US purchasing power. Of course there is no exact equivalency, since people live differently in different countries. Cars and driving is much more expensive there, for example. But mass transit is better, and people don't need to travel as far since (because of the higher travel cost) they tend to live closer to where they work and shop. I think it is clear that overall, living standards are approximately comparable between the "developed" countries of Western Europe, Canada, Australia, & Japan. The REAL difference is between these and the 3rd world. QUESTION on EXCHANGE RATES When someone posted a question about exchange rates, my reply included: >jim blair wrote: >> >> Now I confess that I don't understand WHY the price differences are not >> already included in the exchange rates. When people reach an agreed >> rate of exchange of say, francs and dollars, why does that not account for >> price differences? I mean I want francs to buy things in France, or some >> French wants to buy goods priced in dollars: that is WHY we exchange in >> the first place. >> >> Anyone out there have any insight on this? Brought this: >That's pretty simple: because some of those people do NOT want to buy goods in >France, but only financial assets (and then repatriate the interest or dividend >payments back to their home country). If you correct only for goods prices, >then the economic motives for those people (and hence one important factor >in the determination of exchange rates) are omitted. > >CU, Markus >-- >Markus Diehl >Institute of World Economics >P.O.Box 4309, 24100 Kiel, Germany. >homepage http://www.uni-kiel.de:8080/IfW/ Hi, Thanks for the reply. It sounds logical to me. I hope to "sometime" put together a short post on CPI and PPP. Seems to me they are analogs: CPI corrects for prices in the same place (country) at different times, while PPP corrects for prices at the same time in different places. The both are based on the "basket of goods" idea. The problems with PPP are less than with CPI because the comparison "basket" at least contains the same goods. In comparing prices at different times in the same country (CPI), the "basket" has different items. But even the SAME goods do not have the same usage when the prices are different. For example, canned tuna in St. Croix costs about twice as much as in Madison, but fresh tuna from the local market costs about half what it does in Madison. Beer costs about the same, but rum in St. Croix is about half as much there. Does the PPP consider that in Madison I eat canned tuna and drink beer, but in St. Croix I eat fresh grilled tuna and drink rum? (see "My Life as a Virgin Island Tour Guide" for more on this). ,,,,,,, _______________ooo___( O O )___ooo_______________ (_) jim blair (jeblair@facstaff.wisc.edu) Madison Wisconsin USA. This message was brought to you using biodegradable binary bits, and 100% recycled bandwidth.