PPP is an increasingly irrelevant notion in a globalized, digital, and immigration-friendly world. An iPhone or a Toyota Corolla costs the same in the US as it does in China. There is no remarkable arbitrage with real estate either - you're paying for the location and everything that comes with it. There is no secret city where the rent is low, there are plenty of well-paying jobs, you enjoy freedom of speech and can be reasonably sure the milk isn't tainted with melamine (tangent: due to strict US immigration policies and corporate RTO, the Bay Area comes close).
PPP suffers from the same problem that "basket of goods" CPI suffers from in that it doesn't account for differences in quality:
- of course a car costs more today than it did in 1980, it's a far better car
- of course a loaf of bread costs more in California than it does in India - I have certain guarantees about the pesticide levels in the wheat, the accuracy of the labeling, and my ability to seek damages from the legal system in case I chip my tooth on a stone, that I don't have in India
At best, PPP tells you something about the differences in cost of labor. But labor isn't everything you buy.
> An iPhone or a Toyota Corolla costs the same in the US as it does in China.
A maxed out iPhone costs RMB 13999 in China, which is about USD 1925. The same iPhone costs USD 1599 in the US. In Brazil it costs the equivalent of USD 2565. PPP is still very much relevant.
That's the opposite of how PPP usually works. Purchasing Power Parity means that although you earn much less in China, things also cost less, so your cost of living and relative wealth are the same.
So PPP usually is a boost to the poorer countries. The post you're responding to claims that this is less and less relevant because the things they want to buy are global in nature. The fact that these things cost more actually reinforces that point.
You often are better off in poorer countries anyway even if some goods cost more. My coworkers in India have servants that clean their house every day - I make more $$ than them by a bit but I could not afford that and so I personally have to spend a few hours in cleaning every week and my house isn't as clean (because I'm spending less time cleaning)
Better off than no job. But it will be interesting seeing culture shock of a few generations in some countries that seem to be improving fast and thus the servants kids can get better jobs. I hope it works out that way anyway.
How often are you buying iPhones and Toyota Corollas? PPP conversion rates are based on what people actually spend their money on. Easily tradeable goods, like iPhones and cars, make up only one component of GDP.
Sure, but my contention is that even the small things are of worse quality in the so-called "high purchasing power" countries, which is the main reason why they are cheaper. There is no actual arbitrage or difference in "purchasing power", just that the market is optimized to serve a different price-quality point.
The main reason they are cheaper is that labor costs are lower. The barista at your local cafe is making 50x what a barista who does the exact same thing would make in Nairobi. That doesn't mean your coffee tastes better.
PPP suffers from the same problem that "basket of goods" CPI suffers from in that it doesn't account for differences in quality:
- of course a car costs more today than it did in 1980, it's a far better car
- of course a loaf of bread costs more in California than it does in India - I have certain guarantees about the pesticide levels in the wheat, the accuracy of the labeling, and my ability to seek damages from the legal system in case I chip my tooth on a stone, that I don't have in India
At best, PPP tells you something about the differences in cost of labor. But labor isn't everything you buy.