New Metropoles

Jose G. Perez jgperez at
Wed Nov 3 19:15:31 MST 1999


    My example was a hypothetical one. Therefore, by definition, the loaves
of bread are identical. That was the whole point.

    Your questions about whether cars are better and so on are all quite
beside the point, or else they're an accusation that the OECD and other
economists who calculate these things have botched the job because they
failed to take price differences that come from differences in quality
sufficiently into account.

    First, let me congratulate you in recognizing, at last, that quality is
an important factor to take into account in trying to gauge the level of
real prices. You might recall a couple of weeks ago you sang a different
tune on this issue:

>>These inflation estimates are a bit suspect; there was a big move to cook
>>the books and revise inflation downwards by neocon economists, mostly
>>because inflation didn't take into account "quality improvements" in

    Second, I'm in no position to judge whether the bourgeoisie's
bookkeepers have done a good job here. I know they've considered the sorts
of issues you raise, but how well they've been able to measure everything I
cannot say. But then again, we're pretty much in the same boat no matter HOW
we measure GDP. And that is one very good reason to keep a fairly sharp eye
when handling such numbers.

    Third, I have not said and do not believe what you so strongly
polemicize against, the position that exchange rates are unimportant in
general. What I have said and do believe is that they provide a poor basis
for doing GDP comparisons between countries, and that for this kind of GDP
comparison, the purchasing-power-parity GDP figures are better. I have also
said and also believe that the exchange rates are not a factor in
calculating economic growth in any given  country from one year to the next,
since all the accounting involved is in the national currency.

    You ask for "material evidence" that price levels are generally higher
in Europe and Japan than in the United States, saying it might have to do
with long term purchasing habits or ground rent being higher. It is
undoubtedly true that there are reasons why prices tend to be higher in
Europe and Japan, but that they are is demonstrated, among other things, by
the $40,000 per capita GDP figure for Japan that you cite (on an exchange
rate basis). Further evidence is available by looking at the PPP factors,
but perhaps an even better source in the Economist's yearly "Big Mac" index,
basically seeing what the implicit purchasing power equivalence of
currencies around the world is by using the price of a  Big Mac as the
ruler. While hardly a precision instrument, it illustrates the point very

    At any rate, the reason I brought this up is to give you yet another
very good explanation of why foreign capital is flowing to the U.S., and
that is, that given the GENERAL price levels in the economy, stuff in the
United States is cheaper.

    Finally, you point out that Japan's investment rate is much, much higher
than that of the United States. Which is a very convincing demonstration
that a higher investment rate does not necessarily get you a higher growth
rate or bigger improvements in productivity, which it should, all other
things being equal. I know blushingly little about the Japanese economy and
can only speculate on what might be some useful hypothesis to test out in
seeking to explain the discrepancy. One might be that, if one deconstructs
the invested amounts to find out where the money winds up, a significant
share in Japan winds up as payments of ground rent, subsidies to inefficient
sub-contractors of the big industrial groups and so on. Another might be
that the "digitalization" of office work, or other economic activity, has
not been possible in Japan to the same degree as in other places.

Best regards,


    All your questions about
-----Original Message-----
From: Dennis R Redmond <dredmond at OREGON.UOREGON.EDU>
To: marxism at <marxism at>
Date: Wednesday, November 03, 1999 5:06 PM
Subject: Re: New Metropoles

>On Tue, 2 Nov 1999, Jose G. Perez wrote:
>> economies. So in this case, we might decide that to make the comparison
>> valid, we should use the average price of bread in the two countries.
>> would be 55 cents or centimes/lb, which would give equal GDPs for the two
>> economies of 550 dollars/francs.
>But you're assuming that bread is identical across national borders, when
>it clearly isn't (as anyone who's ever experienced the joy of a European
>bakery will attest). Are vacuum cleaners essentially the same in the US
>and the EU? How about transistors? Power plants? What about differences in
>quality levels and customer service?
>Also, exchange rates aren't unimportant over time. They bounce
>around, but ultimately they do follow long-term productivity trends. The
>dollar was way, way overvalued from 1980-85, but it took five years for
>economic reality to set in.
>> price levels tend to be higher in Europe and Japan than in the United
>> States, so using exchange-rate-based GDP numbers is going to give you an
>> inflated figure for those countries.
>What's the material evidence for this? If prices are higher, might this
>have something to do with long-term purchasing habits in Japan and the EU,
>where a car is expected to last for years and years, and where
>conspicuously wasteful consumption is not yet the cultural norm? I'd also
>note that ground-rent is considerably higher in Japan and Central Europe
>than in the US, due to the obvious reason that there's less space to put
>millions and millions of people.
>> They would lead you to think that Japan produced a third more per person
>> than the United States, when in reality, close to the opposite of that is
>> the case.
>Japan does invest more as a percent of its GDP in its economy -- around
>28%, I think, compared to 18% in the US and 21% in the EU.
>-- Dennis


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