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Home Publications Blogs Beat the Press Malaysia Is Twice as Rich as the NYT Says

Malaysia Is Twice as Rich as the NYT Says

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Saturday, 02 October 2010 11:18

It is really simple to use purchasing power parity measures of GDP. This makes it hard to understand why the NYT and other papers use exchange rate measures. The exchange rate measures are essentially meaningless, whereas the purchasing power parity provide some basis for assessing living standards.

The NYT told readers that per capita income in Malaysia is about $7,000. According to the CIA Factbook Malaysia's per capita income is $14,900.

Comments (7)Add Comment
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written by izzatzo, October 02, 2010 12:08
Aha! Now we know how the CIA calculates true threats not only to national security but global security as well. Any country with rising real income is placed on a purchasing parity watch list should it threaten the ultra rich. Under this standard the USA as a global threat should be downgraded any day now.
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written by DLS, October 02, 2010 12:29
Would you comment on Robert Reich's post on his blog yesterday (October 1) entitled "Why It's Foolish to Weaken the Dollar to Create Jobs"?
Prosperous, not wealthy
written by Adam's Myth, October 02, 2010 3:32
You are talking about income, not wealth. The distinction is important -- for example, the USA is prosperous, but broke.
http://uggshop2.com
written by UGG, October 02, 2010 10:08
?????
ugg ??????
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written by KS, October 03, 2010 3:13
I'd suggest this is less clean-cut than Dean puts it here. Malaysia cannot repay creditors, which it owes in foreign currencies, by converting the local currency into dollars (or euros or Yen) at PPP rates but rather market rates. Likewise paying for imports, paying for the costs of representation in international forums, and so on. PPP rates arguably provide a better indicator of relative standards of living (provided they are accurate, and there are a lot of well-known measurement problems), but I think the safest line to take is that the two different ways of measuring exchange rates are more or less appropriate for different things. In the case of this NYT article perhaps PPP would have been more appropriate, but in this post (and other recent posts) Dean suggests/implies/asserts that PPP is the only useful measure, which, again, I think is misleading and incorrect.
@KS
written by Jamaal, October 03, 2010 3:40
I don't remember Baker suggesting that PPP would be a better number to use when trying to determine how easily a country can repay foreign creditors. He seems consistent in mentioning PPP when it is used in articles as a misleading stand-in for relative standards of living.
clarification
written by Jamaal, October 03, 2010 3:45
Last sentence: "He seems consistent in mentioning PPP when [exchange rate dollar value measures of income are] used in articles as a misleading stand-in for relative standards of living."

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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