Purchasing Power Parity GDP Per Capita – Geo-FRED Interactive Map

As with a number of measures that have recently called our traditional models into question and the way we understand economic activity, the FRED Blog suggests there may be limitations to some of the mechanisms we have used for more than seventy years:

GDP has been used as a measure of economic well-being since the 1940s: It measures the total economic output by individuals, businesses, and the government and is a tangible way to quantify the state of the economy. However, some economists have questioned how well GDP measures well-being: For example, GDP fails to account for the quality of goods and services, the depletion of natural resources, and unpaid jobs that are nevertheless important (e.g., household chores). Although this criticism may be well founded, GDP is highly correlated with other measures of well-being, such as life expectancy at birth and the infant mortality rate, both of which capture some aspects of quality of life.

It’s a self-obviating point that developed nations would have much “higher levels of per capita GDP have, on average, higher levels of income and consumption,” or purchasing power. But other factors weigh into the question of how well off we are in terms of quality of life. Measures such as life expectancy and general health add to the discussion of well-being.

See the interactive map below for a “correlation between GDP and other measures of well-being” where GDP is “still a reasonable proxy of the overall well-being” for any given economy:

See the full FRED post here.

WSJ: A yuan for your thoughts, Janet?

Last week saw a whole array of opinions, outrage (misguided, genuine or contrived) and interminable commentary on the implications of China’s actions earlier last week while still maintaining the status of [just shy of] currency manipulators by the U.S. executive branch. Earlier this week in the Journal, China Moves to Devalue Yuan:

China’s yuan has been on an upward track for a decade, during which the country’s economy grew to be the second largest in the world and the currency gained importance globally. The devaluation Tuesday was the most significant downward adjustment to the yuan since 1994, when as part of a break from Communist state planning, Beijing let the currency fall by one-third.

China sets a midpoint for the value of the yuan against the U.S. dollar. In daily trading, the yuan is allowed to move 2% above or below that midpoint, which is called the daily fixing. But the central bank sometimes ignores the daily moves, at times setting the fixing so that the yuan is stronger against the dollar a day after the market has indicated it should be weaker.

With Tuesday’s move, the fixing will now be based on how the yuan closes in the previous trading session. As a result, the yuan’s fixing was weakened by 1.9% Tuesday from the previous day, leaving it at 6.2298 to the U.S. dollar, compared with 6.1162 on Monday. The yuan dropped as much as 1.99% from its previous close to 6.3360 against the dollar in Shanghai and fell as much as 2.3% in Hong Kong in early trading.

Ironically, this move was ostensibly to allow the market to play a greater role in the value of China’s currency. But contra to this view:

“The real proof in whether this change is about reform or growth will come when authorities resist the urge to intervene down the road when another policy goal that could be achieved by a significant revaluation or devaluation comes knocking,” said Scott Kennedy, an analyst at the Center for Strategic & International Studies, a Washington think tank.

“China wasn’t able to resist that urge on the stock market, so the government doesn’t get the benefit of the doubt on this quite yet,” Mr. Kennedy said, a reference to China’s recent moves to prevent further declines in its equities markets.

What about Inflation?

In an opinion post, Rate Watchers Read the Chinese Tea Leaves, the authors makes an interesting point regard another variable that could complicate matters:

Speaking before and after the step, respectively, Atlanta and New York Federal Reserve Bank presidents Dennis Lockhart and William Dudley cast doubt on the notion that run-of-the mill macroeconomic turbulence would delay a September increase. And a survey of 60 economists by The Wall Street Journal conducted mostly before China’s bombshell showed that 82% expected an increase next month.

But what about its effect, at the margin, on a critical set of U.S. economic data? Namely, inflation. Friday’s producer-price index and Wednesday’s consumer-price index will be the penultimate readings before the big decision.

…With markets recovering somewhat from the shock, China’s move probably won’t delay a September hike. But its contribution to slower price gains overall could slow the pace of Fed tightening.

 See more analysis here: