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Okay I have asked this question before but even economics professors give me a lackadaisical reply. Currently the British pound sterling is almost twice the dollar at 1GBP to 1.77 USD. That means that the British people are 70% richer than the U.S. What is rich and why the confusion? Ideally the people producing the most in terms of goods and services are rich, taking account that money equals to goods. The total amount of money in a society is ideally supposed to equal the goods and services in the same country. This divided by the population is the GDP. The U.S has the highest GDP but somehow is poorer than the British. Japan’s GDP also almost doubles the British at 3.8 trillion last year, while Britain’s GDP clocked 1.7. But this is not apparent in both countries currency as the Yen is almost 100 times cheaper than the Pound sterling. Can anyone explain to me?


http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)

 

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What is the price of a one-room flat and how much does a fry cook at McDonald's make per hour?

 

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Even though the answer above is a very good one, I will try to put some more meat on the bones.

The currency exchange rate has little to do with being richer or poorer. It is simply a way of measuring the value of "stuff" across borders.

A Big Mac in the us is $2.90, while in the UK it is about £1.9 which translates to about $3.40. So that puts UK price level a little above US. A minimum-wage job would then also pay a little bit more. If a brit goes to the US she would find the prices low.

Another example is Norway. 6.4 Norwegian Kroner is about 1 US dollar. That does not mean that americans are 6 times richer. The Big Mac is more than $5 in Norway.

This comes down to Purchasing Power Parity (PPP), or i.e. how much stuff you can purchase with an hour's salary.

http://www.economist.com/markets/bigmac/displayStory.cfm?story_id=2708584
This article explains the bigmac-index, a simple way of determining what countries have a high and low price level, comparing PPP.

GDP pr. person is a good measure of a country's wealth, but not the wealth of the people. In GDP pr person, the US is up at the top, but that does not help the poor people there.

I hope that helped a little.

 

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The problem is that you're not looking at everything in the proper perspective.

The British people are certainly not 70% richer than the Americans! That's simply the exchange rate and in no way relates to "richness."

The true indicators are how much money people have on average (consider that some poor Brits have few pounds and many Americans have a lot of dollars, for example) AND just how much you can buy with an average hour's wages.

That last one defines the real prosperity of a nation.

 

No. That puts U.K price levels a little above U.S, at least in terms of big mac. But we are talking about a product of an American company. Anyway this is micro economy and the subject is not that relevant because I have seen burgers as high as 3.50 in the U.S also. Too many overtones in micro commerce.

Yes that is because the big mac is an American company’s product and they need to recoup their appointed cost adjusted with the price of living in America. Different scenario for indigenous goods in Norway.

Yep but firstly it depends on the product and the origin of the product’s company. American companies selling abroad will always adjust the price to the respective needed level. And again the semantics. Before we even mention PPP why can’t we acknowledge the fact that those producing the best and most ought to be of higher worth?

Common man rich people are the ones producing the most. There is a reason why MacDonald’s and their subordinates are richer than the down the road Jake’s burger. Besides I don’t understand how a country can be wealthy and its people are not, do the people not make up the country?

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If I was a British man and came to America with 1,000 GBP I will find the price level relatively lower and I will be richer when it comes to indigenous goods and services in America. Same if I travel to China I will find the price of made in China cotton pillows cheaper. The reality is that money equals goods and services so the question is whether it’s about quality or quantity. If it’s about quantity then the U.S dollar should be stronger, but today’s exchange rates indicate that British goods and services are of way higher quality.

 

The last thing I want to say is that everything is equal until it comes to propaganda. I am also a stock broker and the only other thing that inflates values apart from earnings is propaganda, which comes in many different forms

 

“ “A Big Mac in the us is $2.90, while in the UK it is about £1.9 which translates to about $3.40. So that puts UK price level a little above US. A minimum-wage job would then also pay a little bit more. If a brit goes to the US she would find the prices low”. ”

Wow! You must be one heck of a broker! Since you don't pay attention to details. Someone makes a statement (as above) and you respond with "no" and then make the very same statement. :bugeye:

 

I actually saw the anormaly but I didn't want to say U.S prices where higher because I also considered the many factors in micro commerce. get it? Besides he is right on his observation

 

Ha! You can't wiggle out of it that easily. First you say no to him and now you say he's right.

Which is it? (This is economics, not politics, so you can't have it both ways at the same time.)

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He is right because 3.40 is higher than 2.90. But this does not necessarily mean the minimum wage in U.K should be higher because some tom wants to buy macdonalds. If so then minumum wage jobs should be elevated for workers to be able to afford fish and chips here in the U.S. You see this is micro economics and they are also cheaper burgers in the U.K but I will make do with this notion regardless. Most macdonalds franchise owners in the U.K buy franchise from U.S and sell in acoordance to profit and living conditions in the U.K, which is relatively higher than the U.S. Higher because the money is of higher value, and we are back at square one, why is it of higher value? Thus we look at the macro aspect

 

Well, I assume the BigMac-index uses the average price of a Big Mac within a country. And it is used as a macro economics tool to simplify the understanding of PPP. Probably because McDonalds has a pricing policy that takes PPP into account.

In the case of an exported good I can see how the cost level in the US comes into consideration, but in the case of a Big Mac, which is produced locally as part of a franchise, the local cost level would matter the most. I am not sure what you are trying to say with the last sentence, and neither how it is relevant in this discussion

Well, the US is generally considered the richest country in the world, with a very high GDP pr. capita. Still the US has a higher percentage of poor people than most western countries. That is because of the division of the wealth.
Another issue is national debt. How come the "richest" country in the world has the highest national debt in the world?

I believe you have misunderstood the concept of exchange rates. It is mostly a concept of supply and demand of a currency. It is affected by the interest rate, import, export and more.

 

Really? No, those are incorrect statements.

The problem is you have a hang-up on exchange rates and that does not determine what you are looking for.

Consider this. Let's say you formed your own country and established your own moneatary policy and set your currency to one unit to equal $500 USD. Does that mean that you and your people are now 500 times richer than an American? It would according to way you're tying to view it. But that's totally wrong.

Simple question for you - do you understand what exchange rates are all about anyhow?

 

Richness is all about buying low and selling high. And if you can't sell high enough develop a leverage by making a shit load enough to make up. You see none of you have looked at my perspective instead of using semantics to circumvent the issues. Well if you go to China with 1000 dollars will you not find made in china goods cheaper? Of cause you may prefer to buy multinatinal goods like sheraton hotel and macdonalds but that is your own choice. Anway is that not what I call rich? 8 times richer to be exact. And yes if I formed my own country and I visited U.S I will be 500 times richer because I will have a very high purchasing power. Lets say the whole world had currency of equal value and lets consider why some may have a higher currency than some. Lets take western europe, if a country called France produced more goods than Italy they will have the capacity to export. By this time France has a better employment rate, better living standards and general stability, and a good financial result as do a company. Italy on the other hand does not produce as much as France and ain't doing as well. Because of this Italy is inflated and their money is of relatively leseer demand, unless the few goods produced in Italy are of ridiculously high quality will the currency pary with the French. Like I said its all about quality or quantity. Bck to the real world, Lets not forget that the industrial evolution started in England, which propagated their rise in living conditions and value as compared to other countries. So what makes a currency higher? As do anything it is essentialy deman. As long as you can keep up the demand, even artificialy, you can circumvent any problems. But credit to whom credit is due, thats another issue that does not belong to the papers

 

Richness is about having resources. If you have many resources, not only natural, and you can apply them to fulfill a demand, you are rich. That has absolutely nothing to do with an exchange rate. The earlier exchange rates were based on the gold standard. A certain amount of currency for a bar of gold. As a currency would be higher in demand, it would increase in value. They did not all start at 1:1. One Norwegian krone has always been able to buy less gold than one british pound. That does not mean that a norwegian is poorer. The Norwegians simply have a higher number in our pricetags than the Brits for goods of the same value. There is also a difference in price levels, which means that a Big Mac or a book would be less expensive in the UK than in Norway. Since the salaries also are higher, it may, for two burger cooks take the same amount of time to earn enough to buy the book, even though the Norwegian cook earns more money.

I agree with some of your statement, it just seems that you have some difficulty separating PPP, exchange rates and richness.

 

GDP is the total goods divided by the population, what this just says is according to the papers America is rich. Real life is a tard different as we all know. I

I have heard all that before but they still do not circumvent the fundamentals. Exactly which begs the question where does a corporation stop and a nation begins. As far as I can remember America and its land is better desired than any other place. Many people would rather do business in America than many other places. In fact many transactions are officially in dollars. To make everything clearer let’s consider the official market as also a black market, just supervises by “officials”. To make money in any market you have to buy low and sell high and you have to be able to not only produce but add value to your product, all these has to be done regardless of market conditions. The reality is that those producing the most ought to be of higher value. It’s a no brainier. Debt, interest rates, all those things don’t really matter. Is the same heavily in debt U.S currency not of higher value than a hundred other countries? Then why? On interest rate, that is a very diminutive factor, they are a function of inflation if they have to be effective. Inflation as we know can be avoided by producing enough goods to make up for it. You see it all come down to supply and demand, all these factors are in fact to aid in supply and demand.

 

GDP is the total goods divided by the population, what this just says is according to the papers America is rich. Real life is a tard different as we all know. I

I have heard all that before but they still do not circumvent the fundamentals. Exactly which begs the question where does a corporation stop and a nation begins. As far as I can remember America and its land is better desired than any other place. Many people would rather do business in America than many other places. In fact many transactions are officially in dollars. To make everything clearer let’s consider the official market as also a black market, just supervises by “officials”. To make money in any market you have to buy low and sell high and you have to be able to not only produce but add value to your product, all these has to be done regardless of market conditions. The reality is that those producing the most ought to be of higher value. It’s a no brainier. Debt, interest rates, all those things don’t really matter. Is the same heavily in debt U.S currency not of higher value than a hundred other countries? Then why? On interest rate, that is a very diminutive factor, they are a function of inflation if they have to be effective. Inflation as we know can be avoided by producing enough goods to make up for it. You see it all come down to supply and demand, all these factors are in fact to aid in supply and demand in on way.

 

I see the world as a single market place so I guess I have this problem of seperating. After all multinationals do as well.

 

I have never heard of reducing inflation by production. I know you can control it by controlling employment, adjusting the the interest rate or adjusting the amount of money. How does this work?

 

Inflation is too much money chasing few goods, in other words underprduction. To counter this you produce more goods or take money out of the society. Deflation is the opposite, too many goods but little money.

 

One of the major advantages multinationals have, is that they can separate the world into different markets. That gives them the opportunity to have the maximum marginal profit in each market. If they viewed the world as one single market place they would be silly and lose tons of money.