Rob’s comments below are in italics.Derek’s comments below are in normal font.

We’re talking about a book you’ve been reading today. What is it, and what do we need to know?

It’s called The Great Global Transformation, written by a chap called Branko Milanovic. I got it on a whim when Amazon recommended it — people who bought this also liked that — which, apart from being a clever upselling technique, is actually pretty useful at times.

Anyway, this author was a former economist with the World Bank. He’s an economics professor at City University of New York and also a visiting professor at the London School of Economics.

It’s a very data-heavy book, but the statistics are extremely well presented. There are plenty of good graphs and tables. One thing that drives me mad is when a book would really benefit from visual presentation and it’s just solid text. This author is clearly a very good communicator.

The main thrust of it is something we’ve discussed before — the shift in wealth and productivity, particularly to Asia, predominantly China, but also many other parts of the region.

I noticed at lunchtime that the honey I was using was made in China… It’s not like we don’t have bees here!

Yeah, that is ridiculous.

Well, I do get it — it’s cheaper to exploit people on the other side of the planet and ship it over to sell in Aldi.

Our village shop sells locally produced honey from a man just down the road who has 200 beehives. How you run an operation like that, I can’t imagine.

You have thick skin!

In more ways than one! Anyway, one interesting statistic in this book was the increase in the share of global production in China versus the United States. Measured in purchasing power parity, the two actually crossed over in 2015 — eleven years ago.

How do we define purchasing power parity?

It’s the opposite of measuring currencies at market exchange rates. According to exchange rates, the U.S. produces significantly more than China—about 1.5 times as much. However, if one dollar’s worth of renminbi buys you twice as many goods in China as a dollar would in America, then purchasing power parity adjusts the statistics to allow for that.

It also buys you twice as much honey, apparently.

Yes. So it’s obviously a more accurate measure of actual goods produced, rather than just a numerical figure.

The other interesting thing about the two graphs is that on the purchasing power parity version, the curves are essentially smooth — a steadily rising production rate in China and a steadily declining share in America. Whereas on the market exchange rate version, there are fairly wild zigzags. Throughout the 1980s, it appeared that America’s share of world production was climbing rapidly, and similarly in the latter half of the 1990s.

That’s highly artificial. It’s not reflecting anything happening in the real economy — it’s a reflection of the dollar appreciating rapidly on the currency exchanges. This shows how loose the coupling is between the real world of factories, farms, and work on the one hand, and financialised measures on the other.

It also surprised me that the gap is so large, since there should be arbitrage opportunities when currencies are misaligned with their actual purchasing power. The whole idea would be to bring those into line with one another. Of course, the reason the dollar has such strength is that it remains the world reserve currency — for now. As we’ve said several times, that could change extremely rapidly.

I’ll go through the book further, and perhaps next week I’ll have a few more insights to summarise. The other thing I was slightly sceptical about is that many of these statistics are expressed in terms of GDP. As I’ve said previously, I’m sceptical of GDP as a real measure of wellbeing, and we’ve given a number of reasons for that.

In this context, though, whilst I’m confident in my scepticism of it as a measure of wellbeing in developed, prosperous economies: GDP is often inflated by ever-faster obsolescence. The faster your washing machine wears out and has to be replaced, the higher the rate at which currency flows through the economy. That’s plainly not a serious advantage to anyone.

You get whatever you incentivise. If you incentivised longevity, your washing machine would never break — you’d just replace parts. But that’s not what’s incentivised or measured.

Absolutely. On the other hand, if you take a poverty-stricken part of the world where many people lack clean water, sanitation, indoor bathrooms, or anything beyond the most basic appliances, there is obviously enormous scope for improving their material circumstances. That improvement would correlate fairly well with GDP as a measure.

So perhaps the higher up Maslow’s hierarchy of needs you go, the less important GDP becomes?

Exactly. Those were the main points on that. As for world events, did you pick up on the scale of the police brutality in suppressing demonstrations against Herzog’s visit to Australia?

Yes.

It’s remarkable to me that such indiscriminate government-sponsored violence can be unleashed in what we consider a civilised country. What surprises me too is that they felt there might be some advantage to it.

Just shows their true colours, doesn’t it?

Even if they dislike people demonstrating against Israeli war criminals visiting the country, the far more astute response would have been to sit it out, wait for it to blow over, and let people forget about it the following week — rather than going out and clubbing and pepper-spraying inoffensive elderly people.

It’s worth remembering that Australia was founded by prison guards, not by convicts.

Yes. Anyway, those are my comments for this week — we’ll pick up a few more threads next week.

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