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24 sats \ 7 replies \ @south_korea_ln OP 8h \ parent \ on: Davos hits ‘peak pessimism’ on Europe as US exuberance rises econ
What metric is usually used to define the prosperity level?
Usually, GDP per capita is used.
That measure has an abundance of known problems, but it has the advantage of being measured fairly consistently everywhere and over time.
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I see. It's good to have something consistent.
Does this metric get skewed by the big FAANG-style companies, or is the impact small? Probably talking out of my ass here, but is there some kind of "average" versus "median" effect here? As I mentioned in another comment, seems like European regulations are mostly damaging to the development of super-big companies, but not necessarily to the proliferation of small companies that can benefit from subsidies that are supposed to stimulate innovation. Subsidies themselves have lots of other known problems, including inefficient allocation of resources, but just trying to see things from a different angle today.
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Yeah, long right tails would skew GDP per capita.
However, other metrics tend to tell the same story. Another popular one is household income, which is also widely available and allows comparisons at medians or other percentiles.
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Got it. I'll research it a bit more. Feels like I'm just theorizing without much fundamental knowledge.
A final question, are there metrics that take into account intangible benefits such as healthcare, pension, etc that may partially compensate for the lower incomes (and/or higher taxation reducing net income) in Europe when compared to the US?
Putting aside again personal beliefs in terms of the morality of taxation, efficient use of resources, etc. And the likely lack of sustainability of the social system the way it has existed in Europe for decades.
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GDP based metrics are going to assume those services are worth as much as they cost. That's definitely wrong, and everyone knows it's wrong, but you have to do something to account for it.
There are also different ways of comparing economies. The crudest is to use the exchange rates between their currencies to make the figures comparable. However, there's something called purchasing power parity (PPP) that attempts to account for differences in how much things cost locally. I don't know how PPP adjusts for government provided services, though: it's usually talked about as adjusting for market goods and services that aren't exportable or importable.
There are broader metrics that are most often used to describe developing economies. The HDI (Human Development Index) is one of the most common. It mushes together income, life expectancy, and education.
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Plenty of keywords for me to look into. Thank you for taking the time.
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Yeah, if there were a right way to do it, we wouldn't have to do all these different things.
It's just tradeoffs all the way down.
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