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Author Topic: California is the world's 6th largest economy.
WildaBeast
Let There Be PCs on Earth


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I've heard that statistic a few times, and I'm not questioning it exactly, but I'm just wondering where that number comes from. What is California being compared to for that statistic?

Normaly you hear about the economies of nations rather than individual states, especially when you're talking about the world's Nth largest economy, but in this case if you called the United States the world's largest economy and then California the world's 6th largest economy you'd be counting California twice. So are they using each state individually? What about Canadian provinces? Are they considering them individually instead of Canada as a whole as well? How are they defining an "economy"?

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kanazawa
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Looks like it is by Gross National (Domestic) Product. With our without CA, the US is still number 1 by a big margin.

http://www.dof.ca.gov/HTML/FS_DATA/LatestEconData/FS_Misc.htm

Hey, how did China pass us?

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Rhiandmoi
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I think China passed us in 2004.

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ThistleSoftware
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I always hear that California is the world's third or fourth largest economy, not THE largest.

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Lainie
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quote:
Originally posted by ThistleS:
I always hear that California is the world's third or fourth largest economy, not THE largest.

[Confused] Nobody said CA was the largest.

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ThistleSoftware
Little Sales Drummer Boy


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Oops, misread the title. Sorry!

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Silas Sparkhammer
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Heck, San Diego County has a bigger economy than a handful of EU nations!

Silas

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Biggles
I Saw Three Shipments


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Notice that GDP figures are measured in US$ dollars?

It can be a bit misleading as the US dollar has slipped a lot against other currencies. For instance here in NZ the US$1 used to be worth around NZ$2.50. Now the US$1 is about NZ$1.40 to $1.50.

I'm not sure it means much to look at state GDP/GDI figures as if you take a county like San Diego, the GDP figures will be largely inflated by military expenditure; the money raised from taxes from across the US but spending is more concentrated.

Lots of interesting figures out there on GDP/GDI per capita, but countries like China can distort the picture. Using simple US$ GDP figures they are the world's 4th biggest economy, but using 'purchasing power parity' (PPP) figures which gives a better pictures, they are already the worlds 2nd biggest economy & will overhaul the US within the next 10 years.

http://www.cepr.net/err/2006_01_03.htm

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Silas Sparkhammer
I Saw V-Chips Come Sailing In


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quote:
Originally posted by Biggles:
Notice that GDP figures are measured in US$ dollars?



So long as you use a single specific standard, then the comparison is fair. If you convert to Euros, at a fixed ratio, then the ratio of the overall size of the economy of, say, Spain and Japan will be the same as if you converted to Yen.

quote:
I'm not sure it means much to look at state GDP/GDI figures as if you take a county like San Diego, the GDP figures will be largely inflated by military expenditure; the money raised from taxes from across the US but spending is more concentrated.

You're right for San Diego; we do receive an awful lot of military money. On the other hand, California actually contributes more to the U.S. federal budget than it receives, so that, were the money returned to the state in the same proportion, the Californian economy would be that much *larger*.
quote:
Lots of interesting figures out there on GDP/GDI per capita, but countries like China can distort the picture. Using simple US$ GDP figures they are the world's 4th biggest economy, but using 'purchasing power parity' (PPP) figures which gives a better pictures, they are already the worlds 2nd biggest economy & will overhaul the US within the next 10 years.

http://www.cepr.net/err/2006_01_03.htm

I don't know what PPP means -- would this be a reflection of the role of barter, black markets, internal markets, etc. in China's economy? I agree that such things ought to be included, and are very difficult to measure.

Silas

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Jason Threadslayer
Let There Be PCs on Earth


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quote:
Originally posted by Silas Sparkhammer:
So long as you use a single specific standard, then the comparison is fair.

Maybe, maybe not. The numbers may reflect a higher cost of living. PPP is supposed to correct for this.

In Atlanta, a six pack of Blue Moon beer (an actual not bad American beer -- but it is Belgian styled) cost 5.99 USD while here in LA, it costs 7.99. Using that as our basis (which is admittedly bad, as comparing more goods results in a more accurate picture) and rounding for simpler math, a dollar in Georgia is worth 1.33 dollars in California (the PPP exchange rate).

As a dollar in Georgia is worth a dollar in California, we could say that California's currency is overpriced by 33%... along with the Gross State Product.

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pinqy
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GDP comparisons do use PPPs for conversion to the USD. All international comparisons use some form of PPP.

I think the easiest way to explain PPPs is with the Economist's Big Mac Index The Big Mac is universal in that you find the exact same sandwich anywhere you go in the world. Therefore, theoretically, they should all cost the same amount anywhere you go. So if a Big Mac costs $3.15 in the US it should also cost $3.15 in the UK once the currency is converted. If it does not match, the the Pound is considered under or over valued compared to the dollar. Most PPPs use extensive market baskets and complicated formulas, but the Big Mac Index works surprisingly well.

pinqy

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Ulkomaalainen
Jingle Bell Hock


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quote:
Originally posted by Silas Sparkhammer:
So long as you use a single specific standard, then the comparison is fair.

Well, it may get difficult.

Let's say the GDP of Drakonia in 1980 equalled DD (Draconian Dragons) 2bn, while the GDP of Forestland was FF (Forestland Florins) 4bn. in 1980, 1DD traded for 2FF.

25 years later, in 2005, Drakonia had a GDP of DD 3bn, while Forestland was at FF 3bn. In that year, 1DD traded for 1FF.

So, in both years both economies were of the same size (GDP wise). But if you're not carefully watching your units, as every physics teacher tells you to do, you may be messing up. A 1980DD is apparently not the same as a 2005DD, nor is it with 1980FF and 2005FF. If you are not careful and use the 2005 exchange rate for the 1980 data, you may claim that Forestland had an economy twice as big as Drakonia's, but that cannot be right?!

Also, from a Drakonian point of view, both economies expanded by 50%, from DD 2bn to BB 3bn in those 25 years, while a Forestland economist will tell you that they both shrunk by 25% from FF 4bn to FF 3 bn. Which one is right?

So you may want to resort to a third, stable, currency. But llok at what the Dollar and Euro played for a game during the last 5 years. A difference of more than a third/more than 50% of the highest or lowest value respectively occured. You had to pay roughly 0.80 to 1.25 Dollars for the Euro, depending on when you bought it. All those exchange values have a very high share of randomness in it.

Thus, you try to find systems like PPP to have some way of comparing that works over different years and countries with different exchange rates all the time.

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