I agree with you that nominal GDP is also a very flawed indicator.
I thnk that the PPP variant is more relevant when comparing the purchasing power of the population, while nominal value is more relevant when comparing the size of a countr’s economy,
What matters most for a person is the quantity of goods and services he/she can purchase (which outside vacations is almost completely spent locally), so the PPP adjustment makes sense.
But when comparing countries, what matters is their ability to trade, to project power and to intercat with other countries. This is mostly done in nominal terms.
You can’t buy F35 jets or Blackwell NVIDIA chips with PPP adjusted dollars.
When you compare company profits, you don’t use PPP. You simply convert their earnings at the market rate. A multinational company earning billions of dollars in the US is much wealthier than a company earning millions of dollars in India, because it has more money for M&A or for expansion abroad. The PPP becomes meaningless in this situation.
Like I said, there is no be all end all. It depends what you are after.
I mean even GDP can be whittled down to improve signal to noise ratio (SNR) and focus on specific things that are more easily vetted end-end (say trade since its hard to fudge that) and offer something qualitative. Relative "noise" may or may not be good, real, spurious eddy or entirely fake... in tabulation quality. Exactly the kind of thing that Keqiang (Chinese premier) was suggesting and promoting to bypass "unreliable" PRC GDP total (till that line of thinking in CCP echelon finding some form in post-Deng era today was suppressed)
But even with those, how much is the local IP content, coherent human org (positive sum hierarchy), value addition and profit margin etc vs the inverses of those that are just non-pareto "bulk" (sweatshop adage) but which is also important in the end. Things like IP theft and coercion too that enter new scale with marxist-leninist court system (the uniparty is in entire control of the court system and its interpretation of civil law posited in the PRC constitution and legal code/conventions).
Simply using USD to extend to whole economy (of which GDP is an estimate) based on trade intersection carries inherent fault. But it gives relative bounds you can put some error bounds around to get a rough macro picture. It doesnt make it better or more relevant than PPP.... the SNR ratio improvement simply can be done for both. Both essentially carry same set of caveats in end.
Keqiang SNR improvement examples (within essentially what is captured by "PPP" far better):
- The Chinese dont pay their electricity bills in USD
- railway track addition numbers and totals done without USD reliant foreign capital flows.
Neither enter "easily tradeable" picture like what governs USD XR with Yuan (or at least pressures given the pegging with forex reserves and capital exit controls and so on). The very systems (and ability to lie/distort for various reasons if you look at drop of high frequency data PRC is reducing now under Xi) are very different.
We just have rough picture at macro with both.
When you have relative same systems, mature markets and contexts (say within europe, or transatlantic, OECD etc) with high exposure between all parties regd trade, investment and even human labour flow etc......then yes GDP nominal becomes much more relevant between them....the price signalling inertia has permeated deeply enough, there is standardized release of high frequency components to track and so on.
Anyway its getting off topic a bit.
