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Purchasing Power Parity

from Asad Zaman

In a sequence of posts starting with  Lies, Damned Lies, and Statistics,  I have argued that the attempt to reduce multiple indicators to one number always introduces subjective elements relating to choice of factors, and relative weights to be assigned. By using technical jargon to justify choice of weights, the value judgments involved in this choice are concealed under a cloak of objectivity. This creates a modern form of rhetoric, where the arguments are made using numbers, and the values that went into the manufacture of these numbers remain hidden, and therefore, are not discussed. This concealment of values resulted from the creation of an artificial dichotomy between facts and values which became widely accepted. Values are considered unscientific, personal opinions, and hence must be concealed.

In the previous post on Cross-Country Comparisons of Wealth, we discussed how values were inevitably involved in such comparisons. In this post, we continue this discussion in the context of the most popular device used to attempt to resolve this problem – purchasing power parity. Like all positivist methods, this creates an impressive illusion of objectivity, while being highly subjective and value-laden. read more

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