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Singaporeans richer than Americans?

Singapore now boasts a higher per capita income (when adjusted for local purchasing power) than the United States, Matt Miller wrote in a Washington Post article reproduced in the Straits Times yesterday.

Yes, Singapore's gross domestic product per capita is higher than that of the United States when adjusted for purchasing power parity, according to the World Bank and the International Monetary Fund (IMF). And per capita GDP reflects a country's per capita income, says Wikipedia.

There is a problem in making such comparisons, however, as we shall see.

GDP_PPP_per_capita_IMF

In 2009, according to the IMF, Singapore's per capita GDP after adjusting for purchasing power parity (PPP) was 49,433 international dollars while that of the United States was 46,443 international dollars. (See Wikipedia article.)

But there's no such thing as the international dollar in the real world. It's a hypothetical unit of currency used to compare purchasing power across countries. Even then it has its shortcomings, if you look further.

Look at the Singapore and the US per capita GDP without adjusting for purchasing power parity.

GDP_per_capita_IMF

Singapore's per capita GDP in 2009, according to the Singapore Department of Statistics website, was 51,656 Singapore dollars or $35,515.

US per capita GDP in 2009, according to the IMF, was $46,443.

So, if per capita GDP reflects per capita income, who are richer: Americans or Singaporeans?

That's a difficult question because the economies are different. A college education costs more in America while cars are more expensive in Singapore. That's why purchasing power parity is brought into the equation. Because the cost of living may be lower in one country than in another.

But the very fact that the IMF and the World Bank use international dollars, a hypothetical unit of currency, to make such comparisons show their limitations.

It only shows Singaporeans have more purchasing power in international dollars — which can't be had — than in real dollars.

That doesn't matter as long as they are in Singapore.

In fact, it's quite possible that Singaporeans are better off in Singapore than Americans in America. For, according to the IMF and the World Bank, Singapore's per capita GDP, adjusted for purchasing power purchasing parity, is higher than America's.

But Singaporeans travelling to America or having any dealings there will need US dollars. And one US dollar today is equal to S$1.40.

Purchasing power parity is useful in showing the cost of living in one country compared with another. It may even show that people are better off in one country than in another. But whether they are richer or not can be calculated only in international currencies like US dollars and euros, not in international dollars.

Wikipedia shows the US median household income in 2007 was $50,233 a year when Singapore's median household income was S$4,375 a month or S$52,500 a year. At current exchange rates, that works out to $37,500. Singapore's median household income last year was S$4,850 a month, according to the Department of Statistics' paper Key Household Trends 2009. That's almost $3,470 at today's exchange rate — without adjusting for purchasing power parity.

About the author: Abhijit Nag loves reading, writing and getting news and information online.