On estimating the warmaking potential of the world's regions

Discussions on the economic history of the nations taking part in WW2, from the recovery after the depression until the economy at war.
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Re: On estimating the warmaking potential of the world's regions

Post by Stiltzkin » 23 Mar 2017 12:12

Of course I don't think GDP is an all embracing measure of warmaking potential but it's a good measure of the economic size and per capita figures, of the level of development of a country.
I am not denying that, I just think that especially for the WW2 era it is totally useless (excluding the Western democracies).
It is just that the very nature of GDP (and the data involved) calculations can be regarded as a very unprecise process.The numbers for all instransparent systems are simply bollocks. Even the figure of the USSR aid by just 5-10% is nonsense (only a naive economist or leftist anglophobic economist like Harrison could believe in such garbage), if I had to make a good guess, I assume that it was much higher (of total share), one of the major reason between the difference of collapse and non-collapse during both world wars, but most people consider such statements to be offensive.
I would argue that the aid France received during WW1 was actually smaller.
Another interesting difference was the manpower pool, while Hitler caused the effective destruction of a European defense against Bolshevism and fought the war alone, while also enabling an Anglo-Saxon- Soviet alliance (which is hilarious bringing them to the table, diplomacy is another factor). It is one of the reasons Putin is waging a war in Ukraine: It is not only the fact that he wants to make it uninteresting for the EU, grab resources or prevent it to become democratic, but as Brzezinski stated: "Russia is not great without Ukraine". He needs the manpower and with it, access to the Danube and Crimea (making a bridge from Kerch obsolete).

So, It is better to look at the direct focus on conducting war and the war industry (intentions = actual vs capacity = theoretical).

There are no comparable goods for an exact calculation.

There are also countries which live above their standards, a further distortion.

In the end, Germanies values would be probably around 2,500 post war while nowdays it would be around 3,203 (this would be fairly close to 90-015 figures).
The USSRs range of 500-1,700 is probably more realistic (for the pure "economy" part that is), your figure of 9,274 is totally dubious. You want to tell me that the USSR was economically stronger than the whole Western nations of Europe? There is nothing today that would suggest such a thesis. Why do people believe in the pre war, "missing data", post war nonsense. In retrospect, Putin did not solve the problems that were present in the Soviet Union, hence there is nothing that could cause such considerable fluctuations.

Chinese values are simpy not honest. They also differ for urbanized areas like Beijing and the rural parts. China possessed the largest economy for the most time throughout history and we all know how useful this stats are for anything before the 18th century, observing such data in "historio-economic" literature can only be regarded as either comedy or a mean spirited joke.
There is a correlation between transparency and stat accuracy. Not to mention that life expectancy represents just another artificial value in itself (the funny thing is that one could argue that the cheap chinese labour and market increased the living standard of the average american, more goods more consumption).

I will give you some nice contingency examples which contradict the numbers: Iran vs Iraq. I would put all my money on Iran.
South Korea vs North Korea would depend on which side would be supported, my bet is on South Korea, Chinese (hidden) intervention could change it.
Another odd one with high, per capita values (fiscal paradises): Luxembourg. This is self explanatory.
Another one, hypothetical: USSR attacks a western country like Germany or France first (before 1941), my bet is on the defender (plenty of examples in history). You were also wrong about the K/D ratio of Soviets/Russians vs other nations, the exchange rate with the Wehrmacht was the highest yes, but the DLEDB Database shows that even a "poorer" country like Japan managed to inflict higher losses, while possessing less men (in the attack, 1904).
From this we can deduce 2 things: Tactical proficiency is falsely assessed or the GDP data is just worth a damn. The further we go back, the less reliable they are. The less transparent the data, the less accurate it is.

Here is what I believe: I think that all authoritarian states generally hide their military capabilities (or at least try to do it), opposed by all western democracies being rather undermilitarized. It is a matter of night and day, exploitation vs consumerism (this is also interesting as men become softer under certain conditions, higher living standard vs extreme conditions, they do have a higher amount of food though but something as Ghurkas are more natural soldier material). The values are a good prediction for transparent systems, not so much for the opposite, in the end its the question of how much you can and are willing to bleed. So what saves the Western World? Originally that was always their technological superiority.

You will end up with something like this: Germany, rich dictatorship, most powerful fighting power per capita. Soviet Union, largest military complex both dwarfed by the United States economic might.
Translate into modern times: IDF: Most experienced per capita, Russia: Largest firepower accumulation on land, US: Naval presence.
Highest theoretical potential: China, US, India, Brazil, Japan (yes they have a more powerful Army than during WW2).

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Re: On estimating the warmaking potential of the world's regions

Post by Guaporense » 23 Mar 2017 20:27

Some benchmark levels of per capita income (with means, each year only involves the direct PPPs computed for that year and nominal per capita income figures converted and do not involve the use of estimated time series of real per capita income, except for 1913 since the PPPs are for 1905 and 1909):

Image

The 1913 and 1927 benchmarks are from Williamson (1995)'s PPPs, the 1937 benchmark is derived from PPPs from Broadberry and Burhop (2009) and Fukao et al (2007) and a PPP between US and UK I constructed using data from the University of Maryland and the data underlying the UK's Index of Retail Prices. The 2016 benchmark I made using price data from numbeo (https://www.numbeo.com/cost-of-living/), while I used weights in between the weights in Williamson and those used in numbeo's statistical model.

Some interesting results: the UK had among the highest per cap incomes from 1913-1937 but declined relative to the US, France and Germany, while Japan managed to quadruple their per cap. income relative to the UK while Italy doubled from 1913 to 2016. China today is relatively similar compared to the Western countries as Japan was in 1937. Notice the effect of the Great Depression on the US relative to the UK and also how France's GDP per capita surpassed Germany following WW1 (apparently, France was the fastest growing major developed economy from 1913 to 1927).

Also, using these 1937 PPPs it's easy to see why Germany had more machine tools than the US in 1939: because it's metal working sector was a larger share of it's GDP to a point where it's value added in consumer goods PPP terms was higher:

--------------- 1939 RM millions -------- 1929 dollars millions
GNP Sector 1939 --- Germany --------- USA
Industry -------------- 43,649 ------------ N.A.
Manufacturing ------ 38,989 ----------- 31,356
Metal Working ------- 16,116 ----------- 7,408
GNP ------------------- 129,000 --------- 108,267
In 1937 pounds ----- Germany -------- USA
Industry -------------- 2,739 ----------- N.A.
Manufacturing ------- 2,447 ----------- 3,962
Metal Working -------- 1,011 ---------- 936
GDP -------------------- 8,095 ---------- 13,680

Using the Williamson's 1927 PPPs and time series projections yields the GDPs of 8.4 billion pounds and 14.0 billion pounds for (Greater) Germany and the US, yielding a very similar ratio. Using the Williamson's 1905 PPPs and time series projections yields the GDPs of about 5.3 billion pounds and 8.9 billion pounds, respectively: that means that using either one of those 3 PPPs we get the same relative figures.
"In tactics, as in strategy, superiority in numbers is the most common element of victory." - Carl von Clausewitz

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Re: On estimating the warmaking potential of the world's regions

Post by Guaporense » 24 Mar 2017 07:19

So, doing what I did here (viewtopic.php?p=1927323#p1927323) but instead of using Maddison's data I used my own estimates whose method I described before, however, I used the 1937 benchmark PPPs for US and Germany instead of Williamson's 1927 PPP's (which I think underestimated a little bit the US's and Germany's GDP vis the US).

Image

Note:that for Poland, Czechoslovakia, Hungary and Finland I used Maddison's estimated per cap income relative to the UK and converted to 1927 pounds (i.e. Poland's per cap income was 1/3 of UK's so UK's per capita income is 120 pounds, so Poland's was 40 pounds).

The discrepancy of these figures with Maddison's figures is 5% in the ratio between the GDP of the territories controlled by the Axis and Allies. That is, by these estimates, in the beginning of 1942, the Axis powers controlled territories with GDP equivalent to 95% of the GDP of all the territories controlled by the countries in the Anti-Hitler block (except New Zealand, which consisted of less than 0.6% of the block's GDP according to Maddison), that is among territories with per capita income at least as high as Japan, since agrarian subsistence agricultural economies did not produce significant surpluses to be mobilized for war (exp. China, India, since according to Broadberry and Harrison (2005), India was so poor that it was more of a liability than an asset for Britain in WW1, so these GDPs shouldn't be counted).
Last edited by Guaporense on 25 Mar 2017 03:05, edited 2 times in total.
"In tactics, as in strategy, superiority in numbers is the most common element of victory." - Carl von Clausewitz

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Re: On estimating the warmaking potential of the world's regions

Post by Stiltzkin » 24 Mar 2017 07:43

Except stacking these values is probably as misleading as Maddisons numbers themselves.
since agrarian subsistence agricultural economies did not produce significant surpluses to be mobilized for wa
Or maybe because they were not monopolized?

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Re: On estimating the warmaking potential of the world's regions

Post by Guaporense » 25 Mar 2017 03:12

No, it's because people die of hunger if they try to mobilize resources since per capita income is too low.

To mobilize for total war economies have to reach a level of development several times above minimum subsistence level to allow for the existence of a surplus to be mobilized. That's why wars in the middle ages involved a very small number of soldiers: their economies lacked the logistical capacity to mobilize resources to supply vast armies, like those mobilized in WW1 and WW2.

Lack of surplus was a problem with Russia in WW1. Russia in WW1 had 1/4 of the per capita income of the most advanced economies (US,UK,Belgium), they mobilized 18 million soldiers anyway, mainly from agricultural labor. As result agricultural production collapsed and the volume of surplus available to be sold at the market decreased and hence the cities and armies went hungry. China and India in 1939 were much poorer than Russia was in WW1, these were a minimum subsistence economies, that's why China and India, with GDP near the UK levels, couldn't mobilize resources.

The Soviet Union and Japan, with per cap income around 40 pounds, were the economies far away from the most developed economies (with per capita income around 110-120 pounds) but their levels of income were already 4-5 times higher than the poorest economies like China and India, high enough to allow for total mobilization (even though they went hungry in WW2, in Japan rations were less than 1,700 calories, compared to 2,900 calories in Germany and the UK while in the USSR about 3 million people died of hunger due to the mobilization).
"In tactics, as in strategy, superiority in numbers is the most common element of victory." - Carl von Clausewitz

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Re: On estimating the warmaking potential of the world's regions

Post by Guaporense » 25 Mar 2017 22:34

This table here integrates the results of my research into historical national accounts so far:

Image

I show the GDPs of Germany and US for 3 different sets of benchmark PPPs: 1905, 1927 and 1937, the first two are Williamson's, the third ones are Broadberry and Klein (2009) for Germany and one for the US and UK I made using price and basket weights data from Broadberry and Klein (2009) and Fukao et al (2007) for the UK and US, respectively. I also put the life expectancy data as well in there. Apparently the countries with highest life expectancy, Australia, Netherlands, Denmark, Switzerland and Sweden also had very high per cap. income, but Switzerland's income was much higher than the Netherlands (although for Switzerland, I used official exchange rates which means that maybe the Swiss franc was very strong in 1939 as Europeans were moving their funds into Switzerland to escape from the Nazis, making their currency stronger than the PPP vis the British pound).

Notice that for Germany and the US the 1927 PPPs computed by Williamson (1995) are the ones I used for all the other Western economies so one might think that these figures are more comparable rather than using the 1905 PPPs which yield higher per cap incomes for these two countries vis other Western economies. For Japan I converted their GDP per capita measured in dollars by Fukao et al (2007) into pounds using the 1935-1937 PPPs of the dollar against the pound instead of the 1927 Williamson PPP, which means their GDP got about 10% bigger than in the previous table I posted.

Note there is some discrepancy in the discrepancies between different PPPs and their time series projections I previously posted. That's is mostly due to my utilization of Maddison's time series instead of those in the GGDC historical national accounts database that I used in the previous post.

Anyway, all this shows how delicate the measure of PPPs and GDPs is: given that GDP is a sum of thousands of different goods and services weighted by prices and PPPs are currency conversions made using weighted averages of price ratios, they are not absolute values that are not subject to dispute (unlike for instance, population or life expectancy which are absolute figures, subject to measurement error). For instance, using different basket weights yields different PPPs, of even when computing prices: I think the reason that the 1905 and 1927 PPPs change so much using time series projections is partly due to the fact Williamson used the 1905 data on price average across cities, like the 1935-1937 data I used, the 1927 used price data on individual cities (London for UK, Berlin for Germany, Paris for France, Madrid for Spain, Philadelphia for USA, etc). For this reason I suspect that these 1905 PPPs are of higher quality so that the 1905-1913 GDP figures are of higher quality than the 1927-1939 GDP figures:

Image
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Re: On estimating the warmaking potential of the world's regions

Post by Stiltzkin » 26 Mar 2017 14:17

How did you deal with depreciation?

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Re: On estimating the warmaking potential of the world's regions

Post by Guaporense » 27 Mar 2017 02:44

@Stiltzkin, GNP figures don't discount depreciation. Those that do discount are called NNP, I converted them into GNP at market prices using the ratio on British data on NNP and GNP at market prices (which increases the value by about 15%).

This is a table showing the benchmark results, that is, the GDPs per capita relative to the UK converted using PPPs for each year between a country's currency and the British pound:

Image

I added Norway, Ireland and Argentina to the mix now.

Back in 1905 the UK had the highest per cap income among these countries although Belgium and the US were very close. Notice how Denmark, Sweden, France and Italy grow fast relative to the UK from 1905 to 1927. The US's grow was apparently not that fast although the 1927 PPPs appear to be "unfavorable" to it. Same with Germany and Belgium.

Still from all benchmarks, the only benchmark that surpassed the UK's income was the US in 1927 during the roaring 20's. Notice also that Argentina had 84% of the UK's per capita income back in 1927, by 1990 it was like 35%. While Japan's per capita income increased from 27% of the UK in 1935 to 110% by 1980.
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Re: On estimating the warmaking potential of the world's regions

Post by Guaporense » 28 Mar 2017 02:54

Robustness checks on the benchmark estimates:

(1) Comparing 3 sets of PPPs of US and UK with their projected values according to the US's Consumer Price Index and the UK's Retail Price Index:

Image

The deviations were average around 2% between computed PPPs and the projected values of previous PPPs (the 1937 and 1905 PPPs deviate by less than .5 :o %). That's good, small enough to give me confidence on the precision of these PPPs relative to the real economic output.

(2) Comparing my estimates with Maddison's estimates (in which he used 1990 PPP benchmarks provided by the World Bank's International Price Comparison Program and projected back to 1927 using time series of estimated GDP growth). And their correlations with life expectancy in 1930, my estimates have much higher correlation than Maddison's being twice as close to 1 as his estimates are:

Image

(3) I also tried to estimate GDP adjusted by hours worked on average per year: that is, in countries were people work harder, their GDP is decreased in proportion because it means their productivity is lower. That's not GDP per hour worked because I lack precise and comparable data on the size of the employed labor force in 1927 (which is different from population): most labor force data between different countries uses different methodologies to include a person as working member of the labor force, in Germany they include, for instance, family members of rural families (something that I suspect is also true for France), other countries might count or not domestic labor. Anyways, due to lack of precise data (the data I had suggest much higher rates of labor force participation in the UK vis Germany in 1929, which is unrealistic).

I only got data on hours worked for a small subset of countries. Still, adjusting GDP per cap by the intensity of work increases the correlation with life expectancy, which means that GDP adjusted by average number of hours worked probably a better indicator of economic productivity and development than raw GDP per capita:

Image
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Re: On estimating the warmaking potential of the world's regions

Post by Stiltzkin » 28 Mar 2017 12:32

Quite a big jump in French per capita income.

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Re: On estimating the warmaking potential of the world's regions

Post by Guaporense » 28 Mar 2017 21:42

While the US was the world's largest economy from 1885 to 2013 (when it was surpassed by China), relatively to Europe, North America was a fraction of Europe's GDP until WW2:

Image

While after WW2, the European powers greatly declined relative to the US, the decline had started with WW1 but WW2 was the largest shock on the long run performance of the European economy and it's divergence with the US.

This can be seen in per capita income terms as well, US per capita income relative to European countries took off after WW2:

Image

Also note how low Asian countries' per capita income became by 1950: Chinese incomes were 6% of UK's, now they are 37% and converging fast. Maddison said that 1950 was the peak in global economic inequality between the West and the rest of the world (even if Western Europe was relatively hurt by WW2 vis the North American countries). After 1950, Japan, Korea, China, India, started to develop and industrialize.
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Re: On estimating the warmaking potential of the world's regions

Post by Guaporense » 29 Mar 2017 02:43

Guaporense wrote:(2) Comparing my estimates with Maddison's estimates (in which he used 1990 PPP benchmarks provided by the World Bank's International Price Comparison Program and projected back to 1927 using time series of estimated GDP growth). And their correlations with life expectancy in 1930, my estimates have much higher correlation than Maddison's being twice as close to 1 as his estimates are:

Image
The US/UK discrepancy between my estimate and Maddison's can be explained by taking a look at the prices Williamson used to compute the PPPs: it was 7.57 dollars to the pound in 1927, while the ratio of rent rate for a 4 room apartment was 16 dollars to the pound, removing the rent from the PPP makes the PPP be around 6.25 dollars to the pound and the US's per capita income increases to Maddison's level. The 1905 and 1937 PPPs have the ratio of rent's rates much closer to the PPPs.

So, the discrepancy in the estimates is because rents were high in the US back in 1927 that's because real state prices in the late 1920's were really high because of the economic bubble of the roaring 20's (usually in financial bubbles prices of assets such as real state get inflated way above their long run averages). Although this doesn't mean the PPP is wrong: it means that the GDP figures for the US in the 1920's are inflated because GDP growth estimates use indexes of inflation (GDP deflators) that do not take (fully) into account the "inflation" in the prices of real state, this increase in prices of real state is interpreted as economic growth even though now the workers must spend a much higher fraction of their incomes paying rents so their real purchasing power did not increase.
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Re: On estimating the warmaking potential of the world's regions

Post by Stiltzkin » 29 Mar 2017 02:48

:thumbsup:

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Re: On estimating the warmaking potential of the world's regions

Post by Guaporense » 30 Mar 2017 04:13

I will post here some additional benchmarks of relative GDP per capita I calculated for US - Germany and Germany - Japan, they mainly agree on the results I posted before but they deviate a little bit:

Image

Price data for US comes from https://www.census.gov/library/publicat ... -1970.html, for 1937 commodities, in addition I used price data for 1935 from Fukao et al (2007) for stuff that the Census didn't have.

Note how close this benchmark estimate is to the one using Williamson (1995)'s 1927 PPP and Maddison's time series on per capita income, a deviation of only 1%.

This is for Germany - Japan:

Image

Japan's GDP per cap in 1937 is apparently 29% of Germany's, the benchmarks I posted before imply Japan's per capita income at 26.4% of the UK's level in 1937, Germany's was 84.9%, which means Japan's was 26.4/84.9 = 31% of Germany's. So this benchmark deviates from that other estimate by about 6%.

It's pretty clear how poor Japan was relatively to the Western countries back in the 1930's.
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Re: On estimating the warmaking potential of the world's regions

Post by Guaporense » 31 Mar 2017 21:19

Using the RM/dollar 1937 PPP of 2.27 and the RM/pound 1937 PPP of 15.80 (using data from Broadberry and Burhop (2009) but modifying British prices using the RPI), I constructed the following statistics, in addition to using Williamson's 1905 and 1927 PPPs:

Image

Adding the life expectancy data I previously posted. Notice that even though German per capita income was the highest point in 1937 vis the US, GDP adjusted per hour worked was the lowest vis the US: German relative productivity per hour was decreasing from 1913 to 1927, the high GDP per capita in 1937 was because in the US the number of hours worked collapsed due to the great depression so the US economy was operating substantially below it's potential. Still, the size of the economy of the two European great powers Germany and UK decreased vis the US in 1937 compared to 1913.

And by curiosity, this is the per capita GDP in pounds of bread:

Bread per cap GDP --- 1905 ------ 1927 --------- 1937
Germany------------- 6,558 ------ 6,977 --------- 10,602
UK -------------------- 9,327 ------ 10,755 -------- 11,603
US -------------------- 5,840 ------- 8,588 --------- 8,254

German prices are for brown bread (was cheaper than white there), US and UK for white bread (which was cheaper than brown there). The nazis instituted some subsidies to lower bread prices although per capita income in real terms increased by ca. 50% from 1905 to 1937, which would imply in a similar increase in "bread GDP per cap". And the UK was the slowest growing economy over the period 1905 to 1937 among those in that set.
"In tactics, as in strategy, superiority in numbers is the most common element of victory." - Carl von Clausewitz

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