Why I Couldn’t Care Less about GDP per capita and Why You Shouldn’t Either
By Jessica Nabongo
While reading Charles Kenny’s new book, Getting Better: Why Global Development is Succeeding and How We can Improve the World Even More, it brought back thoughts that I have previously had. I haven’t finished the book just yet (and plan to do a review here when I do) but I just wanted to share some thoughts that were sparked by Chapter Two: The Bad News: Diverging Incomes.
Many people who have been in debates with me know that I think that GDP per capita is a very poor measure of the well being of citizens in a country and I also do not understand why it is used. I am sure this answer will be clear to me when I read Mismeasuring Our Lives, written by Stiglitz, Sen and Fitoussi which is in my reading queue. My general argument is that we cannot look at GDP per capita because firstly, it does not consider income distribution (thus income inequality or GINI coefficients) and secondly it assigns income to non-working people, as it is a division of the GDP by the entire population.
Let us look at the US, which is the world’s largest economy at $14.12 Trillion with a GDP per capita of $45,989 making it the 6th country in terms of GDP per capita ranking (2009 World Bank). So these numbers assume that the average US household, which is 2.59 people (US Census 2008) would be $119,103.74 (GDP per capita x 2.59), when in fact the average US household income in 2008 was $52,029 or less than half of what GDP per capita predicts (Yes I know my data is from 2008 and 2009 but I am sure you see my point).
Furthermore, in the US, according to Business Week magazine, using statistics from The Boston Consulting Group, the US has 4,585,000 millionaire households. the most in the world, yet the average household income in 2008 was $52,029. So if you consider how many millionaires it takes to bring the number that high, think of how many poor households it takes to bring the number that low. In 2009 43.6 million Americans were living in poverty which is 14.3% of course this is relative poverty as opposed to extreme poverty (which is suffered by the poor living in the world’s poor countries) but yet and still the US’s poor are masked by its number one position on the global financial food chain. The 2009 federal poverty rates can be seen in the chart below.
The point of all of this is that if GDP per capita gives us a crappy picture of the realities in the US, how foggy is the picture in other unequal countries? For countries that have low GINI coefficients, such as those in Scandinavia, the GDP per capita is likely to be much more accurate than that of unequal societies, in terms of income distribution.
If you have a strong case for GDP per capita please share it below or if you think my line of thinking is completely off base, I would like to hear that too!
Just to leave you with a thought……
According to Charles Kenny, “Africa’s average current income is a little below that of Western Europe in 1850, and similar to that of the UK at the start of its Industrial Revolution.”
Now if only we could only equate the amount of total wealth that has accrued from natural resources exported from Africa and the free slave labor that built many western companies.