I
just looked up (again) per capita GDP in various countries. This is
well-known stuff. Everyone knows that most of the rich countries are in
Europe and North America, and that the
poorest countries are in Africa.
I don’t want to retread this familiar ground.
I
want to show you the fallacy of measuring national well-being through this
indicator - per capita GDP. First, here is a table that ranks some of the
world’s 197 countries by mean/average per capita annual GDP
countries: Total: 197
|
amount
|
continent
|
1. Qatar
|
96,083
|
Middle East city state
|
2-7: Liechtenstein,
Luxembourg, Monaco, Singapore, Norway, Brunei
|
69,637
|
City-states in Europe
and Asia
|
8. U.S.
|
50,790
|
North America
|
9. Switzerland
|
48,144
|
Europe
|
10. Australia
|
43,284
|
South Pacific
|
12. Canada
|
42,750
|
North America
|
14. Netherlands
|
42,542
|
Europe
|
21. Germany
|
39,157
|
Europe
|
26. U.K.
|
36,990
|
Europe
|
27. Japan
|
35,978
|
Asia
|
28. France
|
35,833
|
Europe
|
29. European Union
|
33,399
|
Europe
|
31. South Korea
|
31,850
|
Asia
|
35. Italy
|
31,174
|
Europe
|
53. Hungary
|
20,539
|
Europe
|
55. Russia
|
19,673
|
Europe
|
70. Mexico
|
15,898
|
Latin America
|
81. World
|
12,292
|
|
84. Brazil
|
11,919
|
Latin America
|
87. South Africa
|
11,440
|
Africa
|
100. China
|
9,196
|
Asia
|
141. India
|
3,873
|
Asia
|
168. North Korea
|
1,800
|
Asia
|
197. Congo, Dem. Rep.
|
396
|
Africa
|
But
as I started out saying, per capita GDP is a pretty meaningless measure, and I
will explain why. First, a few definitions:
1.
GDP means Gross
Domestic Product. It is the TOTAL amount of wealth produced (and
consumed) by a country in a year. For
example, America produces about $16 trillion of wealth in one year. It is true
that in many countries total production
and consumption are not equal. But let’s not get bogged down. The world as a
whole, of course, produces and consumes
exactly the same amount.
2.
“Per
capita GDP” is the
mean, or average: “Mean, ” per capita”
and “average” are synonymous: America’s
per capita (or mean) GDP is the country’s TOTAL GDP ($16 trillion) divided by
the population (316 million). As the table shows, that figure is
currently nearly $51,000.
3.
The mean is a “measure of central tendency.” Another measure of central tendency is the Median:
This measure refers to the middle value in a frequency distribution. Half the
population is above it, and half is below.
158 million Americans make more
than the median, and 158 million
make less. This figure happens to be about $29,000. http://en.wikipedia.org/wiki/Median_household_income
When
it comes to income, the median is a better measure of central tendency than the
mean. The reason that Americans’ average GDP is $51,000 while their
median GDP is only $29,000 is that such distributions are skewed:
There are many more poor people than rich people.
Take for example a class of 100
college students. Their mean/average is $25K and a distribution of all
individual incomes reveals that the median is also roughly $25K. Now add ONE millionaire to this class
(the professor, haha): the class’ total income goes up to $3.5 million.
Dividing this by 101 yields an average/mean
of $34,653, which is $9,653 higher than it would be if the millionaire
hadn’t joined the class! On the other hand, what has happened to the median?
Since there is only one more person in
the class, you still have to draw the line which separates the top 50 from the
bottom 50 incomes, and that line is still pretty much at $25K, or just a little
bit above. So now, the mean/average is more than nine and a half thousand
dollars higher than the median.
And
that’s how it is with the national income and GDP: Because of the staggering incomes of a
relatively few 1%-ers, the total and the average look a lot rosier than
the median.
Incidentally,
the fact that the U.S. ranks 8th in the world in mean GDP
but 4th in median GDP is nice: it suggests that inequality, while pretty bad already and
still deteriorating, is not as bad here
as it is in many other places.
Furthermore, what really matters is not individual GDP , but household income.
Furthermore, what really matters is not individual GDP , but household income.
There
are about 120 million households in the U.S. (average size about 2.6
individuals). So average household GDP is $133,000. Wow! This is high, don’t you
think?
We
just saw that median individual GDP was
only 57% of mean GDP, so let’s say that median household is likewise 57% of
mean household, i.e. $76,000. Still quite a sum! And keep in mind that many
families are larger than 2.6 people. My
own immediate family of procreation had four
people, and many of my married friends have, likewise, a couple of kids.
Presumably, the GDP of families of four is even higher.
It
clearly doesn’t make sense to equate GDP with income. Do most families of four
that you know make $204,000 per year (the mean) , or even $116,000 (the
median)?
So
I keep returning to my question: Where is that $16 trillion GDP? Dividing $16
trillion by 316 million people to see how most Americans are doing is nonsense.
A lot of the wealth – that statistical $51,000 which every American adult,
infant baby and retiree is supposed to enjoy -
is somewhere else.
For
one thing, there are those 1%-ers who live in the stratosphere, whom we never meet, whom we only know via the media. Part of the $16 trillion GDP
are the vast stock market profits reaped by Wall Street paper shufflers and
their investing clients.
And
then there is the government: the federal budget alone is $3.6 trillion. Multiply this by two for all government spending, and you get $7.2 trillion, or
nearly half the GDP. I don’t know how
much of this ends up as public assistance and discretionary consumer spending
by the people. Let’s say half. The
other half is spent on stuff like aircraft carriers, wars, foreign aid,
and also on very important things such as education, healthcare and
infrastructure, positive programs to be sure, but outside the people’s consumer
market.
The
amazing realization is that most people around
me – retired or still working professionals, people who take cruises and travel to Europe, people who own
pretty nice suburban homes, people with advanced degrees -are probably around the statistical median,
or the mean at best. But there are far more people who can barely make ends meet. Which
indicates that there must also be
obscenely wealthy people around. But we rarely see them. leave comment here
© Tom Kando 2013
© Tom Kando 2013