I posted a diary about using the GDP as a measure of national success a couple of weeks ago. Unfortunately I posted it at almost exactly the same time as Alito was nominated. So it didn't get many readers. It did, however, generate a long discussion at European Tribune.. I decided to shorten and rewrite that diary. I think it's an important subject and I hope you agree
Last night I read the UN Report on Human Development Indicators. It's a 120-page report card on how folks are doing in each of the world's nations. I wanted to see how we stacked up. It doesn't look good.
Here in the US we don't hear much about the HDI index. The GDP, or Gross Domestic Product, index is our premier scorecard. The GDP is the total value of final goods and services produced within a country's borders in a year. That's a silly way to judge how a country is doing. It's not even a particularly good way to measure the strength of an economy.
More below the fold:
The GDP is up this year; growth was a solid 3.8% last quarter. Are you feeling optimistic about our country, want to stay the course, confident in your children's future? No? I didn't think so.
So what's wrong with the GDP?
The GDP (originally the GNP) was devised during World War II as a measure of wartime production capacity. It was never intended to be a measure of a nation's economic health or well-being. Here are a few of its flaws:
· GDP ignores the non-market economy of household and community. This includes barter, unreported income, and volunteer work.
· The GDP includes every monetary transaction. Fighting crime, cleaning up after a hurricane, maintaining prisons, divorce fees, and superfund sites all increase the GDP
· The GDP treats the depletion of natural capital as income. For example, pumping oil is treated as income, but since the oil can never be replaced, it should be treated as capital depletion. As we deplete our natural resources the GDP goes up
· The GDP does not measure income distribution. This is a huge problem.
· The GDP does not measure borrowing from abroad. It ignores the twin deficits.
· The GDP ignores social and health factors such as lifespan and infant mortality.
If you still insist on measuring our success using the GDP, you'll be happy to see we're doing pretty well. Only the European Union has a higher GDP.
Per Capita GDP
Of course things look a little different if we look at GDP (PPP) per capita. PPP is purchasing power parity. The PPP measures how much a currency can buy in terms of an international measure (usually dollars), since goods and services have different prices in some countries than in others. This is probably a better measure of how we're doing, thought it is still not very good method. Now we're third.
1. Luxembourg 66,821
2. Norway 41,941
3. United States 41,557
4. Republic of Ireland 40,003
5. Iceland 35,686
Median PPP Income
Median PPP income per capita would provide a truer picture. Unfortunately I've had no luck finding these numbers. Someone with more time and talent could probably calculate this from available data.
Income Inequality
As I said earlier, one of the major problems with GDP is that it does not take into account income inequality. The magnitude of this problem cannot be overstated. Imagine a tiny country that has 100 billionaires and 100,000 people living on $2 a day (as about half the world's population does). This imaginary country would be the richest in the world by GDP per capita. Here is a list of the top 5 countries by income inequality (using the Gini coefficient for you economists). The US is number 74.
1. Denmark
2. Japan
3. Sweden
4. Belgium
5. Czech Republic
74. USA
United Nations Human Development index
Lets get back to that United Nations Human Development index (HDI) report I was reading. The HDI measures the average achievements in a country in three basic dimensions of human development:
1. A long and healthy life, as measured by life expectancy at birth.
2. Knowledge, as measured by the adult literacy rate (with two-thirds weight) and the combined primary, secondary and tertiary gross enrollment ratio (with one-third weight).
3. A decent standard of living, as measured by gross domestic product (GDP) per capita at purchasing power parity (PPP) in USD.
Here is how we do in the HDI:
Digging a little deeper into the report we find rankings by Human Poverty Index of developed countries (there's a separate index for developing countries). This Measures:
1. The percentage of people likely to die before the age of 60
2. The percentage of people whose ability to read and write is far from adequate
3. Proportion of the population with disposable incomes of less than 50% of the medium
4. Proportion of long term unemployed (12 months of more)
The US, "the richest country in the world", ranks a dismal 17th.
A few other interesting statistics: Our infant mortality rate is 7 (per 1000). That is the highest in the top 29 countries ranked by HDI. US life expectancy is 77.3 which puts us somewhere around 50th place. In the gender related development index we rank 8th. In the gender empowerment index the US is 12th.
We Must Switch Indexes
Of course the HDI and GDP don't measure the same thing, but which is a better indicator of how we're doing? I think it's vital that switch to using the HDI as the popular measure of how our country is doing. Instead of headlines that say "Economy (GDP) grows by 3.8%", we should have the top story in the New York Times or Wall Street Journal headlined: "US moves up in UN Human Development Index".
The Neo-Cons will strongly resist such a switch. The GDP has become an important tool for the right. It sets economic expansion as the ultimate goal. And it sets business and the rich as the most important elements in society. Pollution and depletion of natural resources don't seen so bad when they have a positive effect on the GDP. Health and equality don't affect the bottom line. And deficits are not even counted.
But by using the HDI as a popular measure we subvert, or invert, the paradigm. Social and health issues become paramount. As does income equality, the true standard of living, and education. In short, liberal values move to the forefront. Wealth is no longer the most important factor.
The metric of national success is the ultimate frame. It is something we cannot let the Neo-Cons continue to define. So next time someone tells you we're number one, tell them that we're actually 8th, and it's all the Republican's fault.
