GDP = Greatly Diverting Propaganda

The problem with calculating a nation’s well-being via per-capita GDP:

…you and your friend are the only people sitting at a bar. Then Bill Gates walks in, and your friend states (correctly) that “The average person in this bar is a billionaire!”

That’s from The G-Spot, where Blogger Kathy G. (didn’t Dylan write a song by that name? and if not, why not?) has some fine riffs on inequality.

Measured by per-capita GDP, as I’ve noted, Israel is in superb economic shape. In reality, the Republic of Tel Aviv flourishes, while the rest of Israel languishes.

Kathy G. proposes several alternatives to GDP as a measure of economic health. All are more abstract, which makes them harder to understand. The Gini index, which directly measures inequality, has another problem – less is better. A score of zero would indicate complete equality. The bar where Bill Gates is drinking would be close to 100.

Here are two thoughts on how to make the measures more understood:

1. Use the Contra-Gini index instead. Subtract Gini from 100. In the 1980s, Israel had a Contra-Gini score of 68 or 69. We’ve sunk to 62. Not as bad as the U.S. at 55, but not healthy. Sweden is up at 77. Wouldn’t it be great to compete with Sweden?

2) Use the third decile. In each country, use income to divide the population into ten slices. Then take the per-capita GDP of the third slice from the bottom. I’m suggesting the third decile intuitively. These aren’t the poorest. They are likely to be the folks working but struggling to get by. If the third-decile stagnates or sinks, the country is in bad health. If they are doing better from year to year, the land is a happier place to be. On the other hand, if the very rich go from flying first-class to flying private jets, it means very little about general welfare.

1 thought on “GDP = Greatly Diverting Propaganda”

  1. IMHO, what you’re looking for is MEDIAN GDP.

    That’s how much money the “middle guy” creates, and it does a good job of nailing down how much money ordinary people create. Median income is also good. Check it out!

    Per-capita GDP IS useful for, for example, making projections of what a certain society can afford. But, yeah, it doesn’t help so much to get a sense of where the middle of the middle class is.

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