Poverty Measures
I've always contended that GDP does not offer a full spectrum report of an economy's health. A rich elite or corporate monopolies can easily inflate GDP numbers to make a country feel richer than it is.
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In Hypothetical Nation A, one rich industrialist earns $1 billion annually and the ninety nine other people living there only earn an income of $1. GDP per capita is $10 million. Critics argue that national income eventually spreads throughout society, but they ignore the fact that the wealthy elitist in Nation A could import the marble to build his houses, invest his cash in foreign banks, and still take advantage of desperately low local wages. GDP of $10 million doesn't reflect the reality of poverty in this fictitious society.
Last week I read a report that said that the average Bolivian is roughly $6,000. If 40% of the country lives on $1.25 a day, to say that the average person has this sort of disposable income is just as misleading as Nation A's reported GDP indexes. Many new development measures try to incorporate health, education, income disparity, etc. Unfortunately, it's extremely difficult to scientifically capture the impact of these in statistically comparable formulas or to objectively weigh the importance of health care compared to education. The most recent theory I've read about is based on adding in yet another "standard of living" measure.
Since I haven't individually scrutinized all the new popular alternative measures (The UN is adopting the Multidimensional Poverty Index, the Economist magazine is pushing a Standford University working paper, and the University of Michigan we explored the Human Development Index), I've begun to wonder about another simple way to compare development or a country's wealth: Median income. Median income eliminates extreme outliers like the rich industrialist in Nation A, while emphasizing the middle range incomes. In societies with large income gaps and high inequality, a median will show its weight by exposing the large lower class. If a society is rich -- not to be confused with a nation containing lots of rich individuals -- but if a society is rich, the wealthier median income should reflect this. The richest nations should have the wealthiest middle and should reflect a smaller class of poor and underprivileged.
A median income measure would face the same defense as proponents of GDP provide. Although it doesn't directly take into account health, education, income distribution, etc, economies with high GDP tend rank higher in these categories. But what a median income measure accounts for that GDP does not is income disparity. GDP measures lose sight of reality in countries with poor indexes. Alternative measurement formulas require too many estimates, subjective weighting, and try to incorporate more than they can demonstrate with a single number. A median income measure would make sure that the middle is accounted for. This more accurately reflects a society as a whole and doesn't let the rich out weigh the more populous poor. Unfortunately, current business models favors measures that add weight to corporate interests. While academics constantly propose then discuss new complicated alternatives, GDP will remain the conventional way to measure and compare a nations wealth.
Last week I read a report that said that the average Bolivian is roughly $6,000. If 40% of the country lives on $1.25 a day, to say that the average person has this sort of disposable income is just as misleading as Nation A's reported GDP indexes. Many new development measures try to incorporate health, education, income disparity, etc. Unfortunately, it's extremely difficult to scientifically capture the impact of these in statistically comparable formulas or to objectively weigh the importance of health care compared to education. The most recent theory I've read about is based on adding in yet another "standard of living" measure.
Since I haven't individually scrutinized all the new popular alternative measures (The UN is adopting the Multidimensional Poverty Index, the Economist magazine is pushing a Standford University working paper, and the University of Michigan we explored the Human Development Index), I've begun to wonder about another simple way to compare development or a country's wealth: Median income. Median income eliminates extreme outliers like the rich industrialist in Nation A, while emphasizing the middle range incomes. In societies with large income gaps and high inequality, a median will show its weight by exposing the large lower class. If a society is rich -- not to be confused with a nation containing lots of rich individuals -- but if a society is rich, the wealthier median income should reflect this. The richest nations should have the wealthiest middle and should reflect a smaller class of poor and underprivileged.
A median income measure would face the same defense as proponents of GDP provide. Although it doesn't directly take into account health, education, income distribution, etc, economies with high GDP tend rank higher in these categories. But what a median income measure accounts for that GDP does not is income disparity. GDP measures lose sight of reality in countries with poor indexes. Alternative measurement formulas require too many estimates, subjective weighting, and try to incorporate more than they can demonstrate with a single number. A median income measure would make sure that the middle is accounted for. This more accurately reflects a society as a whole and doesn't let the rich out weigh the more populous poor. Unfortunately, current business models favors measures that add weight to corporate interests. While academics constantly propose then discuss new complicated alternatives, GDP will remain the conventional way to measure and compare a nations wealth.
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