Thursday, September 17, 2009

The World is not Fair and the GDP is Stupid: Economics for 9 Year Olds

Just the other day, my nine year old asked me this as he pulled on his school uniform: "If all the rich people lived at the same rate as us, would all the poor people also be able to live at the rate we are living at?" Once he repeated the question, I understood what he meant: if all humans shared the world's wealth equally, what would our fair share be? Is it fair how we live? Sharing and fairness are ideas that nine year olds think a lot about, so in some ways, my son's question was a natural one.

I didn’t have an easy answer, so I told him he’d be late for the school van if he didn’t hurry up. (I was right. He was late.) But his question got me thinking, because I recognized it was something I’ve wondered myself.

The answer, regrettably, is more complex than it first appears. I looked at a lot of numbers and wrote two long drafts of this post before I realized the naked numbers told an interesting story on their own. (OK, the numbers here are not completely naked--just a little , like the numbers over at the Harper's Index.)

But before I show you those numbers, I need to use some words that may make you feel drowsy, so try hard to keep those eyes open—I’ll talk slowly and clearly and it won't take long-- ready?

You have to understand that a country’s Gross Domestic Product (GDP) is just a fancy way of saying the total market value of all the goods and services produced or performed in that country--in other words the total of all the money spent in one year! The per capita GDP is the GDP divided equally by the population of a country—including children. In other words, each man, woman and child's fair share of all the money spent in a year in a country, a world, whatever. The IMF, the World Bank and the US Central Intelligence Agency spend a great deal of energy on figuring this stuff out, but nobody explains it outside university or the financial pages. You can look at hundreds of GDP figures at this boring site—or at this site, which is like video game; it allows you to sort per capita GDP numbers in dozens of colorful ways. Whew!

Now for the fun part:

Greenlight Index #1

Zimbabwe’s per capita GDP: $200

India’s per capita GDP: $2,800

China’s per capita GDP: $5,900

The WHOLE WORLD’s per capita GDP: $15,000

USA’s per capita GDP: $47,000

Luxembourg’s per capita GDP: $80,000

Base salary of first year New York City Police officer, not including uniform allowance: $40,361

Base salary of the President of India, not including room and board in Rashtrapati Bhavan: $40,000

The number of Indians who are worth more than a billion dollars as of 2007: 54

The number of Indians who are living on less than $1.25 a day: 400,000,000

If nothing else, those numbers say the problems we face are about distribution as much as they are about consumption, and the problem of distribution of resources is both global and local. In other words, the world is not fair. My nine year old can understand these numbers enough to figure that much out.

However, we need to be careful when we look at these numbers, for two reasons.

1. The current level of global consumption is nowhere near sustainable. How much consumption is sustainable is a question for another day. But it is probably less than most of us realize. In other words, we should all use less stuff.

2. The GDP alone is a fundamentally flawed measure of a nation’s success. GDP does not measure the value of the unpaid labor that parents perform in raising children. Child’s play, happiness and health are not counted in the GDP; neither is the quality of a nation’s water or air. A south Delhi shopping mall will add more to the GDP than a low income housing project; providing clean drinking water to slum dwellers won't "perform economically" like a new coal fired power plant or a cigarette factory, but it will save lives. In other words, the GDP says more stuff is good, even if the stuff is bad! And it ignores a lot of good stuff!

The idea that we should measure our success as a nation by more than just the amount of stuff we buy and sell is no longer a fringe idea; in fact, just this week, the conservative French President, Nicolas Sarkozy spoke at length about the drawbacks of a GDP-centered approach to development. This, by the way, is making a lot of conservative pundits nervous. And it should, because, like fairness and sharing, it is one of those things that is so obvious it makes sense to a nine year old.


  1. Hari,

    I agree. We need to get beyond the GDP. Otherwise any progressive initiative to cut unsustainable consumption, even if it comes with advantages like a shorter work week, increased literacy or just a healthier, happier people, will be labeled a "failure" if it does not increase GDP. Big business has a very strong interest in our use of the GDP as a means to measure the success. Environmentalists need to understand it's a trap.

  2. Mr. Batti:

    Thank you for the clear explanation. Economics has never been one of my strong points.

    I always thought GDP stood for 'God-Damned Propaganda'.

  3. @Anon.
    I agree. GDP does tell us something about the relative wealth of nations. But to measure national success in a real way, we need numbers that measure what we want to actually measure: health, literacy, personal income, employment, length of workweek, levels of pollution, quality of drinking water, etc. Come to think of it, we probably have all the numbers we need. Now we need a population that can understand them--so the numbers related to education are important, no?

    @Plasticgraduate (do your friends call you "plastic" or "graduate" or just "plasticgraduate"? I think your comment indicates another thing on which we can agree!

  4. An interesting question related to GDP is - should developed countries shoulder more of the burden of reducing greenhouse gas emissions? You'll be surprised at some of the answers I have had from people in the US.

    Should we measure carbon emissions per-capita (as India and China want it), or per sq.ft (as the US wants it)?

  5. Well, the more I think of it, the more I think it should be obvious that the US and Europe should shoulder most of the burden: they dumped the CO2 in the atmosphere--and they developed at a time when energy and resources were cheap. They made the problem; they should clean it up--that's a principle recognized in the US "Superfund" legislation, if I'm not mistaken.

    And since, last I checked, people (not sq. ft.) were responsible for emissions, I guess it should be per capita!

    That's my thinking, at least.

  6. Well, the US logic is that since the problem has to do with the fact that the bigger the country is, the more it can pollute in absolute terms. It kinda makes sense in a sort of way since per sq ft can save the planet if everyone adopted it.

    The problem of course is that we have to deal with the people who exist now and short of Genocide, we can't immediately remove them. I feel that the developed countries should give us the technology to let us reduce emissions without sacrificing growth.

    Oh and just by the way, have you given thought to changing the commenting system on this blog? Currently the problems are that when you click on a person's name in a comment, you're not taken to their site. For example, I can't view "theplasticgraduate's" site since he's commented above. Also, a simple "subscribe to comments" button will make it easier for your readers to track responses to your comments instead of the "Follow" link. Just a suggestion

  7. I think you are right: we have to deal with people who are here! And I agree about the technology. The thing the west doesn't realize is that they developed in a time when energy and resources were cheap: copper was laying on the ground in Montana! But all the low hanging fruit is gone and it is much more difficult to develop now. Of course the rich countries have contributed the vast majority of the CO2 that's floating around now; they have an obligation to help us.

    As for the comment format, give me some time and I'll try to figure it out. It's probably not ideal, the way it is now, but I'm new to this technology.


What do you think?