Taking up Mitt Romney’s Challenge

Driving home today, I heard a segment on NPR (couldn’t find it online) reporting on Romney facing a tough crowd in New Hampshire. One of the exchanges that caught my attention was Romney’s response to a question from a voter dissatisfied with “trickle down” economics. Romney fired back with a dare to “name one country with the same GDP per capita” as the US—implying that the US economy was (relatively?) successful because it was the richest in the world. 

There’s two problems with that statement: The first is that it’s not true. The second is that GDP per capita is not the best metric.

To answer Romney’s challenge, I can name at least six countries with GDP per capita (using purchasing power parity) higher than the US: 

  • Qatar ($88,222)
  • Luxembourg ($81,466)
  • Singapore ($56,694)
  • Norway ($51,959)
  • Brunei ($48,333)
  • United Arab Emirates ($47,439)

The above figures come from the IMF which ranks the US seventh, with a GDP per capita of $46,860 (see full list). Of course, other institutions use different measures. For example, our very own CIA ranks the US ninth (the other countries that sneak into the top ranks are Kuwait and Liechtenstein).

So there clearly are countries with GDP per capita equal to (or better than) the US. But something curious should strike you about the countries listed above: Except for Singapore and Luxembourg (which have very small, but very highly educated/skilled populations), these are all oil-rich states (yes, Norway is a major global oil exporter).

The problem with using GDP per capita is instantly obvious: GDP is the total wealth of the country; GDP per capita is that figure divided by the number of people in the country. So if the sultan of Brunei is very, very wealth (he is), the GDP per capita is very high, even if the majority of the population of Brunei are much less well off (they are).

Even if not, something should strike you as odd about our own GDP per capita figure: $46,860. If you converted that to a household of four, the “average” American family should be worth about $187,440. Is your net worth that high? Probably not. That’s because in countries with high wealth disparages (which brings us back to the original question, which Romney avoided), the average skews upwards, even though most people are worth less than the average.

Fortunately, there is a good measure of wealth distribution in society: the Gini index of inequality. Here, sadly, the US doesn’t fare very well (see list). The latest UN data gives the US a Gini score of 41, which is tied for 82nd place. The countries we tie with are: Tunisia, Georgia, Gabon, Qatar, Morocco, and Turkmenistan. 

Of the countries with similar GDP per capita as the US, several have much better Gini coefficients. Norway is tied for 2nd place with a Gini score of 26; Luxembourg is tied for 7th with a Gini score of 31.

Is the US economy strong? For the most part, yes. But comparing our GDP per capita is not very useful. Not only because we can’t really brag of being “number one” in that race, but also because what really matters is income distribution across society. And in that measure, we lag behind. Which is interesting, because our political discourse constantly focuses on the “middle class” American. Yet our income inequality measures make us distinctively unlike other “middle class” European advanced democracies and more like “developing” economies (in fact, our Gini scores are in the same range as Mexico or China; only slightly better than Brazil or Chile; and worse than India or Iran). 

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