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How do you take an economy’s pulse?

Gross domestic product? Gross national product? Per Capita?

Michael Clemens and Lant Pritchett have a paper that’s bounced around the blogosphere entitled Income Per Natural: Measuring Development as if People Mattered More Than Places:

“It is easy to learn the average income of a resident of El Salvador or Albania. But there is no systematic source of information on the average income of a Salvadoran or Albanian. In this new working paper, research fellow Michael Clemens and non-resident fellow Lant Pritchett create a new statistic: income per natural — the mean annual income of persons born in a given country, regardless of where that person now resides.”

Why should we care about Income per Natural?

The bottom line: migration is one of the most important sources of poverty reduction for a large portion of the developing world. If economic development is defined as rising human well being, then a residence-neutral measure of well-being emphasizes that crossing international borders is not an alternative to economic development, it is economic development.”

One example, “26 percent of Haitian naturals who are not poor by the two-dollar-a-day standard live in the United States.”

I would add that income per natural is also useful in assessing how well a country equips its citizens to prosper, either by providing economic opportunities or allowing them to leave to find them elsewhere.

Who has the highest income per natural?

As of 2000, the United States, clocking in at $34,583. Norway finished second, about $500 short. Luxembourg was the only other country to break $30,000.

According to this data, there’s no better place for the *AVERAGE* person to be born than the United States. This stat avoids the pitfalls of ‘per capita’ measures, as those measures will punish a country for poor immigrants entering the country looking for economic opportunity (e.g., let’s say there were 220 millions in the US who saw their income go up from 35-40k over a 10-year period, but in that period another 40 million people entered the country and had an average income of 20k; average income in that period would appear to only go up under $1,900.)

The fact that the economy is supporting the additional foreign workers means it is MORE robust, not less so. Income per natural doesn’t penalize countries for foreign workers.

Still, it is only one tool. The concept could be very useful, however, if broken down by economic class. Would help us assess which Americans exactly are being left behind, if any.

Anyone else have any favorite economic tools?

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Filed under: Economic Policy

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