But I think that the article's author suffers a fundamental failing of understanding of why people look at GDP per capita. It's not because they're trying to understand the experience of individuals within the country at all -- it's because they're trying to understand how rich the country is, normalized to its size.
If you care about the country as people, then median is better as you point out. But if you care about the country as country, then total is generally more interesting (to understand, say, military power).
China's a big deal despite not being particularly rich per capita. On the other hand, the leaders in per capita GDP, outliers like Macau and Luxembourg, are not usually countries people are interested in.
As the grandparent post correctly stated, median GDP cannot be computed. In cannot even be defined!
GDP is not income.
Personal GDP is not defined.
OTOH, we can see that curve in a global context, of GDP per capita across countries. It's a boring curve, very power-law ish with slightly odd peak in the 30K-40K region.
As one of many examples.
Or how much oil will gush out of the ground if you drill a hole in the right place.
>labor
I believe you are saying the same thing
There's a whole Disney movie that demonstrates not all holes are created equal.
A useful measure would be GPD per billionaire. Since they amass political power alongside the economic one, they are de facto political leaders.
I've closely compared my own standard of living with someone else in a developing country. And, my country's GDP per capita was over x20 her country's. And, I was surprised to find how closely our material standard of living was: it was pretty much even: (taking into account, number and type of appliances, living space, eating out frequency, quality of food, access to education, water and electricity).
Well I'd say that GDP is much more like revenue than income. You're certainly correct that they are related, as income is typically some percentage of revenue (even negative) however the actual percentage is different for every entity, so it somewhat meaningless.
> But I think that the article's author suffers a fundamental failing of understanding of why people look at GDP per capita. It's not because they're trying to understand the experience of individuals within the country at all -- it's because they're trying to understand how rich the country is, normalized to its size.
Completely agree. Generally there are better metrics if you want to look at the income distribution for a country, e.g. the Gini index.
There isn't a great analogy for it on the individual or corporate level. GDP is a measure on transactions within a system. A person can't meaningfully transact within themselves.
So do a million other measurements. I'm pretty certain you could find some level of correlation with virtually any measurement and income levels. Thus, this is an irrelevant statement.
Not exactly, according to the OECD.
https://stats.oecd.org/glossary/detail.asp?ID=1163
> Gross domestic product is an aggregate measure of production equal to the sum of the gross values ... or the sum of primary incomes distributed by resident producer units.
I guess it's more nuanced, but I don't have a PhD in economics like the author.
English is funny. I knew exactly what you meant and I'm not saying it's wrong, but it would be read completely the opposite if you had said:
I guess it's more nuanced but, like the author, I don't have an PhD in economics.
English isn't funny, humans are funny, building all sorts of redundancy into their languages, but then reversing polarity on a dime.
Komm, wir essen Opa.
Then you would say “unlike the author” - that’s what is confusing people.
P => !Q
Can be rearranged to mean so many weird things.
Income is a measure of retained value after all exchanges have had place.
If I buy a truckload of ice cream for $1000, sell it for $2000, and pay the trucker $200, the GDP is increased by $1000 + $2000 + $200 = $3200, while my income is merely $1000, and the trucker's, $200. Our profits are even lower; mine is $800, and the trucker's is $200 minus fuel costs and road tolls.
That they are different in practice is sort-of a measurement error.
Maybe you are confused about gross domestic product vs gross national product?
http://www.library.snls.org.sz/boundless/boundless/economics...
Except for the UK that has terrible windows and a proper upgrade would lead to serious reductions of gaz imports, that are likely to sting this winter.
https://www.scientificamerican.com/article/gdp-is-the-wrong-...
Taxation figures heavily into GDP - most taxes end up being measured as a share GDP (and why "financial circle jerks" and "made up increases in asset value" are counted as they eventually... but not always... end up being taxed). That is why "economic growth" is so good for the public sector. More GDP generally means more money to work with. Output that is out of reach of taxation (i.e. domestic labor, barters, charity) is also USUALLY not counted in GDP.
Finally, the Scientific American article is a really good read. GDP is not a measure of quality of life, and really never has been. It's just a measure of economic output.
Since I implemented a median estimate while at Packeteer, I'm always amused by how many "educated" people don't even know the difference between mean and median.
Anyhow, "median income" and "median net worth" figures are quoted in the press all the time. There is not some conspiracy to suppress the median.
Usually the issue is collecting accurate income data. There are plenty of places where people do not necessarily report accurate pictures of their income, and so comparison is generally harder.
Then there is GNI, or gross national income, which is basically GDP with some adjustments for international situations. In most cases, GDP and GNI are within a few percent of each other.
Can all these uneducated commenters please stop misleading people about very clear economic concepts.
Lookup how the velocity of money is calculated in relation to GDP and it will be more clear to you and others
The velocity of money is the ratio of GNI to money supply. I don't see how it's relevant here.
If you know more than others, that's great, but in that case, please share some of what you know so the rest of us can learn, and definitely please don't put down those who know less, even if you find them annoying sometimes.
https://hn.algolia.com/?dateRange=all&page=0&prefix=true&sor...
It does, just not very much.
GDP is value added. So contribution of anything done in an economy is (selling price - sum of buying prices of components and services needed to make the thing). So if you buy stuff abroad for 80 USD and import it for 20 USD and sell it in US for 105 USD - you increased American GDP by 5 USD.
Dollars spent by one are earned by another. This is captured in the twin calculations of GDP: the expenditure approach and the income approach [1]. (NX and NFI being the border adjustment variables.)
[1] https://corporatefinanceinstitute.com/resources/knowledge/ec...
And dollars spent on imports do not increase local GDP
TNI is the sum of all "sum of all wages, rent, interest, and profits." Wages are in GDP because the purchase and sale of labour is a transaction. Even in the expenditure approach, G includes government employees' wages.
Did you click the CFI link? The "What is the GDP Formula?" section is less than 200 words.
> dollars spent on imports do not increase local GDP
No. Hence the NX/NFI border adjustment. (In the income approach we count foreigners' domestic incomes and citizens' foreign incomes instead of exports and imports.)
Velocity of money affects GDP. e.g. you spend a dollar, how quickly does that other person spend that same dollar.
Business to business spending is in GDP. Leveraged buying such as real estate is in GDP. Government spending is in GDP. Trade imbalances affect GDP.
People can save rather than spend their income, etc. Pretty clear
Not really. Building new houses contributes to GDP, as does renovating it, but if you're buying an existing house the only part that contributes to GDP is the realtor/lawyer fees.
https://www.nahb.org/news-and-economics/housing-economics/ho...
Yet you say "not really", which is obviously wrong. Leverage impacts GDP, yes, and in a big way.
Every transaction necessarily has a buyer and a seller
A dollar changing hands only once contributes $1 to the national GDP.
And real income/GDP is what matters more in the end anyway. E.g. nominal wage increases aren't beneficial to people if their spending power is in decline
And yes even income of producers is not GDP, because you have to factor in imports/exports
1) Regarding velocity: if the other person quickly spends that same dollar, unless they spend it abroad, wouldn't it end up as someone else's income, domestically? So why should velocity matter?
2) Request you to elaborate your explanation using the example of a real country whose per capita GDP and per capita Income differ substantially.
These are basic concepts with clear definitions. Why so many argumentative comments trying to dispute a textbook definition? Look it up first and stop spreading false information
If people in the US buy things made in China, it is accounted for in both the GDP and the GDI in China by exactly the same amount (and likewise for US GDP and GDI if people in China buy things in the US).
[1] https://en.wikipedia.org/wiki/Gross_domestic_product#Income_... [2] https://www.bankofengland.co.uk/knowledgebank/what-is-gdp [3] https://www.nber.org/system/files/working_papers/w17421/w174...
The income has already contributed to US GDP, by definition. The person has already produced goods or services and someone else has spent money on them, which becomes the income of the person in question. If the US person then buys Chinese goods, their expenditure does not contribute to US GDP.
How people elect to spend their income affects GDP, thus income does not equal GDP.
Have you figured it out yet?
If someone buys Chinese goods, they contribute to Chinese production, expenditure, and income.
We're talking about a very straightforward and obvious definition here. No need to confuse people
If you receive an income, someone had to spend money (in this case your employer). So it does in fact contribute to GDP, as your employer spent money buying your service/finished work.
So income you received already contributed to GDP, even if it just sits in your bank account. Now if you go onto spend it, it will further increase GDP, as you spending it will yield an income for someone else. If you leave it in the bank account, it will not further increase GDP, as it won't yield anyone an income.
Additionally, when a US citizen buys a Chinese good, it does in fact contribute to GDP - namely China's GDP.
If it's not clear to you by now, GDP is almost the same exact thing as money velocity, just divide it by the money supply and you have the velocity of money.
GP wrote:
> If I earn a dollar and don't spend it, it results in a lower GDP than if I spent it.
You disagreed.
Here's the situation:
Today I earn $10. I then do one of two things:
1 I save it for a rainy day.
2 I buy something with all $10.
In scenario two, GDP went up $10 over scenario one.
GDP has multiple different calculations:
Y = C + I + G + NX
or
GDP = Consumption + Investment + Government Spending + Net Exports
Another calculation is
Y = C + S + T
GDP = Consumption + Saving + Net Taxes
Saving either through investment and cash hoarding both count toward GDP. The percentage of GDP that is Saving is the Gross National Savings or National Savings Rate.
tldr; In isolation, scenario 1, Investment is $10 as inventory and Savings is $10. Both add toward GDP
> Thus income can not be treated as equivalent to GDP.
GDP is defined as total income, calculated in a certain way. There are also other equivalent definitions.
Income is the endpoint of economic activity. Your income contributes to the GDP when you earn it.
Your spending is largely unrelated to your income. In any period of time, you can spend more than you earn or less than that. Spending creates new economic activity. That activity contributes to the GDP, which by definition means creating new income.
> If I earn a dollar and don't spend it, it results in a lower GDP than if I spent it. Thus income can not be treated as equivalent to GDP.
It's the second part that I don't understand. Those two sentences read to me like: "Spending decisions impact GDP, therefore income is not equivalent to GDP."
I don't think anyone is claiming that spending would fail to increase GDP. But I still don't see how income is disconnected from GDP, since that spending would be someone else's income.
Directly from your link:
"Because the two series are measured differently"
I forgot that two correlated series means they're the same thing. Huh
Measurements have errors, particularly with something as complicated as the economy. The series are correlated because they are different measurements of the same underlying quantity. The correlation is not perfect because they measure that quantity differently, and so have different errors.
There being 3 different ways of measuring GDP (income, expendeture, and production) is not controversial. I am struggling to find any source on GDP measuring methodologies that does not acknowledge all 3.
Put another way, what produced value does not end up as income on someone's balance sheet; and an expense on someone else's?
Yes, a nation's economy is not a closed system, so you need to account for imports and exports, and this accounting manifests differently depending on which methedology you use.
The author is confusing actual economists with armchair “economists” on Twitter.
I've noticed sometimes things get to the front page evidently because everyone hates it and wants to talk about how much it sucks.
(GDP is calculable via an "income method", differs from Gross National Income only in excluding net transfers of incomes overseas, and per capita GDP is routinely used as a yardstick for income comparisons)
(He also doesn't specifically say that median income = median salary, although taking sales tax revenues and profit incomes and depreciation of capital outcomes into account probably doesn't actually make much if any difference to the median income vs median salary)
though FWIW I don't think it would be impossible to estimate some measure of an individual's "income measure contribution to GDP" based on that individuals' earned income plus imputed contribution to company profits plus sales tax paid; I just don't think it'd be that useful
Please explain where income comes from if not from the sum of goods and services produced?
but either way, he's fundamentally right.
US GDP in 2021 was $23 trillion. US GNI (national income) im 2021: was $23.3 trillion.
"monetary flows"
You're right, remittances and foreign aid are income but not GDP.
Because it contains the magic words (tax the rich).
Theoretically, it should give the same result when measured in these different ways.
It’s Sunday.
> Look at median and not mean (GDP per capita) [to understand the way people live]
[brackets mine, of course]
> For example, when economists think about how “the economy” is doing, they have traditionally focused on total income (GDP) or per-capita income (mean GDP) as the most important measure.
No, they don't. GDP isn't income at all, they're completely different metrics.
And in fact the article never mentions "median GDP" like the posted title suggests, it switches to "median income" because median GDP isn't even a thing that you can calculate since it's not a metric that exists for each individual person (therefore no median).
How did this get to the front page?