[LINK] "Grossly distorted picture"

[rfmcdonald]

In the most recent issue of The Economist, someone has penned an article challenging the importance given to GDP growth per annum, arguing that outside areas where absolute size of an economy or the ratio of workforces or debt to the total economy matters, GDP per person is generally a more relevant figure. Using this measure, for instance, Japan emerges an economic champion over the last five years.

Using growth in GDP per head rather than crude GDP growth reveals a strikingly different picture of other countries' economic health. For example, Australian politicians often boast that their economy has had one of the fastest growth rates among the major developed nations—an average of 3.3% over the past five years. But Australia has also had one of the biggest increases in population; its GDP per head has grown no faster than Japan's over this period. Likewise, Spain has been one of the euro area's star performers in terms of GDP growth, but over the past three years output per person has grown more slowly than in Germany, which like Japan, has a shrinking population.

Some emerging economies also look less impressive when growth is compared on a per-person basis. One of the supposedly booming BRIC countries, Brazil, has seen its GDP per head increase by only 2.3% per year since 2003, barely any faster than Japan's. Russia, by contrast, enjoyed annual average growth in GDP per head of 7.4% because the population is falling faster than in any other large country (by 0.5% a year). Indians love to boast that their economy's growth rate has almost caught up with China's, but its population is also expanding much faster. Over the past five years, the 10.2% average increase in China's income per head dwarfed India's 6.8% gain.

This difference does relatively little to close famous gap in GDP per capita between nearly all First World nations and the United States--the four largest economies in the Eurozone all rates of GDP growth per capita at least a half-percent less than the United States'--but it does narrow it substantially. Against this, one could examine income inequality, with a glance at Wikipedia suggesting that the European Union as a whole has a significantly lower Gini coefficient than the US, on the order of 30 versus 45.