Introduction

One of my favorite academic quotes comes from an economist, Robert Lucas, who said, “Once you start thinking about [long-run economic] growth, it’s hard to think about anything else.” Coming from a minor in economics myself, I can attest to the truth of this statement: One needs only to consider the near-infinite gap between a Wall Street shark and a sustenance farmer to see how rapid economic development has lead to a reality which would be virtually incomprehensible to someone just a few hundred years ago. This leads me to wonder what lies beyond the edge of our own horizons now, not far out of reach yet invisible to us. Furthermore, how we can accelerate the journey there?

This is a philosophical and economic question which, ultimately, probably doesn’t have a single satisfying DIY hack. That being said, economists have reached a consensus on a common measure to track a country’s place on that track: Real GDP per Capita. GDP, or Gross Domestic Product, is a complex figure, but essentially, it measures the value of all goods and services produced in a country in a given year. Real essentially means we adjust for inflation so that the value we measure is consistent across any given year. And, Per Capita simply means that we divide Real GDP by all the people in a country, giving us an approximation of the value of the goods and services available to each citizen in a country in a given year. The ideas is this: As Real GDP Per Capita increases, each person has more value available to them, increasing quality of life. Furthermore, for Real GDP per Capita to increase, the quality or quantity of the goods and services available to a person must improve, which generally means we associate an increase in Real GDP per Capita with increased access to technology and innovation. In fact, technology and innovation is considered the primary mechanism for growth of Real GDP per Capita in a country that has established free and fair markets. So, bingo, right? Innovate, improve Real GDP per Capita, repeat. Soon, you might be thinking, your country is on your way to interstellar travel and black hole guns! Unfortunately, not exactly.

Before we go further, I want to clarify that this is not to say that countries with low Real GDP per Capita are in any way inferior. Oftentimes, countries which have low Real GDP per Capita today were exploited to allow for the development of countries with high Real GDP per Capita, severely disadvantaging these countries. More importantly, Real GDP Capita is a narrow measure that can fail to capture the essence of what progress really is. Let’s go back to my example at the beginning — The Wall Street Shark versus the Sustenance Farmer. It isn’t just computers, TVs, and luxury that lie between the two. It is also voting rights, due process, health care, vastly increased equality, and countless other social measures. Point is, progress isn’t just technology and wealth. Of course, economists have a counter to this I will eventually explore, but for now, I think you are prepared to dive in!

Inherent flaws of Real GDP Per Capita

First, let’s hone in on Real GDP per Capita in a vacuum, without comparing it to other popular candidate trackers of progress. We will be using data from 2023 to ensure that it is modern, but fully updated as changes do come in over time. Because we will be using data from one year, we can use regular GDP Per Capita, as we don’t need to worry about inflation across years. As you can see, the distribution of GDP per Capita across countries is severely skewed:

Alt text: A density plot showing the heavy right skew of GDP per Capita, with extreme values stretching as far as 240000, while the majority of countries are less than 20000, demarked by a vertical line representing the median.

This skew is so severe that, usually, we use a log scale for GDP per Capita when graphing, which reduces the already limited intuition it gives as a number. However, I wanted to highlight this skew because, as it turns out, the exact countries which popularized GDP per Capita as a measure are the ones who, at the time (and still today), rested at the extreme higher end of the scale. For instance, Robert Solow, an American economist, used it heavily in his model of long-run economic growth which he ultimately won the Nobel Prize for. This doesn’t invalidate GDP per Capita by any means (After all, to have the privilege to study long-run economic growth your country needs to be somewhat developed already), but that certainly suggests there could be some slight bias: I doubt many scholars are keen to say their home country is less developed than another. Furthermore, this skew means that GDP per Capita alone lacks a lot of nuance for the vast majority of countries. 50 percent of countries have a GDP per Capita less than $8000—There isn’t a lot of room for clear distinction between progress there. As mentioned above, there are transformations to GDP Per Capita we can do to better capture relative development across countries, but it is worth mentioning.

Arguments for Real GDP Per Capita

As I mentioned, there are many proponents for Real GDP per Capita. One reason is that, despite the narrow focus of GDP per Capita, it is strongly correlated with essentially every notable measure of progress one can imagine. If a country has a relatively high GDP per Capita, it almost certainly has a high life expectancy, low infant mortality, increased access to education, etc. For example: