18 ms·

Look at median, and not mean GDP per capita

255 points by amin 4y ago

rightbyte 4y ago
The author is just as wrong as the people he criticizes. A much better measure of “the economy” is median income because that is a more accurate reflection of the economic well being of most people. This is a problem in many fields including engineering. A median or average has a measurement error (and just because one bar is higher than another it doesn't really mean it is actually higher). The distribution is what is interesting and important. Which gives, start publishing numbers as (x1,x2,x3,x4,x5) at 10,30,50,70,90th percentile or whatever. And give up pretending complex system are simple.
- pastacacioepepe 4y ago
  > Which gives, start publishing numbers as (x1,x2,x3,x4,x5) at 10,30,50,70,90th percentile or whatever. And give up pretending complex system are simple. How are then the institutions going to sell us the narrative that all is well and growth is always good, once we realize poor people stay poor and rich people get richer?
- deleted 4y ago
  [deleted]
- dwater 4y ago
  This is stats 101. Mean and median are measured of central tendency, and the median is generally better for skewed distributions. The 5 number summary (or your 5 percentiles) gives slightly more information, but ultimately you are summarizing a complex distribution with a few simple stats. There are upsides (it’s fast) and downsides (it’s incomplete) to doing so. The real problem is how few people understand stats 101, which makes them easy to mislead.
  - sitkack 4y ago
    Maybe we should teach stats 101 starting from kindergarten?
    - quickthrower2 4y ago
      And have the news outlets talk intelligently about what the numbers mean. The BBC website does something nice where they often have an "Analysis" section under the news. A sentence or two about how to interpret the number would be useful. If they think we need analysis to understand what is happening in Ukraine, I think we probably need it for interpreting economics numbers. "We" being ... most people. And it wont always bet stats 101.
  - hammock 4y ago
    Mean and median are both typically taught around and better suited for use with normal distributions. Income distribution is not that complex, but it’s also not normal - it’s a power law (zipfs law). A combination of Total GDP (or income) and something like the Gini coefficient is more useful. And commonly used, as well
- pfisherman 4y ago
  I mean if we want to go down that road, then why not just publish the first four moments of the distribution?
- superb-owl 4y ago
  You're technically correct--the distribution carries a lot more information than the average or median alone. The problem is that many of these decisions are being made democratically, or by democratically elected representatives. They need to be able to explain the impact of their decisions to the average voter. Having a single number that goes up or down makes communication and coordination a lot easier, and I think it's worth discussing what the best single number might be.
  - coldtea 4y ago
    Or those "elected represenatives" could help educate the people - to e.g. understand distributions. But instead they educate them in BS, both in schools, and through their government communication. It's more convenient to emphasize BS in curriculums than proper life/political skills...
  - scarmig 4y ago
    Choosing a single number necessarily removes information about the distribution, though, and which information is being discarded is inherently a political decision. The Rawlsian veil of ignorance (at least a naive version) would have us choose p0 as the meaningful number; a utilitarian with certain beliefs about the marginal utility of money would prefer the distribution mean. Even the choice to use a normalize GDP per capita is taking a strong stance on the repugnant conclusion.
  - JackFr 4y ago
    > They need to be able to explain the impact of their decisions to the average voter. No, not the “average” voter - messaging should be aimed at the marginal voter.
    - quickthrower2 4y ago
      Well a distribution across all voters. Some voters are more swing-able than others. Some voters are in more marginal seats than others. But all voters can swing given enough "force". If the force is negative force for who they normally vote for.
    - 4y ago
- AstralStorm 4y ago
  It so happens that the most useful number is usually the dominant (also known as mode or most common value), which is not visible on the histogram, especially for flat heavy tailed distributions such as income these days.
  - thaumasiotes 4y ago
    > the most useful number is usually the dominant (also known as mode or most common value), which is not visible on the histogram Are you kidding? It's the highest point on the histogram; a histogram places very heavy visual emphasis on the mode while obscuring the mean and median.
    - AstralStorm 4y ago
      Sometimes true, but it is the only value that can be estimated without error in some cases. Neither median nor average is useful for a central tendency in a weird distribution - and income tends to be one. Histograms typically bucket data potentially hiding the true value of mode or adding error to it. It really should be given directly, with a count of occurences. Mode is not the same as modal class - which is what you would get from a histogram.
      - thaumasiotes 4y ago
        > Histograms typically bucket data potentially hiding the true value of mode or adding error to it. It really should be given directly I can't agree with that. It is true that histograms bucket data. But the width of the buckets is chosen to make sense in context. It just isn't relevant if people making $20,176 slightly outnumber people making $20,359. So we put them in the "$15,000 - $24,999" bucket, which preserves most of the information of interest while omitting the information that is of absolutely no interest. In other contexts, you see other bucket widths. Chinese university entrance exam scores are published with a bucket width of one point. (Some things may be obscured. When I was looking into this, I found that it was very common for the top scores to be bucketed with each other, presumably for some kind of privacy reasons. Beijing was notable in putting low scores into buckets of width ten even in what was technically labeled an 一分一段表 (literally: "one point -- one section" table). Fujian was notable the other way, for preserving the bucket width of one point even for the highest scores; I have trouble believing it's a coincidence that Fujian is one of the academically highest-performing regions of China.) > Mode is not the same as modal class - which is what you would get from a histogram. For almost all purposes, modal class is more interesting, more useful, and more statistically valid than raw mode is.
- mihaic 4y ago
  Fully agree. Most people use life expectancy at birth to believe that everyone died in their 30s in ancient times, even though these numbers are skewed because of huge infant mortality. Introducing something like life-expectancy at birth, 5, 10, 20, 40 years would paint a much better picture, but it takes hard work and a belief that your audience is not stupid.
  - blackoil 4y ago
    It is even more complicated. eg. to understand state of healthcare using life-expectancy at 20 or 40 may provide wrong info. Because it ignores fact that most of the sick and weak individuals have already died by then.
    - mihaic 4y ago
      Yeah, you get more information the more data point you explicitly define. The challenge is reaching a compromise between "easy to explain" and "captures a lot of information". Depending on your audience, you probably want to expose more granular data, but for the laymen I think multiple points all on the same function is they best compromise, since you just need to explain one simple function and 4-5 well picked values for that function.
- bfung 4y ago
  https://medianism.org/medianism/about_the_medianist/ https://medianism.org/medianism/about_the_medianist/ Who Is This Medianist? Jonathan Andreas is an Associate Professor at Bluffton University who received his Ph.D. in Economics from the University of Illinois at Chicago. Ok, cool, not some armchair tech bro that spent 5 minutes writing up some blog.
- drewcoo 4y ago
  Mean, mode, and median are all averages. They have meanings. They don't have "measurement errors," but the people using them may have "usage errors." https://www.dummies.com/article/academics-the-arts/math/pre-algebra/the-three-types-of-average-median-mode-and-mean-168773/ https://www.dummies.com/article/academics-the-arts/math/pre-... Distributions give us richer data. But even distribution of incomes (in the article) or spending (GDP) aren't terribly rich. They don't answer why. So we can add dimensions to what we measure or fall back to just so stories. And that's why most people don't trust economists - oversimplified models and just so stories.
  - rightbyte 4y ago
    > They don't have "measurement errors" Sure. I am not arguing that a median is not a median. By measurement error I really meant noise and disturbance, as defined in control theory. E.g. it is perfectly possible to have a value "average tax in county" with zero noise as in perfect value to the cent, but year to year variance due to disturbances.
- benreesman 4y ago
  There are many mappings from the English word “average” to maths: arithmetic mean, median, geometric and harmonic means. We could be here all day. But “median is better than arithmetic mean for knowing if a lot of people are struggling” should be uncontroversial. We’ve rigged up a system that is a race to the bottom on wealth inequality. People have tried to run systems like this before and it always ends in tears. The interesting question isn’t how to parse the maths, or even if we have a bad, bad problem. The question is, can we and/or will we do something about it soon enough that Western civilization lasts for climate change or whatever to even matter. Because we’re on pace to get into tennis courts and guillotines before much if any of Manhattan is below the water line.
divan 4y ago
There is a great book explaning the philosophy, story and problem of using averages in many fields - "The End of Average" by Todd Rose. [1] I originally found it from the fascinating article on how using averages in the design of military plane cockpit resulted in many pilot deaths. That's the best introduction I've seen about uselessness of averages with multiple dimensions (with more than 3 dimensions it goes bananas). The article is actually is an excerpt from the book, so you can get the sense of the book level from it. [2] [1] http://www.toddrose.com/endofaverage http://www.toddrose.com/endofaverage [2] https://www.thestar.com/news/insight/2016/01/16/when-us-air-force-discovered-the-flaw-of-averages.html?rf https://www.thestar.com/news/insight/2016/01/16/when-us-air-...
- taneq 4y ago
  I tend to explain this with car analogies. If you’re about to drive through an intersection and the light goes orange, you either want to brake hard, or maintain a steady speed, but taking the average of these actions will not end well.
  - sokoloff 4y ago
    (When I was younger) My friends colloquially used “orange” to mean a light that was a mix of amber (yellow) and red (meaning “too late to be entering the intersection legally”).
  - jldugger 4y ago
    Three economists are on the football field, practicing field goals. The first kicks the ball was to the left, widely missing the goal. The second one kicks and shanks it to the right, again missing the goal. The third one runs off the field shouting "we got it, we got it!"
- HFguy 4y ago
  Thanks for the suggestion. I think this problem is just a matter of degrees with any summary statistic. You throwing away information in an attempt to synthesize an insight.
- jldugger 4y ago
amelius 4y ago
Don't even look at GDP, look at happiness of people instead. Fetishizing the GDP will only accelerate the climate problem.
- gruez 4y ago
  > Don't even look at GDP, look at happiness of people instead. Bread and circuses for everyone!
- drivebycomment 4y ago
  Happiness is a complex, multi-faceted thing to measure and is not a good direct target. You want more specific, granular goals that are important for those. Things like health, wealth, social connections, leisure, education, etc. And GDP is a decent metric to track the economic aspect. It's not perfect, but nothing is, and the answer is to find and improve the metric instead of "throw away and ignore". And, the data clearly shows https://ourworldindata.org/grapher/gdp-vs-happiness https://ourworldindata.org/grapher/gdp-vs-happiness GDP has a very strong correlation with happiness. Economic policies should take GDP into account, and suggesting NOT to do so is simply stupid. The policy makers should also look at and incorporate climate issues, and many others. > Fetishizing the GDP will only accelerate the climate problem. I'm afraid this is not a useful framing, and mostly a straw man argument that makes the discussion unproductive. Most countries and their politicians are not pursuing "GDP at all cost" type of policies.
- YetAnotherNick 4y ago
  Happiness will likely increase with decrease in life expectancy.
  - amelius 4y ago
    Maybe optimize happiness times life expectancy then.
- refurb 4y ago
  Happiness isn’t a great metric because people can be happy dying from tetanus after stepping on a nail because they don’t know it possible to not die from that.
deleted 4y ago
[deleted]
jstx1 4y ago
It's hard to take this seriously when the author mixes up the basic meaning of GDP. > 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?
- targ65 4y ago
  > How did this get to the front page? It’s Sunday.
- adam_arthur 4y ago
  To elaborate further, nominal GDP is the number of dollars spent in the economy. Nothing to do with income
  - missedthecue 4y ago
    Doesn't income equal expenditure? They are one and the same.
    - adam_arthur 4y ago
      They're not the same. 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
      - missedthecue 4y ago
        But the velocity of money doesn't change that. $1 spent is $1 of income no matter how or where it's spent. Every transaction necessarily has a buyer and a seller
maerF0x0 4y ago
Why 50th percentile? Why not 49th, or 25th? I've actually had this running theory that all civil servants should be paid a fixed percentile of income. This would give them all an interest in ensuring that income/GDP goes up and that it goes up for those below them. (in percentile)
- deleted 4y ago
  [deleted]
- chroma 4y ago
  Unless it was a very high percentile, that would incentivize competent people to flee to the private sector, or it would encourage competent but corrupt people to join the government. A better compensation mechanism would be to measure changes in outcomes such as wealth, crime, and health, then have bonuses for positive changes in those metrics. For example: If each member of congress got an extra $10 million if homicide rates went back to 2019 levels, I guarantee we'd fix the crime wave within a year. It'd only cost $5.4 billion, or $15 per US citizen. And it'd avoid approximately 5,000 murders per year. One can imagine similar incentive strategies for health and wealth. Unfortunately, most people view governance as a sacred value, and are unwilling to introduce money as an incentive. So we're stuck with things like congress giving the FDA more power to restrict nicotine vaping products while 400,000 Americans die every year from smoking tobacco.
  - gjm11 4y ago
    You could pay them, say, 3x the 20th percentile salary. (I'm not sure it's _civil servants_ this sort of thing should be considered for. They don't make the decisions and there's little a civil servant can do that will change what the 20th-percentile person gets paid. It would make more sense for politicians.) I suspect that if each member of Congress got a $10M reward for bringing homicide rates to 2019 levels, the result would be legislation that redefines homicide or changes how it's reported or something of the kind, rather than anything that actually involves fewer people killing one another.
    - chroma 4y ago
bena 4y ago
We are dealing with millions here. To move the needle for 297 million people, the other 33 million have to do a lot. Assume the 297 million people all make $100k. That's $29.7 million. Now have the 33 million make an even $1 million. That's $33 million. That's 10% of the population making over 50% of the income. Altogether, that's $30.7 million income across 330 million people. Or about $190k per year. Yes, that's almost double what the 297 makes, but it's far closer to them than to the 33 million. > If a government regulation benefits Bill Gates $10 billion and every single American $20 I think he meant to say "costs every single American $20", because otherwise, it's technically an ok deal if it benefits everyone even if it benefits one person a whole bunch. And his following statements seem to indicate we should be subtracting $6bn from $10bn. And I also have a problem with the hypothetical. It's set up in a way to give only one outcome. He couldn't even make it $40 dollars, because then it's $12bn to $10bn. And he has to work with billions because 300 million people are a fucking lot. But arguing about whether we should be measuring averages one way or the other is kind of missing the real point. Are the people taking the bulk of the income deserving of that income? For the most part, the people taking the lion's share of the income are only doing so because they have put themselves in the position to determine how the profits of an enterprise are allotted. And it's clear that they are not allotting the profits based on the value the employees are bringing to the company.
- chii 4y ago
  > Are the people taking the bulk of the income deserving of that income? they deserve what they can get, as long as it is legal and above board (aka, no bribery, corruption etc). There's some level of morality being assigned to the idea of "deserve". I dont believe such morals exist, and that it stems from jealousy. > And it's clear that they are not allotting the profits based on the value the employees are bringing to the company. i dont think it's as clear as you make it out to be.
  - bena 4y ago
    They don't necessarily deserve it. If I control how an asset is allocated due to some arbitrary event, it does not follow that I deserve whatever I've allotted to myself. It can be "legal and above board" and still be unjust. Because the laws and boards can be constructed to allow what I'm doing. Also, define bribe. Define corruption. If my best friend is a lawmaker and I spend every weekend with them and I manage to persuade them due partly to the amount of time I get to push my point view, is that corruption? Is it corruption if I become friends with him solely because he's a lawmaker? If I didn't know before I became friends. If we were friends before? Why are any of these different, if any? I like how you say it's not clear that they aren't allocating profits based on the value, but somehow it's very clear they deserve it, what corruption is, and what bribery is. No. The only thing that is not clear is that maybe they don't deserve the sheer amount of wealth they've extracted from everyone else.
ww520 4y ago
Seriously how do you measure the median of GDP per capita? Do you measure the GDP output of each person of the population and take the middle person's GDP outpt?
andsoitis 4y ago
“Health is wealth” — Ralph Waldo Emerson
tonfreed 4y ago
I remember having an aneurysm trying to explain this back when Turnbull was PM here. He said, in a press conference, that the average wage was $75k, there was a wave of lukewarm takes on social media along the lines of "he's lying because I don't know anyone that earns that much". I got yelled at by friends about how much of a shill I was for saying he was 100% correct, but the median wage was around $45-50k. I ended up explaining it by saying if Danny Devito wandered in a room of NBA players, the average height would still go down.
roberttod 4y ago
I understand GDP as a tool that was originally built to quantify how much a nation is producing, and in result focus the economy to increase that number. But like many tools, at some point they expire and we need to move on. imo GDP is past that point already because it encourages production beyond anything else, when we should instead focus on consuming less and producing enough, and the right things so that we can be satisfied in our lives, not just burning gas for the sake of it. To illustrate the obsurdity of it, the production of oil contributes to GDP, the burning of that oil contributes to GDP and then using carbon capture to capture the gasses released by the oil also adds to GDP. What's the sense in encouraging all that without qualifying that it should be enhancing people's lives?
mkl95 4y ago
I'd say income and debt are more interesting than GDP. The Average Joe in my country saves a bit of money, burns it quickly, then struggles for a while because he needs to borrow money, and he doesn't make enough to pay it quickly. Many people are blissfully unaware of how limited their runway is, particularly when inflation hits hard.
ggm 4y ago
A general trend in economics has two sides. Side A is the irritating number of amateur economics players (me!) and the desire to engage in this topic, because its both fascinating and important Side B is the extent of "you're wrong" put downs from either other amateurs, or professionals, which is entirely understandable given that the Side A players make collossal mistakes, but which also masks the divides in economic theory: Some people are pretty partisan in the trench warfare across the battlezones here. So it's foolish to bring maths to the table, because you will be faceplaned by anyone who prefers more complex maths, or who wants to nitpick your maths, or who wants to attack your school of philosophy because they stand on a different hilltop. Does it mean "mistakes" are acceptable? No. But people can be a bit kind about it, because in the end, we're all talking about the same thing. Well.. mostly. Not me. I'm stuck in the labour theory of value. all this money stuff is just nonsense.
- skybrian 4y ago
  I never really got the labor of theory of value. It seems like the idea is that value comes from working hard, regardless of whether you actually accomplished anything? What does the labor theory of value have to say about bullshit jobs? How do you decide what efficiency means if you measure value based on inputs rather than results?
  - ggm 4y ago
    It's a bit of a throwaway/joke line because the Labour theory of value does not inform any aspect of modern economic theory on value as exchange. They're probably orthogonal concepts. That said I wouldn't discount that there is a very fine thesis in analysis of bullshit jobs. Particularly the extreme amount of organisationally justified middle management which inserts mindless beaurocracy into creative acts. Think not just lawyers, but the oceans and oceans of ink applied by junior law clerks to pad out the billable hours and get to the million dollars in costs, but for virtually everything we do now. You think all those 150,000 google employees are creating value? As a position of quasi religious faith, I think the property of value latent in made things vests in the labour to make them not the priviledge of the capital invested. The alternatives are very ugly: slavery would be the highest form of profitable enterprise when in fact I believe the evidence is strong the other way: you need to pay workers to get value from them. Why? Because they create the value. Invest in slaves, it's less outcome for more expenditure.
xrd 4y ago
Reading the comments here, it seems to me that the problem is more that we don't illustrate these types of concerns correctly. I mean we don't bother with pictures, animations and simple stories, but instead argue over too simple or too complex statistics. I love math but it's not an effective way to communicate important ideas. All the discussions here are discussions about statistics minutiae and arguing about that will never change anything.
throwaway787544 4y ago
GDP is the Myers-Briggs of economics.
jldugger 4y ago
Well, yea, but you can't calcuate GDP per capita. You have to instead look at median household income. If you wanna sell fancy electronics in mid market economies it really helps to know the difference.
engineer_22 4y ago
I'm surprised this blog is written by an academic economist. There's no data, and no citations, mostly amateur philosophy.
olalonde 4y ago
Maybe it's not of much interest to economists, but I find median wealth quite interesting[0]. The data is a bit surprising, especially for USA. For example, it ranks #26 for median wealth but #2 for mean wealth. It also shows that a random middle class Canadian is wealthier on average than a random middle class American[1]. As a side note, the data is probably heavily influenced by real estate prices. [0] https://en.wikipedia.org/wiki/List_of_countries_by_wealth_per_adult https://en.wikipedia.org/wiki/List_of_countries_by_wealth_pe... [1] Making some reasonable assumptions about wealth distributions.
- wodenokoto 4y ago
  It is of interest to economists, and if you don't already know of the Gini coefficient, I am sure you will find it interesting too :)
usr1106 4y ago
How is that even calculated? The GDP is the sum of all goods and services produced. I guess when Amazon sells an item the difference between the wholesale price they pay and the end price they charge including shipping is a service, retail. But who has produced this service? The underpaid warehouse worker and delivery driver or Jeff Bezos? For income it's clear, for GDP I don't see it.
hbarka 4y ago
Mean, median, or mode—still just a measure of central tendency and falls short of the shape. Go one better and show the geometry of the distribution.
gallicism 4y ago
Or even better, forget about GDP and use national income instead since it is better for measuring sustainable growth. For example if a country takes 100 billion euros of oil from its underground reserves, it will have a 100 billion GDP but 0 euro national income. We need to improve the economic indicators that use or at least be aware of the implications of our choice since they impact economic strategy
jerzyt 4y ago
It could also be argued that "medianism" is the perfect method to hide income inequality, because median is resilient to outliers, so the billionaires will not affect the median at all. Every metric can be "gamed" and so can the median.
- jnwatson 4y ago
  That’s not how the median works. If we had as many in poverty as billionaires, we’d have a pretty good situation.
  - Stupulous 4y ago
    If half of a country were impoverished and half were billionaires, I'd say they have a pretty serious income inequality issue. A median would randomly conclude that either the typical person is a billionaire or in poverty. Best case scenario, the median would equal the mean and give a result that reflects reality, but it still doesn't convey the issue at all. Median and mean both compress n data points into one, which is only useful given some assumptions about the distribution. Quintiles (or similar) would work for that scenario, but I'm sure there are more complicated situations where they fall short.
    - jnwatson 4y ago
      Societies in which there are within 100x as many billionaires as poverty stricken don’t exist.
      - Stupulous 4y ago
        Sure, it's a toy example to tease out the underlying shortcomings of the measurement. Societies where the median does not reflect the typical experience do exist.
- notahacker 4y ago
  But resistance to outliers is the point because people don't take billionaires inflating the per capita GDP as "wow, this country has a problem with inequality", they take it as "wow, this country is getting richer". With GDP per capita, a few oil billionaires and a very small class of well-paid oil workers make Equatorial Guinea look like a middle income country. Median GDP reveals that the average person there lives on less than $2 a day, because Equatorial Guinea is also the most unequal country in the world. But clearly it's more representative to class Equatorial Guinea as very poor (median income) than moderately wealthy (per capita GDP/mean income) or rich (per capita GDP PPP) Median income isn't perfect because it can hide things like one country having 5% living in extreme poverty and one country having 25% but with typical real world income distributions, an average not massively skewed upwards by how rich the top 10% or 1% is gives you a much more accurate perspective on which country most people have higher incomes in.
known 4y ago
leemailll 4y ago
I’m really curious how can one calculated the median GDP by any means accurate.
- wodenokoto 4y ago
  You can't calculate the median GDP. The author advocates to look at median income instead of mean gdp.
leg100 4y ago
There is no average that does not hide information. To point out the obvious, the perfect information is the underlying data. If there are 10 people in the economy then just provide those 10 data points. If there is a million people, then provide all the statistics - the averages, percentiles, etc - as well as all the data. An article can report the averages as well as point to the underlying data set. The idea of pronouncing one average better than all the others is moronic.
codedokode 4y ago
GDP is a very weird metric. For example, GDP includes money spent for renting an apartment, although no goods are produced in this case. So for example, if there is a village with two people, and they rent each other's home then this village has non-zero GDP, although no goods or services are produced. Inflated education, medical or insurance prices also inflate GDP. So a teacher in one country could produce 2x more GDP per unit time as the same teacher in another country. Another wrong thing to do is to adjust income or GDP for food prices (purchasing power parity). This is absolutely wrong. The idea of PPP is that if in your country potato is two times cheaper then it makes you two times richer. This is wrong because a MacBook or a car are not two times cheaper. Actually they are more expensive than in the West. And if you go abroad then there will be no cheap potato either. So PPP is a total lie. It can be applied only to poorest people who spend all of their income on potato. So if you want to adjust the income for PPP, at least use MacBook or car prices instead of potato. I think that a fair metric would be a percentile distribution of how much money a person has left after renting the cheapest apartment and buying the cheapest food.
- notahacker 4y ago
  PPP isn't based on "a potato", it's typically calculated based on a representative price index covering all the different types of goods people buy. Theoretically it would be possible to create a price index based on Macbooks or cars, but since most people in the world buy more food than Macbooks or cars this would obviously be misleading. When people living in developed countries move to a developing country they don't think "wow, the cost of living is high, the Macbook has a luxury tax on it" they think "wow, most things are incredibly cheap here". It is impossible to come up with a perfect PPP because people spend their money on different things, but it's a lot better than thinking a country which has inflated prices for everything is much more materially wealthy than one which has low prices for everything. And the whole point of PPP adjustments is to get rid of the scenario where the same education contributes much more to GDP in a nation where wages and school buildings are expensive than one where they're not.
- sumitviii 4y ago
  >For example, GDP includes money spent for renting an apartment, although no goods are produced in this case. Because it measures all the goods and services produced in a country over the course of an year. I know of a way to inflate it as much you want, but I don't think I will ever be in a position to use it.
bretpiatt 4y ago
Median income of the total population or "the labor force" or of the "potential working age population"? With barely over 50% of the population working in most countries [1] median based on population will be skewed too. Then we have to agree on working age population. Then we have to measure unmeasured income (ex. providing child care, teaching at a home school, preparing meals, cleaning, maintaining your own car, repairing or upgrading your residence, etc.) oe you lose all of this in the data. The real challenge from my perspective is trying to boil down something as complex as a population into a single stat. [1] https://en.m.wikipedia.org/wiki/Labor_force_in_the_United_States https://en.m.wikipedia.org/wiki/Labor_force_in_the_United_St...
brnt 4y ago
Looking at a measure at centrality implies you understand the distribution is represents. I find it good practice to either observe the distribution before any derived measure, and if that's difficult for some reason, get a few measures of centrality, mean and median if you can. The further they are apart, the unlikelier it is you're dealing with a normal distributed quantity, an assumption people make far too often to my taste.
anovikov 4y ago
But economic statistics are not made with the goal of "finding out how average Joe is doing", but to answer the question "what't is in it for me? where i should invest? and in which instruments?". It's audience is private investors and fund managers. Not even politicians - they live in post-truth world, they need to know how to better manipulate people into believing what they need them to believe, what's actually going on is of secondary importance. And for this, we need means, not medians. Sure vast majority of profits is made from consumption of the top 10%. Rest are just taken for a ride (not even exploited properly, and this is a big departure from things were 100 years ago when the rest were equally desperate, but at least necessary).
incomingpain 4y ago
>This simply applies democratic norms to economic questions. Democracy prioritizes the preferences of the median voter, and medianism extends this idea to economics. Democratic norms are what produced this recession. “When the people find they can vote themselves money, that will herald the end of the republic.” -Benjamin Franklin https://tradingeconomics.com/united-states/gdp-growth https://tradingeconomics.com/united-states/gdp-growth The USA is in recession. The US government increased debt by ~6 trillion since covid started: https://tradingeconomics.com/united-states/government-debt https://tradingeconomics.com/united-states/government-debt ~5 trillion was printed.: https://tradingeconomics.com/united-states/money-supply-m2 https://tradingeconomics.com/united-states/money-supply-m2 Which is causing 9.1% inflation: https://tradingeconomics.com/united-states/inflation-cpi https://tradingeconomics.com/united-states/inflation-cpi This recession the USA just entered is the same recession as the one which started in 2020. The government can print significant unexpected money to temporarily boost GDP. https://tradingeconomics.com/united-states/gdp https://tradingeconomics.com/united-states/gdp Except only about 2 trillion made it to gdp. The US government's leaky bucket can be measured at about 28%. 72% of US tax money is going into the firepit. It worked, they temporarily boosted the GDP numbers to pretend like there wasnt a recession. When they stopped printing money, gdp dropped because the recession never left. You know what I really wish to see produced for all countries? Real GDP adjusted for government debt.

255 points by amin 4y ago

The author is just as wrong as the people he criticizes. A much better measure of “the economy” is median income because that is a more accurate reflection of the economic well being of most people. This is a problem in many fields including engineering. A median or average has a measurement error (and just because one bar is higher than another it doesn't really mean it is actually higher). The distribution is what is interesting and important. Which gives, start publishing numbers as (x1,x2,x3,x4,x5) at 10,30,50,70,90th percentile or whatever. And give up pretending complex system are simple.

pastacacioepepe 4y ago
> Which gives, start publishing numbers as (x1,x2,x3,x4,x5) at 10,30,50,70,90th percentile or whatever. And give up pretending complex system are simple. How are then the institutions going to sell us the narrative that all is well and growth is always good, once we realize poor people stay poor and rich people get richer?
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dwater 4y ago
This is stats 101. Mean and median are measured of central tendency, and the median is generally better for skewed distributions. The 5 number summary (or your 5 percentiles) gives slightly more information, but ultimately you are summarizing a complex distribution with a few simple stats. There are upsides (it’s fast) and downsides (it’s incomplete) to doing so. The real problem is how few people understand stats 101, which makes them easy to mislead.
- sitkack 4y ago
  Maybe we should teach stats 101 starting from kindergarten?
  - quickthrower2 4y ago
    And have the news outlets talk intelligently about what the numbers mean. The BBC website does something nice where they often have an "Analysis" section under the news. A sentence or two about how to interpret the number would be useful. If they think we need analysis to understand what is happening in Ukraine, I think we probably need it for interpreting economics numbers. "We" being ... most people. And it wont always bet stats 101.
- hammock 4y ago
  Mean and median are both typically taught around and better suited for use with normal distributions. Income distribution is not that complex, but it’s also not normal - it’s a power law (zipfs law). A combination of Total GDP (or income) and something like the Gini coefficient is more useful. And commonly used, as well
pfisherman 4y ago
I mean if we want to go down that road, then why not just publish the first four moments of the distribution?
superb-owl 4y ago
You're technically correct--the distribution carries a lot more information than the average or median alone. The problem is that many of these decisions are being made democratically, or by democratically elected representatives. They need to be able to explain the impact of their decisions to the average voter. Having a single number that goes up or down makes communication and coordination a lot easier, and I think it's worth discussing what the best single number might be.
- coldtea 4y ago
  Or those "elected represenatives" could help educate the people - to e.g. understand distributions. But instead they educate them in BS, both in schools, and through their government communication. It's more convenient to emphasize BS in curriculums than proper life/political skills...
- scarmig 4y ago
  Choosing a single number necessarily removes information about the distribution, though, and which information is being discarded is inherently a political decision. The Rawlsian veil of ignorance (at least a naive version) would have us choose p0 as the meaningful number; a utilitarian with certain beliefs about the marginal utility of money would prefer the distribution mean. Even the choice to use a normalize GDP per capita is taking a strong stance on the repugnant conclusion.
- JackFr 4y ago
  > They need to be able to explain the impact of their decisions to the average voter. No, not the “average” voter - messaging should be aimed at the marginal voter.
  - quickthrower2 4y ago
    Well a distribution across all voters. Some voters are more swing-able than others. Some voters are in more marginal seats than others. But all voters can swing given enough "force". If the force is negative force for who they normally vote for.
  - 4y ago
AstralStorm 4y ago
It so happens that the most useful number is usually the dominant (also known as mode or most common value), which is not visible on the histogram, especially for flat heavy tailed distributions such as income these days.
- thaumasiotes 4y ago
  > the most useful number is usually the dominant (also known as mode or most common value), which is not visible on the histogram Are you kidding? It's the highest point on the histogram; a histogram places very heavy visual emphasis on the mode while obscuring the mean and median.
  - AstralStorm 4y ago
    Sometimes true, but it is the only value that can be estimated without error in some cases. Neither median nor average is useful for a central tendency in a weird distribution - and income tends to be one. Histograms typically bucket data potentially hiding the true value of mode or adding error to it. It really should be given directly, with a count of occurences. Mode is not the same as modal class - which is what you would get from a histogram.
    - thaumasiotes 4y ago
      > Histograms typically bucket data potentially hiding the true value of mode or adding error to it. It really should be given directly I can't agree with that. It is true that histograms bucket data. But the width of the buckets is chosen to make sense in context. It just isn't relevant if people making $20,176 slightly outnumber people making $20,359. So we put them in the "$15,000 - $24,999" bucket, which preserves most of the information of interest while omitting the information that is of absolutely no interest. In other contexts, you see other bucket widths. Chinese university entrance exam scores are published with a bucket width of one point. (Some things may be obscured. When I was looking into this, I found that it was very common for the top scores to be bucketed with each other, presumably for some kind of privacy reasons. Beijing was notable in putting low scores into buckets of width ten even in what was technically labeled an 一分一段表 (literally: "one point -- one section" table). Fujian was notable the other way, for preserving the bucket width of one point even for the highest scores; I have trouble believing it's a coincidence that Fujian is one of the academically highest-performing regions of China.) > Mode is not the same as modal class - which is what you would get from a histogram. For almost all purposes, modal class is more interesting, more useful, and more statistically valid than raw mode is.
mihaic 4y ago
Fully agree. Most people use life expectancy at birth to believe that everyone died in their 30s in ancient times, even though these numbers are skewed because of huge infant mortality. Introducing something like life-expectancy at birth, 5, 10, 20, 40 years would paint a much better picture, but it takes hard work and a belief that your audience is not stupid.
- blackoil 4y ago
  It is even more complicated. eg. to understand state of healthcare using life-expectancy at 20 or 40 may provide wrong info. Because it ignores fact that most of the sick and weak individuals have already died by then.
  - mihaic 4y ago
    Yeah, you get more information the more data point you explicitly define. The challenge is reaching a compromise between "easy to explain" and "captures a lot of information". Depending on your audience, you probably want to expose more granular data, but for the laymen I think multiple points all on the same function is they best compromise, since you just need to explain one simple function and 4-5 well picked values for that function.
bfung 4y ago
https://medianism.org/medianism/about_the_medianist/ https://medianism.org/medianism/about_the_medianist/ Who Is This Medianist? Jonathan Andreas is an Associate Professor at Bluffton University who received his Ph.D. in Economics from the University of Illinois at Chicago. Ok, cool, not some armchair tech bro that spent 5 minutes writing up some blog.
drewcoo 4y ago
Mean, mode, and median are all averages. They have meanings. They don't have "measurement errors," but the people using them may have "usage errors." https://www.dummies.com/article/academics-the-arts/math/pre-algebra/the-three-types-of-average-median-mode-and-mean-168773/ https://www.dummies.com/article/academics-the-arts/math/pre-... Distributions give us richer data. But even distribution of incomes (in the article) or spending (GDP) aren't terribly rich. They don't answer why. So we can add dimensions to what we measure or fall back to just so stories. And that's why most people don't trust economists - oversimplified models and just so stories.
- rightbyte 4y ago
  > They don't have "measurement errors" Sure. I am not arguing that a median is not a median. By measurement error I really meant noise and disturbance, as defined in control theory. E.g. it is perfectly possible to have a value "average tax in county" with zero noise as in perfect value to the cent, but year to year variance due to disturbances.
benreesman 4y ago
There are many mappings from the English word “average” to maths: arithmetic mean, median, geometric and harmonic means. We could be here all day. But “median is better than arithmetic mean for knowing if a lot of people are struggling” should be uncontroversial. We’ve rigged up a system that is a race to the bottom on wealth inequality. People have tried to run systems like this before and it always ends in tears. The interesting question isn’t how to parse the maths, or even if we have a bad, bad problem. The question is, can we and/or will we do something about it soon enough that Western civilization lasts for climate change or whatever to even matter. Because we’re on pace to get into tennis courts and guillotines before much if any of Manhattan is below the water line.

divan 4y ago

There is a great book explaning the philosophy, story and problem of using averages in many fields - "The End of Average" by Todd Rose. [1] I originally found it from the fascinating article on how using averages in the design of military plane cockpit resulted in many pilot deaths. That's the best introduction I've seen about uselessness of averages with multiple dimensions (with more than 3 dimensions it goes bananas). The article is actually is an excerpt from the book, so you can get the sense of the book level from it. [2] [1] http://www.toddrose.com/endofaverage http://www.toddrose.com/endofaverage [2] https://www.thestar.com/news/insight/2016/01/16/when-us-air-force-discovered-the-flaw-of-averages.html?rf https://www.thestar.com/news/insight/2016/01/16/when-us-air-...

taneq 4y ago
I tend to explain this with car analogies. If you’re about to drive through an intersection and the light goes orange, you either want to brake hard, or maintain a steady speed, but taking the average of these actions will not end well.
- sokoloff 4y ago
  (When I was younger) My friends colloquially used “orange” to mean a light that was a mix of amber (yellow) and red (meaning “too late to be entering the intersection legally”).
- jldugger 4y ago
  Three economists are on the football field, practicing field goals. The first kicks the ball was to the left, widely missing the goal. The second one kicks and shanks it to the right, again missing the goal. The third one runs off the field shouting "we got it, we got it!"
HFguy 4y ago
Thanks for the suggestion. I think this problem is just a matter of degrees with any summary statistic. You throwing away information in an attempt to synthesize an insight.
jldugger 4y ago

amelius 4y ago

Don't even look at GDP, look at happiness of people instead. Fetishizing the GDP will only accelerate the climate problem.

gruez 4y ago
> Don't even look at GDP, look at happiness of people instead. Bread and circuses for everyone!
drivebycomment 4y ago
Happiness is a complex, multi-faceted thing to measure and is not a good direct target. You want more specific, granular goals that are important for those. Things like health, wealth, social connections, leisure, education, etc. And GDP is a decent metric to track the economic aspect. It's not perfect, but nothing is, and the answer is to find and improve the metric instead of "throw away and ignore". And, the data clearly shows https://ourworldindata.org/grapher/gdp-vs-happiness https://ourworldindata.org/grapher/gdp-vs-happiness GDP has a very strong correlation with happiness. Economic policies should take GDP into account, and suggesting NOT to do so is simply stupid. The policy makers should also look at and incorporate climate issues, and many others. > Fetishizing the GDP will only accelerate the climate problem. I'm afraid this is not a useful framing, and mostly a straw man argument that makes the discussion unproductive. Most countries and their politicians are not pursuing "GDP at all cost" type of policies.
YetAnotherNick 4y ago
Happiness will likely increase with decrease in life expectancy.
- amelius 4y ago
  Maybe optimize happiness times life expectancy then.
refurb 4y ago
Happiness isn’t a great metric because people can be happy dying from tetanus after stepping on a nail because they don’t know it possible to not die from that.

deleted 4y ago

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jstx1 4y ago

It's hard to take this seriously when the author mixes up the basic meaning of GDP. > 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?

targ65 4y ago
> How did this get to the front page? It’s Sunday.
adam_arthur 4y ago
To elaborate further, nominal GDP is the number of dollars spent in the economy. Nothing to do with income
- missedthecue 4y ago
  Doesn't income equal expenditure? They are one and the same.
  - adam_arthur 4y ago
    They're not the same. 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
    - missedthecue 4y ago
      But the velocity of money doesn't change that. $1 spent is $1 of income no matter how or where it's spent. Every transaction necessarily has a buyer and a seller

maerF0x0 4y ago

Why 50th percentile? Why not 49th, or 25th? I've actually had this running theory that all civil servants should be paid a fixed percentile of income. This would give them all an interest in ensuring that income/GDP goes up and that it goes up for those below them. (in percentile)

deleted 4y ago
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chroma 4y ago
Unless it was a very high percentile, that would incentivize competent people to flee to the private sector, or it would encourage competent but corrupt people to join the government. A better compensation mechanism would be to measure changes in outcomes such as wealth, crime, and health, then have bonuses for positive changes in those metrics. For example: If each member of congress got an extra $10 million if homicide rates went back to 2019 levels, I guarantee we'd fix the crime wave within a year. It'd only cost $5.4 billion, or $15 per US citizen. And it'd avoid approximately 5,000 murders per year. One can imagine similar incentive strategies for health and wealth. Unfortunately, most people view governance as a sacred value, and are unwilling to introduce money as an incentive. So we're stuck with things like congress giving the FDA more power to restrict nicotine vaping products while 400,000 Americans die every year from smoking tobacco.
- gjm11 4y ago
  You could pay them, say, 3x the 20th percentile salary. (I'm not sure it's _civil servants_ this sort of thing should be considered for. They don't make the decisions and there's little a civil servant can do that will change what the 20th-percentile person gets paid. It would make more sense for politicians.) I suspect that if each member of Congress got a $10M reward for bringing homicide rates to 2019 levels, the result would be legislation that redefines homicide or changes how it's reported or something of the kind, rather than anything that actually involves fewer people killing one another.
  - chroma 4y ago

bena 4y ago

We are dealing with millions here. To move the needle for 297 million people, the other 33 million have to do a lot. Assume the 297 million people all make $100k. That's $29.7 million. Now have the 33 million make an even $1 million. That's $33 million. That's 10% of the population making over 50% of the income. Altogether, that's $30.7 million income across 330 million people. Or about $190k per year. Yes, that's almost double what the 297 makes, but it's far closer to them than to the 33 million. > If a government regulation benefits Bill Gates $10 billion and every single American $20 I think he meant to say "costs every single American $20", because otherwise, it's technically an ok deal if it benefits everyone even if it benefits one person a whole bunch. And his following statements seem to indicate we should be subtracting $6bn from $10bn. And I also have a problem with the hypothetical. It's set up in a way to give only one outcome. He couldn't even make it $40 dollars, because then it's $12bn to $10bn. And he has to work with billions because 300 million people are a fucking lot. But arguing about whether we should be measuring averages one way or the other is kind of missing the real point. Are the people taking the bulk of the income deserving of that income? For the most part, the people taking the lion's share of the income are only doing so because they have put themselves in the position to determine how the profits of an enterprise are allotted. And it's clear that they are not allotting the profits based on the value the employees are bringing to the company.

chii 4y ago
> Are the people taking the bulk of the income deserving of that income? they deserve what they can get, as long as it is legal and above board (aka, no bribery, corruption etc). There's some level of morality being assigned to the idea of "deserve". I dont believe such morals exist, and that it stems from jealousy. > And it's clear that they are not allotting the profits based on the value the employees are bringing to the company. i dont think it's as clear as you make it out to be.
- bena 4y ago
  They don't necessarily deserve it. If I control how an asset is allocated due to some arbitrary event, it does not follow that I deserve whatever I've allotted to myself. It can be "legal and above board" and still be unjust. Because the laws and boards can be constructed to allow what I'm doing. Also, define bribe. Define corruption. If my best friend is a lawmaker and I spend every weekend with them and I manage to persuade them due partly to the amount of time I get to push my point view, is that corruption? Is it corruption if I become friends with him solely because he's a lawmaker? If I didn't know before I became friends. If we were friends before? Why are any of these different, if any? I like how you say it's not clear that they aren't allocating profits based on the value, but somehow it's very clear they deserve it, what corruption is, and what bribery is. No. The only thing that is not clear is that maybe they don't deserve the sheer amount of wealth they've extracted from everyone else.

ww520 4y ago

Seriously how do you measure the median of GDP per capita? Do you measure the GDP output of each person of the population and take the middle person's GDP outpt?

andsoitis 4y ago

“Health is wealth” — Ralph Waldo Emerson

tonfreed 4y ago

I remember having an aneurysm trying to explain this back when Turnbull was PM here. He said, in a press conference, that the average wage was $75k, there was a wave of lukewarm takes on social media along the lines of "he's lying because I don't know anyone that earns that much". I got yelled at by friends about how much of a shill I was for saying he was 100% correct, but the median wage was around $45-50k. I ended up explaining it by saying if Danny Devito wandered in a room of NBA players, the average height would still go down.

roberttod 4y ago

I understand GDP as a tool that was originally built to quantify how much a nation is producing, and in result focus the economy to increase that number. But like many tools, at some point they expire and we need to move on. imo GDP is past that point already because it encourages production beyond anything else, when we should instead focus on consuming less and producing enough, and the right things so that we can be satisfied in our lives, not just burning gas for the sake of it. To illustrate the obsurdity of it, the production of oil contributes to GDP, the burning of that oil contributes to GDP and then using carbon capture to capture the gasses released by the oil also adds to GDP. What's the sense in encouraging all that without qualifying that it should be enhancing people's lives?

mkl95 4y ago

I'd say income and debt are more interesting than GDP. The Average Joe in my country saves a bit of money, burns it quickly, then struggles for a while because he needs to borrow money, and he doesn't make enough to pay it quickly. Many people are blissfully unaware of how limited their runway is, particularly when inflation hits hard.

ggm 4y ago

A general trend in economics has two sides. Side A is the irritating number of amateur economics players (me!) and the desire to engage in this topic, because its both fascinating and important Side B is the extent of "you're wrong" put downs from either other amateurs, or professionals, which is entirely understandable given that the Side A players make collossal mistakes, but which also masks the divides in economic theory: Some people are pretty partisan in the trench warfare across the battlezones here. So it's foolish to bring maths to the table, because you will be faceplaned by anyone who prefers more complex maths, or who wants to nitpick your maths, or who wants to attack your school of philosophy because they stand on a different hilltop. Does it mean "mistakes" are acceptable? No. But people can be a bit kind about it, because in the end, we're all talking about the same thing. Well.. mostly. Not me. I'm stuck in the labour theory of value. all this money stuff is just nonsense.

skybrian 4y ago
I never really got the labor of theory of value. It seems like the idea is that value comes from working hard, regardless of whether you actually accomplished anything? What does the labor theory of value have to say about bullshit jobs? How do you decide what efficiency means if you measure value based on inputs rather than results?
- ggm 4y ago
  It's a bit of a throwaway/joke line because the Labour theory of value does not inform any aspect of modern economic theory on value as exchange. They're probably orthogonal concepts. That said I wouldn't discount that there is a very fine thesis in analysis of bullshit jobs. Particularly the extreme amount of organisationally justified middle management which inserts mindless beaurocracy into creative acts. Think not just lawyers, but the oceans and oceans of ink applied by junior law clerks to pad out the billable hours and get to the million dollars in costs, but for virtually everything we do now. You think all those 150,000 google employees are creating value? As a position of quasi religious faith, I think the property of value latent in made things vests in the labour to make them not the priviledge of the capital invested. The alternatives are very ugly: slavery would be the highest form of profitable enterprise when in fact I believe the evidence is strong the other way: you need to pay workers to get value from them. Why? Because they create the value. Invest in slaves, it's less outcome for more expenditure.

xrd 4y ago

Reading the comments here, it seems to me that the problem is more that we don't illustrate these types of concerns correctly. I mean we don't bother with pictures, animations and simple stories, but instead argue over too simple or too complex statistics. I love math but it's not an effective way to communicate important ideas. All the discussions here are discussions about statistics minutiae and arguing about that will never change anything.

throwaway787544 4y ago

GDP is the Myers-Briggs of economics.

jldugger 4y ago

Well, yea, but you can't calcuate GDP per capita. You have to instead look at median household income. If you wanna sell fancy electronics in mid market economies it really helps to know the difference.

engineer_22 4y ago

I'm surprised this blog is written by an academic economist. There's no data, and no citations, mostly amateur philosophy.

olalonde 4y ago

Maybe it's not of much interest to economists, but I find median wealth quite interesting[0]. The data is a bit surprising, especially for USA. For example, it ranks #26 for median wealth but #2 for mean wealth. It also shows that a random middle class Canadian is wealthier on average than a random middle class American[1]. As a side note, the data is probably heavily influenced by real estate prices. [0] https://en.wikipedia.org/wiki/List_of_countries_by_wealth_per_adult https://en.wikipedia.org/wiki/List_of_countries_by_wealth_pe... [1] Making some reasonable assumptions about wealth distributions.

wodenokoto 4y ago
It is of interest to economists, and if you don't already know of the Gini coefficient, I am sure you will find it interesting too :)

usr1106 4y ago

How is that even calculated? The GDP is the sum of all goods and services produced. I guess when Amazon sells an item the difference between the wholesale price they pay and the end price they charge including shipping is a service, retail. But who has produced this service? The underpaid warehouse worker and delivery driver or Jeff Bezos? For income it's clear, for GDP I don't see it.

hbarka 4y ago

Mean, median, or mode—still just a measure of central tendency and falls short of the shape. Go one better and show the geometry of the distribution.

gallicism 4y ago

Or even better, forget about GDP and use national income instead since it is better for measuring sustainable growth. For example if a country takes 100 billion euros of oil from its underground reserves, it will have a 100 billion GDP but 0 euro national income. We need to improve the economic indicators that use or at least be aware of the implications of our choice since they impact economic strategy

jerzyt 4y ago

It could also be argued that "medianism" is the perfect method to hide income inequality, because median is resilient to outliers, so the billionaires will not affect the median at all. Every metric can be "gamed" and so can the median.

jnwatson 4y ago
That’s not how the median works. If we had as many in poverty as billionaires, we’d have a pretty good situation.
- Stupulous 4y ago
  If half of a country were impoverished and half were billionaires, I'd say they have a pretty serious income inequality issue. A median would randomly conclude that either the typical person is a billionaire or in poverty. Best case scenario, the median would equal the mean and give a result that reflects reality, but it still doesn't convey the issue at all. Median and mean both compress n data points into one, which is only useful given some assumptions about the distribution. Quintiles (or similar) would work for that scenario, but I'm sure there are more complicated situations where they fall short.
  - jnwatson 4y ago
    Societies in which there are within 100x as many billionaires as poverty stricken don’t exist.
    - Stupulous 4y ago
      Sure, it's a toy example to tease out the underlying shortcomings of the measurement. Societies where the median does not reflect the typical experience do exist.
notahacker 4y ago
But resistance to outliers is the point because people don't take billionaires inflating the per capita GDP as "wow, this country has a problem with inequality", they take it as "wow, this country is getting richer". With GDP per capita, a few oil billionaires and a very small class of well-paid oil workers make Equatorial Guinea look like a middle income country. Median GDP reveals that the average person there lives on less than $2 a day, because Equatorial Guinea is also the most unequal country in the world. But clearly it's more representative to class Equatorial Guinea as very poor (median income) than moderately wealthy (per capita GDP/mean income) or rich (per capita GDP PPP) Median income isn't perfect because it can hide things like one country having 5% living in extreme poverty and one country having 25% but with typical real world income distributions, an average not massively skewed upwards by how rich the top 10% or 1% is gives you a much more accurate perspective on which country most people have higher incomes in.

known 4y ago

leemailll 4y ago

I’m really curious how can one calculated the median GDP by any means accurate.

wodenokoto 4y ago
You can't calculate the median GDP. The author advocates to look at median income instead of mean gdp.

leg100 4y ago

There is no average that does not hide information. To point out the obvious, the perfect information is the underlying data. If there are 10 people in the economy then just provide those 10 data points. If there is a million people, then provide all the statistics - the averages, percentiles, etc - as well as all the data. An article can report the averages as well as point to the underlying data set. The idea of pronouncing one average better than all the others is moronic.

codedokode 4y ago

GDP is a very weird metric. For example, GDP includes money spent for renting an apartment, although no goods are produced in this case. So for example, if there is a village with two people, and they rent each other's home then this village has non-zero GDP, although no goods or services are produced. Inflated education, medical or insurance prices also inflate GDP. So a teacher in one country could produce 2x more GDP per unit time as the same teacher in another country. Another wrong thing to do is to adjust income or GDP for food prices (purchasing power parity). This is absolutely wrong. The idea of PPP is that if in your country potato is two times cheaper then it makes you two times richer. This is wrong because a MacBook or a car are not two times cheaper. Actually they are more expensive than in the West. And if you go abroad then there will be no cheap potato either. So PPP is a total lie. It can be applied only to poorest people who spend all of their income on potato. So if you want to adjust the income for PPP, at least use MacBook or car prices instead of potato. I think that a fair metric would be a percentile distribution of how much money a person has left after renting the cheapest apartment and buying the cheapest food.

notahacker 4y ago
PPP isn't based on "a potato", it's typically calculated based on a representative price index covering all the different types of goods people buy. Theoretically it would be possible to create a price index based on Macbooks or cars, but since most people in the world buy more food than Macbooks or cars this would obviously be misleading. When people living in developed countries move to a developing country they don't think "wow, the cost of living is high, the Macbook has a luxury tax on it" they think "wow, most things are incredibly cheap here". It is impossible to come up with a perfect PPP because people spend their money on different things, but it's a lot better than thinking a country which has inflated prices for everything is much more materially wealthy than one which has low prices for everything. And the whole point of PPP adjustments is to get rid of the scenario where the same education contributes much more to GDP in a nation where wages and school buildings are expensive than one where they're not.
sumitviii 4y ago
>For example, GDP includes money spent for renting an apartment, although no goods are produced in this case. Because it measures all the goods and services produced in a country over the course of an year. I know of a way to inflate it as much you want, but I don't think I will ever be in a position to use it.

bretpiatt 4y ago

Median income of the total population or "the labor force" or of the "potential working age population"? With barely over 50% of the population working in most countries [1] median based on population will be skewed too. Then we have to agree on working age population. Then we have to measure unmeasured income (ex. providing child care, teaching at a home school, preparing meals, cleaning, maintaining your own car, repairing or upgrading your residence, etc.) oe you lose all of this in the data. The real challenge from my perspective is trying to boil down something as complex as a population into a single stat. [1] https://en.m.wikipedia.org/wiki/Labor_force_in_the_United_States https://en.m.wikipedia.org/wiki/Labor_force_in_the_United_St...

brnt 4y ago

Looking at a measure at centrality implies you understand the distribution is represents. I find it good practice to either observe the distribution before any derived measure, and if that's difficult for some reason, get a few measures of centrality, mean and median if you can. The further they are apart, the unlikelier it is you're dealing with a normal distributed quantity, an assumption people make far too often to my taste.

anovikov 4y ago

But economic statistics are not made with the goal of "finding out how average Joe is doing", but to answer the question "what't is in it for me? where i should invest? and in which instruments?". It's audience is private investors and fund managers. Not even politicians - they live in post-truth world, they need to know how to better manipulate people into believing what they need them to believe, what's actually going on is of secondary importance. And for this, we need means, not medians. Sure vast majority of profits is made from consumption of the top 10%. Rest are just taken for a ride (not even exploited properly, and this is a big departure from things were 100 years ago when the rest were equally desperate, but at least necessary).

incomingpain 4y ago

>This simply applies democratic norms to economic questions. Democracy prioritizes the preferences of the median voter, and medianism extends this idea to economics. Democratic norms are what produced this recession. “When the people find they can vote themselves money, that will herald the end of the republic.” -Benjamin Franklin https://tradingeconomics.com/united-states/gdp-growth https://tradingeconomics.com/united-states/gdp-growth The USA is in recession. The US government increased debt by ~6 trillion since covid started: https://tradingeconomics.com/united-states/government-debt https://tradingeconomics.com/united-states/government-debt ~5 trillion was printed.: https://tradingeconomics.com/united-states/money-supply-m2 https://tradingeconomics.com/united-states/money-supply-m2 Which is causing 9.1% inflation: https://tradingeconomics.com/united-states/inflation-cpi https://tradingeconomics.com/united-states/inflation-cpi This recession the USA just entered is the same recession as the one which started in 2020. The government can print significant unexpected money to temporarily boost GDP. https://tradingeconomics.com/united-states/gdp https://tradingeconomics.com/united-states/gdp Except only about 2 trillion made it to gdp. The US government's leaky bucket can be measured at about 28%. 72% of US tax money is going into the firepit. It worked, they temporarily boosted the GDP numbers to pretend like there wasnt a recession. When they stopped printing money, gdp dropped because the recession never left. You know what I really wish to see produced for all countries? Real GDP adjusted for government debt.