Counting the pennies

Victorian proponents of thrift maintained that “if you look after the pennies, the pounds will look after themselves” – that you could make your income go much further if you learned to get the most value from everything you spent. They had a point – higher salaries matter little if your outgoings are similarly higher. Ask anyone working in London if they feel rich because of the ‘London weighting’ added to their salaries – few, if any, will say yes.

This applies at the country level as well. It has long been known that the wealth of nations, traditionally measured in how much money they make as a whole or GDP (Gross Demographic Product) is inflated by country size, so countries like the USA and China automatically appear wealthier. What gets interesting is when you start including other factors to get a better picture of what it is like to live in a country. It seems like a simple task to determine the wealth of countries, but the experience of living in a country is influenced by many other factors. Being wealthier matters a lot less if everything you have to buy also costs more, while a country where you have the same spending power but work fewer hours would likely give you a better quality of life than you might expect otherwise. As these interactive charts from The Economist show, considering both these measures changes the picture dramatically, and the order of countries’ wealth changes dramatically as a result.

The Economist still seem to be shying away from a measure that also shows how equitable a country is: how evenly the money is spread about among that country’s population. It might matter little to most people in a country that the country is fabulously wealthy if that wealth is almost entirely held by the richest 1%. There are robust measures of how egalitarian a country is (how evenly it spreads out its wealth), like the Gini Index: a percentage measure of where a country falls between everyone having equal wealth and only one person owning everything, shown here on Wikipedia. In many cases, the people working long hours to earn that money are not the ones enjoying it.

So when you hear a politician bragging that the US or Britain are some of the richest countries in the world, you might want to ask yourself at what cost, to whom and who benefits?