Wednesday, September 15, 2010

While Arrow showed the impossibility of a well defined ordering of social preferences...

...we tend to act as if there is one anyway. That is, we place a lot of focus on GDP per capita when evaluating economic success. By this measure, the US is, of course, successful. By a slightly different measure from the OECD (go to page 37), average disposable income per household, the US ranks second after Luxembourg among the nations measured. Luxembourg has about the same population of Long Beach, so it is hard to worry too much about it.

But a social welfare function that looks at the lowest decile of income is just as legitimate (or perhaps I should say, illegitimate). By this measure, the US ranks 20th among countries measured, which places it toward the bottom of the OECD pack, with levels similar to Greece and Italy.

On the other hand, the top 40 percent of American household are better off than their counterparts in all other countries (with the exception of Luxembourg), reflecting a great deal of affluence across a large number of people. So where to pick? As Arrow would say, that is really impossible.

5 comments:

xtra said...

This post is very accurate in my experience. There are levels of poverty in the US that simply don't exist in Europe. The difference is visible in any city european and american city pair. That said, what constitutes the American middle class I think would be prohibitively expensive in most of europe. Outside of the filthy rich most folks in europe are essentially participants in a pocket change economy.

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