The Sound You Hear Is Your Paradigm Shifting

Please absorb this extremely important advance in economic methodology and basic intellectual rigor:

Income Per Natural: Measuring Development as if People Mattered More Than Places

by Michael Clemens and Lant Pritchett

It is easy to learn the average income of a resident of El Salvador or Albania. But there is no systematic source of information on the average income of a Salvadoran or Albanian. In this new working paper, research fellow Michael Clemens and non-resident fellow Lant Pritchett create a new statistic: income per natural — the mean annual income of persons born in a given country, regardless of where that person now resides. If income per capita has any interpretation as a welfare measure, exclusive focus on the nationally resident population can lead to substantial errors of the income of the natural population for countries where emigration is an important path to greater welfare. The estimates differ substantially from traditional measures of GDP or GNI per resident, and not just for a handful of tiny countries. Almost 43 million people live in a group of countries whose income per natural collectively is 50 percent higher than GDP per resident. For 1.1 billion people the difference exceeds 10 percent. The authors also show that poverty estimates are different for national residents and naturals; for example, 26 percent of Haitian naturals who are not poor by the two-dollar-a-day standard live in the United States. These estimates are simply descriptive statistics and do not depend on any assumptions about how much of observed income differences across naturals is selection and how much is a pure location effect. Our conservative, if rough, estimate is that three quarters of this difference represents the effect of international migration on income per natural.

The bottom line: migration is one of the most important sources of poverty reduction for a large portion of the developing world. If economic development is defined as rising human well being, then a residence-neutral measure of well-being emphasizes that crossing international borders is not an alternative to economic development, it is economic development.

The whole paper is here.

Note that this isn’t an argument open to some kind of refutation. It’s just a better way of measuring things — a way that makes the way the world works clearer. Seeing this alternative metric in action should help us realize just how much of profound moral importance is obscured by the economic nationalism at the foundations of conventional welfare economics. Soon enough, it simply won’t be an option for honest intellectuals to ignore the perspective Clemens and Pritchett encourage us to adopt. Paul Krugman: hello!