GDP vs HDI: why the richest country isn't number one

Singapore produces more per person than any other country in TerraBrawl's data. Iceland produces about half as much, and Iceland tops a different list. Both lists claim to tell you how well a country is doing. They disagree more often than you'd expect.

The first list is GDP per person, adjusted for purchasing power (PPP). Take everything a country produces in a year, divide by its population, then correct for the fact that a coffee costs less in Lima than in Oslo.

The second is the Human Development Index, the UN's attempt to measure a good life without only counting money. HDI blends three things: how long people live, how many years of school they get, and their income. It runs from 0 to 1.

You'd think the two would line up. Rich countries can pay for hospitals and teachers, after all. Mostly they do line up. The fun is in the places where they don't.

Guess first

Qatar has the fourth-highest GDP per person of any country. Where does it rank on HDI?

Top 1011th to 25th26th to 50thBelow 50th

The money list

These are the top five for GDP per person (PPP), counting only countries that also have an HDI score:

1. Singapore, about $163,000 a year
2. Luxembourg, $157,000
3. Ireland, $155,000
4. Qatar, $129,000
5. Norway, $104,000

The United States is ninth, at about $90,000. Germany is 18th. Macao and Bermuda post huge numbers too, but neither has an HDI score, so they sit out this comparison.

The long-life-and-school list

Now the top of HDI:

1. Iceland, 0.972
2. Norway, 0.970
3. Switzerland, 0.970
4. Denmark, 0.962
5. Germany and Sweden, both 0.959

Norway and Switzerland are high on both lists. That's the dull case: rich, long-lived, well schooled. The others are more interesting. Iceland is first on HDI and only 11th on money. Germany climbs from 18th to a share of fifth. Singapore, the richest country by this measure, is 13th.

Why the lists split

HDI counts money on a curve, and then it stops counting. In the UN's formula, income above $75,000 a year per person adds nothing. Going from $2,000 to $10,000 changes what you eat, where you sleep and whether your kids finish school. Going from $130,000 to $160,000 mostly changes the car.

HDI measures income slightly differently from GDP, as national income per person, but the cap works the same way. For the very richest countries, income is at or past that cap, so their HDI rank comes down mostly to health and schooling.

That explains Qatar. Its life expectancy, 82.4 years, is close to Western Europe's. Its income is well past the cap. The part left to fall behind on is schooling, and that's where it trails the Nordic countries.

Guyana makes the gap even starker: 7th on GDP per person, 88th on HDI. Commercial oil production started there at the end of 2019, and output has grown fast, so GDP jumped within a few years. Hospitals, schools and life expectancy don't move at that speed. HDI is slow on purpose.

Ireland is a different story. Large multinationals book a lot of profit there, which inflates GDP. Ireland's own statistics office publishes an adjusted measure, called modified GNI, because the headline number says more about corporate accounts than about the economy people live in. Irish HDI is still 11th in the world. That's very good, just not third.

It works the other way too. Some countries do better on HDI than their income predicts:

• Tonga is 134th on GDP per person and 91st on HDI.
• Argentina is 68th on money and 46th on HDI.
• Georgia moves from 69th to 56th.

In each case, lifespans and schooling are better than income alone would suggest.

So which number should you trust?

They answer different questions. GDP tells you how much an economy produces. HDI asks whether people get to live long lives and learn.

If I had to pick one number to guess which of two countries is better off for an ordinary person, I'd take HDI, because it stops rewarding money at the point where money stops changing lives. It has blind spots, though. It ignores inequality, which is why the UN also publishes an inequality-adjusted version, and it says nothing about freedom or the environment.

Both stats show up in TerraBrawl duels, and they catch people out in different ways. GDP questions trip you up on small rich places like Luxembourg and Ireland. HDI questions are where Gulf states and Nordic countries swap places.

A rule of thumb for duels: if one side is a small country whose money comes from oil, gas or finance, back it on GDP and be careful on HDI. If both sides are rich and long-lived, HDI is close to a coin flip, so go with the one where people live longer. Japan against Spain is one of those: 0.925 to 0.918, and Japanese life expectancy is a little higher.