A country is rich - what does it mean?

 Hi,

What does it mean when we say a country is rich?
I understand that a higher GDP per person means higher goods and services produced per person in the economy, but don’t understand how that is linked to being rich.

Doesn’t a person living in a high per capita income country have to compete with similar people (in terms of per capita income) for available goods and services.

Consider the case two persons who have identical mental and physical abilities and work in the same profession. The person A works in the US and the person B works in Vietnam. How are their economic lives affected depending on which country they live in?


Can you please help me understand this?

Thanks,

MG

If there's more goods and services in a country, then there's more wealth to go around.  In the extreme case, where one person controls all the wealth in a country, then a large GDP does no good.  However, most countries have a distribution of wealth that's not so obviously unfair (the USA is getting worse instead of better, due to increasing restrictions on the market).

Suppose you're a software engineer in the USA.  There's lots of established companies and startups competing for your services.  This guarantees that salaries are decent.  Suppose you're a software engineer living in Nebraska.  If you're serious about your career, you'll probably move to California or elsewhere for a better job.  In the USA, moving from Nebraska to California is no problem.  Moving from Vietnam to the USA is hard or impossible.

Suppose you're a software engineer in Vietnam.  There aren't that many businesses.  There aren't many startups.  Your employment opportunities are limited.

Even if you're a skilled software engineer in Vietnam, it's hard for you to start your own business or work for someone else who's starting a business.

Suppose I go to the store in the USA.  There's lots of different products on the shelves, guaranteeing a certain degree of price and quality.

Suppose I go to the store in Vietnam.  There aren't many choices.  Some things are expensive or unavailable.

The advantage living in the USA is that it's easier to start a business here.  More new businesses means more new wealth is being created.  This translates to a higher standard of living for everyone.  Competition among employers keeps wages high.  Competition among sellers keeps prices down.

That's how it works in theory.  Conditions in the USA are deteriorating.  The USA is becoming more Vietnam-like instead of Vietnam becoming more USA-like.

 FSK,

Thanks a lot.

Also, I had a quick look at your blog; it looks interesting. I am going to read your series on the BS formula.

Being rich means you have more wealth in real terms.

Basically, that means that your purchasing power is greater. As a country, if the average citizen's purchasing power is greater than the average purchasing power of another country's citizens, you can consider the first country more wealthy. And by "wealth in real terms" and "purchasing power" I mean your ability to purchase and use more goods.

As an example, the people of India, on average, cannot buy much. For many people, basic necessities of Western Civilization like toilets are too expensive. In America however, the average purchasing power of a citizen is much higher. It is rare to find someone who cannot afford basic plumbing, for example. As such, we can say that America is "wealthier" than India.

Also, you have to remember that GDP isn't the best way to measure economic growth, mainly because it only measures consumption in a limited sense. GDP measures consumption of all consumer goods and some capital goods. A better method would be one that measures consumption of all consumer goods and capital goods. That way, we could also see how the economy grows when people begin to save and invest more and consumer less.

Kaju, thanks a lot.