The authors of the
“U.S. Unemployment Rate Now as High as Europe” report have turned down my bet.  One of the authors did however counter-offer a bet that Scandinavia’s scores on the Human Development Index would beat America’s at the end of the Obama administration.  That’s funny, because I was already planning to blog against the usefulness of the HDI today, provoked by the CEPR report’s remark that:

The case for the superiority of the U.S. model was always exaggerated.  For one thing, it tended to ignore the relatively lower performance of the U.S. on broader quality-of-life measures like the Human Development Index.

Now what exactly is the HDI?  The one-line explanation is that it gives “equal weights” to GDP per capita, life expectancy, and education.  But it’s more complicated than that, because scores on each of the three measures are bounded between 0 and 1.  This effectively means that a country of immortals with infinite per-capita GDP would get a score of .666 (lower than South Africa and Tajikistan) if its population were illiterate and never went to school.

So what are the main problems with the HDI?

1. I can see giving equal weights to GDP per capita and life expectancy.  But education?  As a professor and a snob, I understand the appeal (though a measure of opera consumption would be even better).  But in terms of the actual if not professed values of normal human beings, televisions and cars are a lot more important than books.

2. When you take a closer look at the HDI’s education measure, it’s especially bogus.   2/3rds of the weight comes from the literacy rate.  At least that’s not ridiculous.  But the other 1/3 comes from the Gross Enrollment Index – the fraction of the population enrolled in primary, secondary, or tertiary education.  OK, I feel a reductio ad absurdum coming on.  To max out your education score, you have to turn 100% of your population into students!

3. The HDI purportedly gives equal weights to three different outcomes, but bounding the results between 0 and 1 builds in a massive bias against GDP.  GDP per capita has grown fantastically during the last two centuries, and will continue to do so.  In reality, there’s plenty of room left for further improvement even in rich countries.  But the HDI doesn’t allow this.  Since rich countries are already close to the upper bound, the HDI effectively defines their future progress on this dimension out of existence. 

To a lesser extent, the same goes for life expectancy: While it’s roughly doubled over the last two centuries, dying at 85 is not, contrary to the HDI, approximately equal in value to immortality.

The clear winners from this weighting scheme, of course, are the literacy and enrollment measures, both of which have upper bounds that are imposed by logic rather than fiat.

4.  The ultimate problem with the HDI, though, is lack of ambition.  It effectively proclaims an “end of history” where Scandinavia is the pinnacle of human achievement.  Admittedly, I’ve never visited Scandinavia.  But when I see it for the first time this August, I’m pretty sure I won’t say to myself, “Wow, it can’t get any better than this!”

At this point, you might ask, “Yes, but will you take the HDI bet, Bryan?”  Nope.  Scandinavia comes out on top according to the HDI because the HDI is basically a measure of how Scandinavian your country is.  While Obama is moving us in that direction, I don’t think he’s going to be able to take us all the way there.