Chapter 1: The Goal 47
cuss several steps that countries must take to prevent a small, wealthy elite from controlling all the wealth and power in a nation, as happens too often in poor countries today. We recommend numerous policies and values that enable a genuinely free market to function and thereby permanently open opportunities for any poor person to rise from poverty to an adequate income or even to prosperity (see chapter 4, section D; chapter 5, sections B, F, and G; chapter 6, sections B and C; all of chapters 7 and 8; and chapter 9, values 4, 5, 8, 9, 14, 15, 18, 21–24, and 29). But increasing per capita income is very important, for as long as it remains low, the country remains poor. And higher per capita income is strongly correlated with some undeniably important factors, such as longer life expectancy, lower incidence of disease, higher literacy, and a healthier environment (for example, clean air and water, and effective sanitation).3 If a country wants to move up the scale from “low-income” to “middle-income” to “high-income,” what must it do? It must increase the total amount of goods and services that it produces, which means there will be more to go around. Remember that per capita income is calculated by dividing the total market value of everything produced in a nation in a year by the number of people in the nation. To understand what is needed in more detail, it is necessary to understand the concept of gross domestic product (GDP). 2. The standard measure of what a country produces: gross domestic product (GDP) The standard economic measurement of what a nation’s economy produces is called the gross domestic product (GDP). It is “the market value of all final goods and services produced within a country in a given period of time.”4 The period of time ordinarily used is one year. This definition includes “goods and services.” “Goods” include all the shoes, clothing, vegetables, bicycles, books, newspapers, cars, and every other material thing that is produced and then sold in the market. “Services” include things such as classes taught by teachers, examinations given by doctors, or the work of paid housecleaners. 3 See,
for example, the strong correlation between per capita income and life expectancy in Stephen Moore, Who’s the Fairest of Them All? (New York: Encounter Books, 2012), in the graph on 57. 4 N. Gregory Mankiw, Principles of Economics (Orlando, FL: Dryden Press, 1998), 480.