Tax reform season is upon us. The White House and Congressional Republicans promise that their unified framework for tax reform will “fuel unprecedented economic growth.” The President has touted numbers as high as 6 percent. His more cautious advisers suggest 3 percent, a full percentage point or more above recent long-run forecasts. But even if faster growth were a sure thing, we need to ask whether that would bring real prosperity. Just what is real prosperity, and what would it take to achieve it?

Growth and prosperity are not the same thing

Economists use GDP as a measure of a country’s total output of goods and services that compresses output of steel, radishes, and flu shots into a single number. Although they are less widely known, it is also possible to measure the broader concept of prosperity by aggregating the many dimensions of human flourishing, including health, education, personal freedom, and living conditions, into one indicator. We expect GDP and prosperity to be positively related, but how closely? 

Let’s look at some numbers. For this post, I will use the Social Progress Index (SPI) as a measure of prosperity. According to Michael Porter, Professor at the Harvard Business School and a member of the Advisory Board of the Social Progress Initiative, the SPI is “a practical tool for government and business leaders to benchmark country performance and prioritize those areas where social improvement is most needed,” and “a systematic, empirical foundation to guide strategy for inclusive growth.” (The Legatum Prosperity Index, an alternative that I have used elsewhere, would yield similar conclusions.)

The SPI is constructed from some 50 individual indicators, covering things like longevity, school enrollment, homicide rates, environmental quality, protection of property rights, freedom of religion, and many more. Despite the “progress” in its name, there is nothing especially “progressive” about it in the political sense. The great majority of its components measure aspects of human wellbeing that are equally valued by progressives, libertarians, and conservatives. 

Here is a scatter plot of the SPI against GDP per capita.* The solid black trendline shows a reasonably close fit between the two variables, with an R2 of 0.82. The fit is best for a logarithmic trendline, indicating that for any given starting point, a 1 percent gain in income yields a roughly the same gain in SPI score, although a $1 gain in income has a much stronger effect for low-income countries.