see notes below

Robert H. Frank's Gauging the pain of the middle class

A relevant means of assessing the country's status is through the computation of the gross domestic product, which indicates the size of the national economy. The GDP per capita also indicates the individual wealth of the citizens within a country. This measure is extremely popular and often used to compare countries.

The Central Intelligence Agency has even constructed a chart of the strongest countries based on the GDP per capital. According to this poll, the top three leaders are represented by Qatar, Lichtenstein and Luxembourg, while the last three countries are represented by Zimbabwe, Burundi and the Democratic Republic of Congo. The United States of America is placed on the tenth position on the chart (Website of the Central Intelligence Agency, 2011).

A question which is often being raised in the use of the GDP per capita to assess the wealth of a country is represented by the ability of the GDP per capita to include externalities. Externalities are generically defined as the costs or benefits generated by an indirect action. More specifically:

[Externalities are common in virtually every area of economic activity. They are defined as third party (or spill-over) effects arising from the production and/or consumption of goods and services for which no appropriate compensation is paid. Externalities can cause market failure if the price mechanism does not take into account the full social costs and social benefits of production and consumption] (Tutor2U).

The issue at the heart of this endeavor is as such represented by externalities, with emphasis on the specific issues of the externalities used in the measurement of national wealth through the GDP per capita and the toil index.

Frank commences his article by arguing that each individual and group seeks ways to improve their image and that the political players use the GDP in order to improve the image of the state. In essence, Frank's problem is related to the usage of the Gross Domestic Product in order to measure the wealth of citizens. The GDP per capita is constructed based on the overall national consumption and output, but it does not reflect any differences between the citizens. Specifically, it reveals a national average by equally dividing the national GDP, but does not consider the existence of social and economic differences and classes.

In other words, the problem raised against the usage of the GDP per capita in the measurement of national wealth is represented by the inability of the tool to consider the income inequality between the vast citizen categories in the U.S. And this problem is further supported by the inconsistent increase in wages revealed at the levels of the middle class and the upper class. Ultimately, Frank suggests that the measurement of wealth with the aid of the GDP is non-efficient as it does not consider the externalities. In order to resolve the problem of GDP measurement, Frank proposes the usage of the toil index which:

"Measures the number of hours that median earners must toil each month to be able to rent a house in a school district of at least average quality" (Frank, 2011). By using this index, Frank found that the actual situation was less positive than the one revealed by the measurement of the GDP and identified that the members of the middle class have to work significantly more in order to maintain their living standards. Also, the author found that the income inequality between the classes is increasing and that this is often overlooked.

All in all, Frank concludes that the positive and negative externalities are not adequately considered in the construction of the national and individual wealth with the aid of the GDP. At a personal level, it is found that Robert Frank is indeed right in his argumentation for a new means to measuring the national wealth. And this need is best explained by the fact that the modern day society has suffered numerous changes which need to be recognized. And at the level of the GDP distribution, it must be recognized that the GDP per capita does not faithfully reflect the individual wealth, especially in a context of the widening income gap.