M1. What is Median Expected Lifetime Income (MELI)?

By Jonathan Andreas, 2016/09/23

Median Expected Lifetime Income (MELI) is the total income over the expected lifespan for the median person in a population.  MELI is prounounced “Mellie” because that is more mellifluous than alternative pronunciations. “Mellie” sounds so mellifluous, it used to be a popular girl’s name.  MELI is the best simple measure of economic welfare that can be condensed into a single number.   There are two basic ways to calculate MELI:

  1. Crude MELI is calculated by simply multiplying median individual income times life expectancy.  If there is no better data, then this could be used to approximate the standard version of MELI.
  2. The standard version of MELI is calculated by calculating the median individual income for each age and then multiplying that times the probability of survival to that age (in that same year) and adding up the result.

It is a bit tricky to measure median individual income because it requires decomposing household income among individuals (link coming later), but it is easier to measure than GDP,  so that is not an insurmountable problem.   MELI will hopefully replace per-capita GDP, or mean income, which is a misleading statistic compared with median income. Mean income arbitrarily measures only one year of income rather than estimating the total lifetime income of the average person which is more important.  Whereas aggregate GDP will always be a useful statistic for macroeconomic purposes, mean income is only used to estimate economic wellbeing and it should be almost entirely eliminated by MELI.

Half of MELI is based upon life expectancy which is arguably the most precise and powerful single measurement of human welfare that currently exists.  Neither life expectancy nor MELI really attempts to predict the future.  Both give a snapshot of conditions in a particular year. Both would give an accurate estimate of future lifespan and income if future conditions always remained the same as they had been in the year it was estimated.  That is impossible, but if you want to think of it as an estimate of the future, rather than as a shapshot of the present year, then it is a somewhat neutral estimate between optimistically assuming that the future will be better and pessimistically assuming that the future will be worse.

For more about MELI, continue on to Why is MELI Better Than mean GDP?

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