What is GDP?
The Gross Domestic Product (GDP) has been the most widely used indicator of a nation’s welfare since 1944. For decades, people regard countries with higher GDP as stronger ones and whatever is good for the GDP is also good for the nation. But is that true? And what does GDP actually measure? In my opinion, GDP only measures part of the economic growth, while ignores the economic health and human well-being. First of all, GDP counts all the money transitions of goods and services; however, not everything can be included in GDP. As proposed by Gibson-Graham (2013) that Economy is like an Iceberg, all the visible/measurable economic activities in mainstream economy are above the waterline. Meanwhile, contributions made by people such as social workers, volunteers or housewives are mostly under the waterline, those value created are not calculated in GDP. Moreover, GDP couldn’t value natural resources until they are consumed. In other words, woods would be no value before sold as boards. Secondly, as GDP mainly makes no distinction between productive and destructive activities, the quality of life could decline with an increase in GDP. For example, illness, crime, and natural disasters all could increase money consumptions thereby affect GDP growth, but also has severe impact in happy life. In short, GDP is still widely accepted as the crucial metric to measure national welfare. Even though using GDP alone has certain limitations, we can not simply dethrone GDP. Meanwhile, there are some alternatives should be added to form a comprehensive method to evaluate a nation’s sustainable well-being.
Critical Analysis of the 3 alternatives
• Adjusted economic measures
Genuine Progress Indicator (GPI), similar to GDP is also expressed in monetary units; therefore is most comparable. GPI also account for the value of volunteer work and the costs of crime and pollution, which are neglected in GDP but crucial to human well-being. Moreover, GPI considers income distribution. As purchasing power of different currency varies from country to country, even a dollar means different between rich and poor. Hence, a dollar increased for poor people could generate more welfare. GPI could adjust the gap created in GDP measurement. In my opinion, GPI is the most objective alternative. Although GDP has many limitations, it’s undoubtedly that it’s a calculated objective number. So does GPI. • Subjective measures of well-being
In short, this method measures happiness, such as the World Values Survey (WVS) or the gross national happiness index used in Bhutan. As these surveys have to be done within a relatively large sample; they’re very time and energy consuming. Take the gross national happiness index for example, it contains nine domains, covers almost every aspects of life, but it’s a self-reported result. Everybody has a different definition of happiness and different needs. According to Maslow’s Hierarchy, the lower needs have to be satisfied first for the emergence of higher needs. For some people if they would be happy with enough food, while others may want a big house, happy family and ideal job. Therefore, even with a lower GDP, people in India could be happier than the Europeans. • Weighted composite measures of several indicators.
One of them multiplies life satisfaction by life expectancy and divides the product by a measure of ecological impact. This method looks like a mathematic equation; however, the factors as life satisfaction and ecological impact are both very subjective. Speaking of life expectancy, it may not directly relate to wealth. Again, these measures are the combination of subjective and objective indicators.
• The OECD framework for measuring well-being
There’s a growing consensus that measuring well-being requires looking at a broader range of dimensions (monetary and non-monetary). This framework contains four features: (1) it focuses on people, from an...
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