Gdp: a True Measure of Economic Welfare?

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GDP or Gross Domestic Product is defined as the total market value of all final good and service produced in a given year. It is a simple formula that adds together personal consumption expenditures, gross private domestic investment, government purchases, and Net Exports, otherwise expressed as GDP= C+ Ig+G+Xn. The Social Security number was never supposed to be a number for identification. Just the same, GDP is being used for a purpose other than what it was designed for. It was not to be an indicator of economic welfare but that is how it is used today, not only in the US but in countries around the globe. At first glance it may seem like a good way to sum up the economic welfare of a country, but upon digging a little deeper some problems are uncovered. One of the biggest problems of using GDP as an economic welfare indicator is that every expenditure is factored in as a good expenditure. A good example would be the building up of police in the country. This would bolster GDP showing growth, however the reasons for putting more police on the streets may be that crime has risen, therefore, the welfare of the people has not necessarily benefited from the expenditure. A good example of this is the GDP data published by the BEA (Bureau of Economic Analysis) showing economic growth of .8% in 2001, 1.9% in 2002, and 3% in 2003. By looking at these numbers as an indicator of economic welfare, one might assume that things are going well. However, the story for the average person may be different. According to the Statistical Abstract of the United States 2004 -2005 version, drug seizure rates of Heroin, Cocaine, and Cannabis increased from 2,661,455 in 2002 to 2,963,208 pounds in 2003. One alternative to using GDP as an economic welfare indicator would be to use GPI (Genuine Progress Indicator). This indicator uses the same basic formula as GDP however it is adjusted to remedy several of the problems of GDP. GPI adds in the uncounted value of home workers, income...
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