How Effective Is Gdp Per Capita as a Measure of Economic Well-Being

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How effective is GDP per capita as a measure of economic well-being?

Gross Domestic Product (GDP) is one of the primary measures used to gauge the state of a nation’s economy. It is a representation of all the goods and services produced by that nation over a specific time period. Normally GDP is compared on a quarterly or annual basis. For example if a nations GDP has risen by 2% in a period of time, then it is thought that that nation’s economy has grown by 2%. However, a recession is also identified if GDP drops for 2 consecutive quarters. As a measure of economic well-being, GDP should not be the only measure taken into account. While GDP is a good measure of the size of the actual economy, it does not accurately measure the well-being of the people of that nation. GDP includes many items that do not help well-being: depreciation, income going to foreigners, and regrettables like security expenditure, Healthcare and Insurance. These items are called regrettables because if people had a choice then this would not be how they would want to spend their money. Using GDP as a measure of well-being has many issues which may affect its accuracy. In this assignment I will explain some of the reasons against using GDP to measure economic well-being and offer some alternatives which may give a more accurate picture of economic well-being within a nation.

Issues which effect GDP
While GDP can be used to measure the state of the economy of a nation, there are a number of factors which must be taking into account as to why it does not give a true picture of the well-being of that nation. GDP does not take into account or place any value to leisure. A workforce that spends more time working will have a higher GDP but this may not necessarily lead to a great well-being for that workforce. The non-paid sector is another area not taken into account when calculating GDP. Areas such as the volunteer sector, black market and household chores are not included. We can put a figure on work that may have been previously done free of charge, but again this does not necessarily mean an increase in well-being. In any economy there is the area of regrettables which is covered in GDP. These areas of spending can include policing, insurance, military budgets and healthcare. In an ideal world these are areas where people would, if having a choice, not spend money on, and yet are covered by GDP. If these are areas where individuals are reluctant to spend, then this cannot be accurately used to measure well-being. In a world where there is no need to spend money on these items then well-being would be greatly improved. If we are to use GPD as a measure of well-being then it would be anticipated that people use their income in a way that would exploit their own well-being. But as we know, this is not always true. When individuals make a purchase, the satisfaction gained from that purchase may not be accurately taken into account. Buying expensive goods such as houses or cars can lead to short term satisfaction, but once these goods are taken for granted they are seen as just another item in our day to day life. Items or changes that would be more likely to lead to a higher sense of well-being may be a change to a less stressful job or a shorter commute to work. These items however are not covered in GDP. The value an individual places on an item such as a car or house may also lead to a higher sense of well-being. This value my not necessarily be monetary but could be a relative value in comparison to the size of a neighbour’s house or type of car. If an individual that their property is of a higher value in size or perception then this will lead to a higher sense of satisfaction and well-being. When measuring well-being, GDP does not take into account the gap in wealth between individuals. For example, to a person who earns in excess of €1m per year, a cash sum of €5000 may not increase their well-being. However, if an...
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