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In: Economics

Problems of the GDP as the indicator of society’s economy and society’s well-being focusing on economy...

Problems of the GDP as the indicator of society’s economy and society’s well-being focusing on economy and environment.

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Expert Solution

GDP is an indicator of a society’s standard of living, however gives a rough indicator as it does not directly account for leisure, environmental quality, levels of education and health, activities conducted outside the market, increases in variety, increases in technology, changes in inequality of income, or the negative or positive value that society may place on some types of output. The main issues of the GDP as the indicator of society’s economy and society’s well-being focusing on economy as well as environment are as follows:

--GDP does not account for leisure time.

--GDP includes what is spent on environmental protection however it does not include actual levels of environmental cleanliness. GDP is inclusive of the cost of buying pollution-control equipment, however it does not address whether the water and air are actually dirtier or cleaner.

--GDP consists of what is spent on healthcare, and education, however does not include health, and learning. GDP counts spending on medical care, however does not address whether infant mortality or life expectancy have fallen or risen. Similarly, GDP includes the spending on education, however fails to address directly how much of the population can write, read, or do basic mathematics

--GDP counts production that is exchanged in the market, however does not includes production that is not exchanged in the market. For instance, hiring someone to mow the lawn or clean the house is part of GDP, however doing these tasks yourself is not included in the GDP.

--GDP remains quiet about the level of inequality in society.

--GDP has nothing in specific to say about the amount of available variety.

--GDP has nothing much to say about which products and technology are available in the economy.

--GDP does not count non-market production activities and all of the production in terms of legal and illegal which falls in the underground economy

Thus considering the above problems we can say that GDP per capita does not fully capture the wide idea of standard of living has led to a concern that the rise in GDP over time are illusory. Although theoretically possible that GDP is increasing, the standard of living could be falling if environmental cleanliness, human health, and other factors that are not counted in GDP are worsening.


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