Question

In: Economics

What are some ways in which GDP doesn’t give us enough information to accurately measure the...

What are some ways in which GDP doesn’t give us enough information to accurately measure the well-being or standard of living of a typical/average person in that country?

Solutions

Expert Solution

Using GDP as a measure of welfare has well-known problems which include courses covering the principles of macroeconomics among the first items. But the point of the Davos discussions is that those issues are much deeper in the digital age. Traditional GDP figures ignore many of the advantages of the technology, and we need to reconsider how we assess the well-being of the average citizen.

GDP counts both "bads" and "goods." After an earthquake occurs and requires repair, GDP rises. It's counted as part of GDP when someone is sick and money is spent on their treatment. Yet no one can say we're better off because of a catastrophic earthquake or people get sick.
GDP will not allow the leisure time changes. Imagine two economies with the same living standards, except in one economy the average workday is 12 hours, while in the other it is just 8

GDP counts only products passing through official, regulated markets, so it is losing out on home production and black market activity. This is a major omission, particularly in developing countries where most of what is consumed is produced domestically (or obtained via barter). This also suggests that if people start hiring someone to clean their homes instead of doing it on their own, or if they go out to dinner instead of cooking at home, GDP continues to rise even though the overall amount generated hasn't changed.

For the sale of goods GDP does not change. Now, imagine two economies, except this time you have a dictator who gets 90 percent of what's made, and all the others barely subsist on what's left over. For the second the distribution is far more equal.
Pollution costs are not calibrated to GDP. If two economies have the same GDP per capita but one has polluted air and water while the other does not, well-being would be different but it will not be measured by GDP per capita.


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