In: Economics
GDP per capita is commonly used to compare well-being across countries, however it has its limitations. What is the potential impact of using GDP per capita as the only measure to compare well-being for people across different countries?
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 even greater in the digital age. Traditional GDP figures ignore many of the advantages of the technology, so we need to reconsider how we calculate the well-being of the typical person.
For the distribution of goods GDP does not change. Instead,
imagine two economies, but this time one has a dictator who gets 90
percent of what's made, and all the others barely subsist on what's
left. In the second the distribution is much more equal. GDP per
capita will be the same in both cases, but it's obvious which
country I'd rather stay in.
Pollution costs are not calibrated to GDP. When two countries have
the same GDP per capita but one has contaminated air and water and
the other does not, well-being will be different but it will not be
measured by GDP per capita.
The values behind GDP give no thought whatsoever to the fact that capital is not indestructible, and is in fact continuously depreciating. This leads to illogical circumstances such as the GDP rise that happens regularly in the wake of unexpected catastrophes. Natural disasters, for example, annually kill vast amounts of capital like facilities, transportation modes, houses and environmental infrastructure. Nevertheless, GDP only accounts for the actual reconstruction of this country, resulting in an increase in GDP equivalent to the level of destruction caused by the disaster.
The second major issue with using per capita GDP as a measure of quality of life is their dependence on monetary values and costs. One of the features of GDP per capita frequently heralded as a benefit over other metrics is the simplicity of the equation behind it, resulting in one supposedly objective and easy to obtain statistic that represents the average person's ability to buy goods and services in a community. For fact it is a much more complicated matter to reach GDP. Although many transactions in an economy have a clear price and a clear number, many of the day-to-day activities of an individual, such as household production or services, are far less clear