Question

Explain why GDP figures do not necessarily measure happiness or well-being.

Answer 1

 

GDP, by definition, is an aggregate measure that includes the value of goods and services produced in an economy over a certain period of time. However, it fails to measure happiness or well-being of the people of that country.

The areas where the GDP does not show the correct picture are:

• There is no scope for the negative effects (negative externalitites) created in the process of production and development. For example, GDP takes a positive count of the cars we produce but does not account for the emissions they generate. Environmental degradation is a significant externality that the measure of GDP has failed to reflect.
• GDP also fails to capture the distribution of income across society – something that is becoming more pertinent in today’s world with rising inequality levels in the developed and developing world alike.
• Another aspect of modern economies that makes GDP not a good metric is its disproportionate focus on what is produced. For example- A country that produces tonnes of plastic may have a very high GDP as compared to a country that takes care of the environment more and produces less plastic.