Question

Because so many people misinterpret GDP as a measure of well-being, people have begun to propose different measures of well-being as alternatives to GDP. The alternative that is getting the most attention is the Genuine Progress Indicator (GPI). Another alternative measure is Gross National Happiness (GNH). Both to provide a measure of the well-being of residents of a country. Search for information about GPI (a group called Redefining Progress is a good source, but feel free to look at others) or GNH. (Choose EITHER GPI or GNH as an alternative to GDP.)

Write a paper explaining whether you think the U.S.’s GDP or GPI/GNH would be higher and explain why. You do not need actual numbers or estimates of either GDP or GPI/GNH. Just explain a few of the key differences between the two measures. Then based on those differences, explain whether you think the U.S.’s GDP or GPI/GNH would be higher. In your paper, you should demonstrate understanding of how GDP and GPI/GNH are estimated, the key differences between them, and the implications of those differences.

Answer 1

GDP or gross domestic product calculates all the goods and services produced and consumed by the economy witin the financial year. It depends only on economic factors.

GPI/GNH is based on the welfare or sense of well being which is calculated using several economic and non economic factors. Economic being the same factors used in GDP and non economic being externalities, general happines, income equality etc.

Some points of difference are:-

1. GDP doesnt study changes in income distribution- An increase in GDP can be due to an overall increase in income level of the economy or due to increase in income of the already rich households while the condition of poor or middle households might had actually worsened. Such factors dont influence GDP but such factors affect GPI/GNH where welfare of all classes of people in the society is considered.
2. Non-monetary exchanges are not considered in GDP- Non monetary exchanges refers to the services provided by the NGOs, family members, friends etc., for which no payment is made to them by us. Such services are excluded from GDP as they dont have any monetary basis of calculation but they form part of GPI/GNH.
3. Contribution of some products may be positive to GDP but negative to GPI/GNH- GDP includes all final goods whether it is good or bad for the society like milk and liquor. GDP only considers the amount of goods produced and not their impact while GPI/GNH measure the impact such goods make on the welfare of the society in both short and long run like milk providing welfare while liquor being harmful for health reducing welfare of the society.
4. GDP doesnt include externalities- An externality is a benefit or harm to the society for which no payment is made or received in return like pollution created by factories is a negative externality while a footbridge made by government and is used by everyone saving travelling time is a positive externality. Such externalities are not considered while calculation of GDP while GPI/GNH consider such externalities.

From all the above points, one can say the GDP is an underestimation of the welfare to the society and thus, GPI/GNH would be higher than the US's GDP.