Question

Is GDP a good measure of our economic well being? Should GDP take into account environmental issues, distributional issues, and health and welfare issues? Why or why not?

Answer 1

GDP is a good measure of economic well-being. GDP is the market value of all final goods and services produced in an economy in a given year. GDP also reflects the total income in the economy. The higher the total income and per capita income, the higher the standard of livings of the people and their economic well being. When people have higher income, they can spend more on goods and services to fulfill their needs and exercise a greater economic freedom. It has been empirically seen that people in countries with high GDP (USA, UK, Japan, and Germany, etc.) have a much higher economic well-being as compared to people in a low-GDP country (Bangladesh, Pakistan, Nigeria, etc.) Therefore, GDP reflects economic well-being fairly well.

I think GDP should environmental issues, distributional issues, and health and welfare issues. If there is environmental degradation, it hurts the economic well being of people because of rising health-related issues, sustainability issues, increased instances of natural calamities. Therefore, even if GDP is very high, environmental degradation can reduce economic well-being of people. Similarly, even if GDP is high and the total income is unevenly distributed, a portion of the population will have better well-being as compared to others. Lastly, health and other welfare issues can greatly affect economic well-being in spite of high GDP. So, GDP alone cannot reflect a complete picture of the economic well-being of people. When GDP includes environmental issues, distributional issues, and health and welfare issues, it gives a much better picture of the overall well-being of people.