Question

Discuss the pros and cons of using GDP to measure well-being.

According to the concepts in this module, GDP measures a nation’s productivity, or “its ability to produce goods and services” (Chapter 1, Section 1-3a). “A country’s standard of living depends on” (Chapter 1, Section 1-3a, ) this productivity, implying that happiness and well-being also depend on productivity.

To complete the Discussion activity, write a post that answers the following questions:

• View a video about measuring gross national happiness:
• Write a discussion post that answers the following questions:
  • Does the GDP really measure happiness? Why or why not?
  • What elements of happiness do wealth and productivity miss? What elements of happiness do they measure?
  • What is the HDI indicator? What do you think this indicator would say about the United States’ well-being? Explain.
• Post your response to the discussion board.
• Cite all sources used.

Answer 1

GDP is an indicator of a society’s standard of living, but it is only a rough indicator because it does not directly account for leisure, environmental quality, levels of health and education, activities conducted outside the market, changes in inequality of income, increases in variety, increases in technology, or the—positive or negative—value that society may place on certain types of output.

PROS

GDP provides a better analysis or measure of economy activity through its growth rate and changes in an economy than any other existing measure. It summarizes a whole range of economic information in and determines the comparative strengths and weaknesses of various sectors.

GDP helps policy-makers and analysts to easily guide, adjust and implement economic policy.

GDP serve as accurate barometer of the business climate, where it provides the government and business useful information to adjust in different kinds of contingency problems like recession and depression.

GDP serve as a simple proxy for social and economic welfare.

GDP is widely used in different parts of the world that give economist studies in comparing countries.

CONS

GDP does not include non-market activities. These activities are based on production and consumption that occur outside the market economy that does not have a price attached like unpaid house workers, volunteer work, barter and the illegal drug trade.

GNP does not include domestic household products or black market.

GNP does not consider how the wealth of a nation is distributed equally. For example GDP provides an estimate of each person share of the market economy but in reality some people share of the economy is greater than others. This level of unequal distribution of incomes and consumption and the incidence of poverty cannot be determined by tracking the GDP.

Some GDP measured expenditures do not contribute to Economic Welfare. It does not account for any welfare loss or any negative events that results from an event such as a natural disaster environmental cleanup or reconstruction effort contributes to welfare and the GDP.

2. Because many factors that contribute to people's happiness are not bought and sold, GDP is a limited tool for measuring standard of living. To understand it's limitations better, let's take a look at several factors that are not accounted for in GDP.

GDP does not account for leisure time. The US GDP per capita is larger than the GDP per capita of Germany, but does this prove that the standard of living in the United States is higher? Not necessarily since it is also true that the average US worker works several hundred hours more per year more than the average German worker. The calculation of GDP does not take German workers extra weeks of vacation into account.

3.

A person’s happiness, and her perception of success or failure, ultimately depends on what measures the individual values over the course of her life—whether that’s providing for a family, fighting climate change, or writing poetry. Wealth is nothing without the opportunity provided by good health to live free of pain and worry. This is missed in the current system.

4.

Its elements of measurement are:

psychological wellbeing, standard of living, good governance, health, community vitality, cultural diversity, time use and ecological resilience.