Question

GDP is very widely used throughout the world as a measure of Economic health. Come up with your own example, either real or a scenario, that shows a flaw with using GDP as the only indicator of the well being of a society.

To maybe help with an example, think about this question: Is someone who makes $150,000 a year guaranteed to be happier than someone who makes $70,000 a year?

Answer 1

Answer) Gross Domestic Product (GDP) has been greatly recognised as a measure of economic growth of a nation. To an extent, it represents economic prosperity of a country but does not recognise the quality of life prevailing in that country.

For instance, when GDP is counted as a sole measure of country’s prosperity it excludes the detrimental effects on the environment and uneven distribution of income. Most of the developed economies in the recent pandemic situation fall short of hospital beds, and other medical facilities while in possession of nuclear warheads. This stark contrast highlights the need to focus on public health, clean air, happiness quotient and equal opportunities while calculating the economic welfare.

The founder of this concept, Simon Kuznets considered GDP as a measure to estimate national income and not national welfare during the time of Great Depression.

Other examples include, taking into account the production of automobiles but discounting the emissions or pollution they generate; estimating the value of creating new cities but fail to incorporate the resulting deforestation.   

This can be summed up by the famous election speech of Robert Kennedy in 1968, “it [GDP] measures everything in short, except that which makes life worthwhile.”

Thus, a person earning $150,000 per annum would be able to buy happiness compared to someone who makes $70,000 a year is completely incorrect. There are other measures such as Happiness Index or Human Development Index that needs to be given priority in accounting economic welfare of a nation.