"GDP is not a measure of economic performance, its not even a good measure of well being"
By Dharmik Madan 2 min read
Speaking in different sessions, IMF head Christine Lagarde, Nobel Prize-winning economist Joseph Stiglitz, and MIT professor Erik Brynjolfsson stressed that as the world changes, so too should the way we measure progress.
A country’s GDP is an estimate of the entire value of products and services they produce. But even when the concept was first developed back in the late 1930s, the man behind it, Simon Kuznets, warned it was not a suitable measure of a country’s economic development: “He understood that GDP isn't a welfare measure, it is not a measure of how well we are all doing. It counts the items that we’re buying and selling, but it’s quite possible for GDP to travel within the other way of welfare” Brynjolfsson told participants.
Today, with the changes brought on by the Fourth Industrial Revolution, the measure is even less of a reflection of the things that really matter: “We need a new model for growth. Just as we’re reinventing business, we'd like to reinvent the way we measure the economy,” the MIT professor added
Because many factors that contribute to people's happiness aren't bought and sold, GDP may be a limited tool for measuring standard of living. To understand it's limitations better, let's take a glance at several factors that aren't 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's also true that the typical US worker works several hundred hours more per annum quite the typical German worker. The calculation of GDP doesn't take German workers extra weeks of vacation under consideration .
GDP includes what's spent on environmental protection, healthcare, and education, but it doesn't include actual levels of environmental cleanliness, health, and learning. GDP includes the value of shopping for pollution-control equipment, but it doesn't address whether the air and water are literally cleaner or dirtier. GDP includes spending on medical aid , but it doesn't address whether anticipation or infant death rate have risen or fallen. Similarly, GDP counts spending on education, but it doesn't address directly what proportion of the population can read, write, or do basic mathematics.
Speaking in different sessions, IMF head Christine Lagarde, Nobel Prize-winning economist Joseph Stiglitz, and MIT professor Erik Brynjolfsson stressed that as the world changes, so too should the way we measure progress.
A country’s GDP is an estimate of the entire value of products and services they produce. But even when the concept was first developed back in the late 1930s, the man behind it, Simon Kuznets, warned it was not a suitable measure of a country’s economic development: “He understood that GDP isn't a welfare measure, it is not a measure of how well we are all doing. It counts the items that we’re buying and selling, but it’s quite possible for GDP to travel within the other way of welfare” Brynjolfsson told participants.
Today, with the changes brought on by the Fourth Industrial Revolution, the measure is even less of a reflection of the things that really matter: “We need a new model for growth. Just as we’re reinventing business, we'd like to reinvent the way we measure the economy,” the MIT professor added
Because many factors that contribute to people's happiness aren't bought and sold, GDP may be a limited tool for measuring standard of living. To understand it's limitations better, let's take a glance at several factors that aren't 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's also true that the typical US worker works several hundred hours more per annum quite the typical German worker. The calculation of GDP doesn't take German workers extra weeks of vacation under consideration .
GDP includes what's spent on environmental protection, healthcare, and education, but it doesn't include actual levels of environmental cleanliness, health, and learning. GDP includes the value of shopping for pollution-control equipment, but it doesn't address whether the air and water are literally cleaner or dirtier. GDP includes spending on medical aid , but it doesn't address whether anticipation or infant death rate have risen or fallen. Similarly, GDP counts spending on education, but it doesn't address directly what proportion of the population can read, write, or do basic mathematics.