Notes

GDP as a Measurement of Economic Growth and Human Well-being

Gross Domestic Product is a financial measure of the market value of all final products and services produced in a period. It is the most widely followed metric for evaluating a process of people making, selling, and buying things' performance. GDP is made up by 5 elements. They are consumption expenses, investment, government and net exports.
Consumption expenses are the spending made by families on products and services, not including spending on new house. Investment is the spending by firms on new factories, office buildings, machinery, and additions to, plus spending by families and firms on new houses. Government are the spending by federal, state, and local governments on products and services. Net exports are exports minus imports. However, GDP includes many items that do not help well-being, income going to foreigners, and unfortunates like security expense.
Money-based well-being is a wider idea, but still restricted to material aspects. It is influenced by parts of GDP, by non-market activity, fun, relaxation and wealth. Unemployment and very rich people living near very poor people tend to reduce money-based well-being. Individual living conditions also include non-material aspects such as health, education and the health of the world of nature.
Happiness or well-being, as the final most important goal, demands the most including measure. This happiness depends mostly on family, friends, work happiness from meeting a need or reaching a goal and activities. Income does not play a big part. well-being also has non-money-based dimensions: good health and education, a clean surrounding conditions and safe streets all add to people' overall well-being. These elements are very hard to put into numbers and to group together.
GDP does not account for the distribution of income among the residents of a country, because GDP is only a group measure. A process of people making, selling, and buying things may be highly developed or growing quickly, but also contain a wide gap between the rich and the poor in a community of all good people in the world. These gap often happen on the lines of race, family and cultural characteristics, male or female status, religion, or other minority status within countries. This can lead to sneaky and false descriptions of money-based well-being if the income distribution is heavily skewed toward the high end, as the poorer residents will not directly benefit from the overall level of wealth and income created in their country. Even GDP per person measures may have the same disadvantage if the gap is high. For example, South Africa during racial separation ranked high in terms of GDP per person, but the benefits of this huge wealth and income were not shared equally among the country. In other words, you could say that healthy GDP growth is necessary but not good enough for a nation's long-term well-being.
Environmental externalities and using everything up completely of valuable things from nature is another factor to consider. Dirty water, chemicals and noise came from the factories will have negative impact on human. It affects the well-being of individual and reduce the average age limit of human beings. GDP ignores the bad effect on environment and human life. When the money is spent on cleaning pollution, this increases GDP. Added usage of petrol caused by traffic jams could increase GDP while reducing the quality of life. As GDP does not record the changes in the hidden capital, the deterioration of capital will kept unnoticed for a long time.
Another concern is that current financial activity is degrading the ecosystems, thereby reducing the services that, until now, have been given to humans almost for free. Another concern that has been raised about GDP as a measure of progress is the 'threshold effect.' As GDP increases, overall quality of life often increases up to a point. Beyond this point, increases in GDP are offset by the costs connected with increasing income inequality, loss of relaxation time, and natural capital depletion. Beyond a certain threshold, further increases in material well-being have the negative side effects of lowering community sticking together, healthy relationships, knowledge, wisdom, a sense of purpose, connection with nature, and other dimensions of human happiness.
GDP does not describe what is being produced. Since GDP measures the value of all finished goods and services within a economy, it also includes products that may have negative effects on social welfare. Think of a country with a very strong military weapons industry that represents most of its GDP. If the arms are sold and used within the country itself, overall social welfare will most likely decrease. Of course this also holds true for other goods and services that may have bad effects on society. The GDP makes no difference between productive and destructive activities. While a realistic measure of progress would separate costs and benefits, the GDP places a positive value on all transactions and adds them to the total. Illness, crime, and natural disasters all cause the GDP to increase, as money is spent to treat the sick, jail prisoners, and repair the damage. In this way the GDP rises even as the quality of life declines.
Crime is great for GDP as it results in financial transactions such as hiring guards, buying security systems, buying insurance, paying lawyers, building prisons, etc. All these are additive to GDP. But, since most of this money-based activity is counter-active, GDP may be overstating the money-based growth resulting from all this activity.
GDP does not measure the sustainability of growth. A country may achieve an temporarily high GDP by exploit valuable things from nature or by misallocating investment . Economies experiencing a economic bubble, such as a housing bubble or stock bubble, or a low private-saving rate tend to appear to grow faster due to higher consumption, having higher current growth but the cost of this will be lower future growth.
Another problem is GDP's failure to account for productive non-market activities. A mother doing all the chores, for example, is a very important activity. But it is not something that is paid for or given available to buy. So, such activity is not here in the GDP. This might seem like an unimportant point, but many non-market activities can increase social welfare, and the group of all productive non-market activities is certainly significant-in fact, GDP does not account for any unpaid work at all, no matter how productive.
Robert Kennedy on GDP “The gross national product includes air pollution and advertising for cigarettes and ambulances to clear our highways of carnage. It counts special locks for our doors and jails for the people who break them. GNP includes the destruction of the redwoods and the death of Lake Superior. It grows with the production of napalm, and missiles and nuclear warheads... it does not allow for the health of our families, the quality of their education, or the joy of their play. It is indifferent to the decency of our factories and the safety of our streets alike. It does not include the beauty of our poetry or the strength of our marriages, or the intelligence of our public debate or the integrity of our public officials. It measures everything, in short, except that which makes life worthwhile.”
While GDP includes what is spent on environmental protection protection, healthcare, and education, it does not include actual levels of environmental cleanliness, health, and learning. GDP includes the cost of buying pollution-control equipment, but it does not address whether the air and water are actually cleaner or dirtier. GDP includes spending on medical care, but does not address whether life expectancy or infant death have risen or fallen. In almost the same way, it counts spending on education, but does not address directly how much of the population can read, write, or do basic mathematics. In conclusion, GDP is not a perfect measurement of economic activities and human well-being but a basic monetary value of a country.





References

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Slideshare.net. (2017). GDP as a measure of Economic Growth and Standard of Living. [online] Available at: https://www.slideshare.net/tutor2u/gdp-as-a-measure-of-economic-growth-and-standard-of-living [Accessed 14 Apr. 2017].

UKEssays. (2017). Why GDP is not a perfect measure of well being. [online] Available at: https://www.ukessays.com/essays/economics/why-gdp-is-not-a-perfect-measure-of-wellbeing-economics-essay.php [Accessed 14 Apr. 2017].