Is GDP an adequate measure of national economic activity? Should GDP be replaced by a new Quality of Life Measure? Or should there be separate measures of economic output (GDP) and Quality of Life?
Is GDP an adequate measure of national economic activity?
Should GDP be replaced by a new Quality of Life Measure?
Or should there be separate measures of economic output (GDP) and Quality of Life?
The shortcoming of GDP can be seen as below:-
- Only those activities which are happening in the money economy are counted in GDP.
- The aggregate figures of GDP are based on the price not value.
- The main focus of GDP is on production and no consideration is given to destruction, losses, using up and squandering of wealth or resources.
- Only average prosperity is measured by per capita GDP and does not measures the disparity in wealth, income and resource distribution.
If we think all these shortcomings of GDP, it will not be possible to defend the practice of equating wealth or prosperity with GDP. The sum of all the resources belonging to a certain country , individual, region or group is termed as wealth. Thus , one can easily state that the change in wealth means amount of wealth being created and the amount being destroyed or used up. Thus the true nature of wealth can be reflected by the following equation:-
Change in Wealth = GDP + (Production of Wealth Not Included in GDP) – (Destruction and Loss of Wealth) +/- (Flow of Wealth due to Imports & Exports)
Wealth is not measured by GDP and even it cannot considered to be a crude measure of wealth. In fact, it is one of the various methods which can be employed in determining the rate of change of wealth within the society.
Answer:- Yes, GDP should be replaced with the following other alternatives which includes the various factors which matters for the quality of life:-
Genuine Progress Indicator (GPI):- It includes value of households, income distribution, volunteer work and subtracts the factors such as value of crime and pollution.
UN Human Development Index:-It combines GDP, Health, education and life expectancy.
Gross National Happiness:- This is mainly used by Bhutan in place of GDP.
Canadian Index of Wellbeing (CIW):- It would include educational, health, environmental quality factors.