GDP as an Accurate Human Well-Being and Growth Index

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Freshman (College 1st year) ・Political Science ・Harvard ・2 Sources

Definition of terms

The overall retail value of all finished goods and services manufactured in a given country and restricted to its geographical countries is the GDP-Gross Domestic Product-

Economy: the nation's income and status

Well-being – being healthy and comfortable

GDP as a human well-being and growth indicator

Introducing

The most widespread unit of economic activity and the economy's total production is the introduction of monetary policies, the most commonly used being the Gross Domestic Product. The GDP is defined by the Systems of National Accounts (SNA) as the total market value of all the final goods and services that are produced in a particular country and is limited to its geographical countries (Ivković 2016). In the UK, the use of the GDP has, however, been subject to scrutiny with economists outlining that it is biased and an overstatement that fails to take into consideration the key indicators of the state of well-being of the given country. However, the GDP has still continually been used for measuring living standards in the well-off nations as the less developed have mostly been associated with the Human Development Index (HDI) (Burd-Sharps et al. 2010). The reason for the increased use of GDP as an indication of a decent standard of living is the apprehension that it is frequently updated and a more standardized indicator that is more reliable as a feature for comparing market activity among different countries. Regardless of the positive inferences that can be developed about the use of GDP as an indicator of the living standards, the measure is a biased way of understanding the dynamics of human wellbeing and development.

Procedural Hitches with Accountability

Delays in the Coverage of Calculations

The challenges described in this context primary involve those that are related to deficiencies in the calculation due to the inherent methodological problems. It is apparent that as a result of the delays in reporting the activities involved are time-demanding, it is apparent that that data may only be assessed on a quarterly process (Stiglitz, Sen, and Fitoussi 2010). It would mean, therefore, that additional variables would have to be included in the coverage of the expenditure to obtain the short-term forecast in the national phase.

The Data is Unreliable and Misleading

The statistics related to the trends in the GDP output at a given stage fail to acknowledge the fact that an increase is not entirely reflecting a better state of well-being among the UK population. Usually, the increases in GDP are crucial for economic analysis and subjects who are concerned about the nation’s macroeconomic policy but are ignorant of the fact that it is not indicative of an increase in productive investment (Sloman and Garratt 2016). Ordinarily, such confusion stems from the increased spending by the government and better export performance that would not indicate that the country is in a worse economic situation.

Non-Monetary Activities in the Measurement of Economic Status

Black Economy

The GDP underestimated the concepts of the black economy and marketing. The black economy is arguably one of the most important indicators of the living standards in a given country but tends to go unrecorded. They can be perceived as the unregistered legal transactions but in the end, they tend to exceed the market as they are not involved in tax returns and sometimes include illegal activities (Khan and Calver 2014). Actions related to the sale of weapons, smuggling of drugs between economies, and black market incidences such as prostitution remain to be untaxed and are vital in trying to understand the dynamic of the living standards (Khan and Calver 2014). However, they are not reflected in the statistics related to the GDP of the UK despite the fact that they are payable to UK residents.

Parallel Economy

Another significant element that is increasingly being left out through the biased focus on GDP is the fact that black marketing is rapidly evolving and includes those ventures that are associated with economic growth but are untraced. By focusing only on the bought and sold goods and services, there is a major challenge in trying to account for those which are sold but are still unrecorded, but still boost the economy. There is a wide range of activities that can be described in this limit including duties undertaken in the domestic setting, time for leisure, services exchanges between friends and neighbors among many others (Ivković 2016). While it is difficult to account for these services nationally, they are a better indicator of the well-being of the community that the GDP would do, which underscores the disadvantages of the GDP.

Qualitative Versus Qualitative Growth

The employment that one related with mostly in accounting for the GDP is that which involves white-collar jobs and those whose output is measurable and the expense of entrepreneurship that is more qualitative. However, when trying to account for the labor that people tends to be put in the realization of the perceived output that is selected as the measure of the GDP, notable weaknesses are being perceived. In fact, the GDP does not take into account the fact that tasks today are less strenuous and physical in the past as quality is emphasized (Boutillier, Carré, and Levratto 2016). It would thus mean that the use of GDP for measuring labor outputs based on the type of employment one is involved in, will be an underestimation of the real output.

External Impacts on Welfare

Apart from the fact that some critical services are being left out, it has become apparent that relying on GDP also involves including questionable items that do not contribute to an improved lifestyle. An example of a controversial inclusion in the GDP measurement is the money spent on expenditure being reflected as revenue rather than as an expense. For instance, when money is used to repair a machine or given equipment in a factory, the expenditure is not perceived as an expense but as revenue as the GDP does not account for the difference. Thus, depreciation of machines and income for foreigners remain the most controversially included aspects in the GDP calculation for the conditions of life (Ivković 2016).

Another concern is the realization that efforts used for the mitigation of anthropogenic causes of human conflict with the environment are documented as if they are benefiting to the world economy. The depletion of natural resources is controversially being associated with increases in the GDP despite the fact that it constitutes a damage to the environment and is a setback to the wellbeing and stable living conditions (Ivković 2016). The reason for the confusion is that when the environment is harmed, the efforts and mitigation processes that will follow including the finances that will be used, will be accounted for an economic activity as it passes through the market system. A related concern is that fishing and logging are perceived as GDP rise because the products are sold, yet they lead to a natural capital decrease and are associated with a complete exhaustion of the natural resources.

Changes in Health Status

It is confusing that government expenditure on trying to improve the health status of its citizens is perceived as a positive effect on the GDP. While it could be supported by the fact that it leads to better healthcare, the reverse is more of a concern because the indicator is wholly misleading. It is apparent that when healthcare is expensive, the private and public sectors will both have to spend higher to meet the care needs the given setting (Stiglitz et al. 2010). It would mean, therefore, that when America is spending more on an expensive healthcare system, it is reflected as a country with a high GDP which would mean that economists would get a misleading value. Compared to the UK that spends less on a more advanced life expectant state, the US is controversially depicted as the more advanced country of the two, which is a distorted indicator due to the GDP index (Burd-Sharps et al. 2010).

Recommendations

Factoring National Account Aggregates

As opposed to the previous use of GDP that is associated with a lot of criticism, it is essential to consider the net instead of the gross measures of economic activities taking place in the country (Sloman and Garratt 2016). While it is hard to estimate the depreciation rate, it is apparent that it is the only way that the net income can be determined, which is a truer indicator of the state of the economy. For example, between 1985 and 2007, the GDP in the US rose by 3 percent while the depreciation increased by 4.4 percent over the same period (Ivković 2016). In the UK the NDP also rose at a less rate than the GDP between 1997 and 2012, as depicted in the chart below. It, therefore, implies that it is possible for the real national product to grow at a slower rate than the GDP.

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