Friday, July 30, 2010

GDP No Indicator of National Well-Being

Ron Robins writes:

Everywhere politicians, the general public—and even many economists—crave to increase the GDP. Falsely, I believe, they feel that the GDP measure offers the ability to make real cross country comparisons in living standards and economic growth, much like one compares football scores. But for many reasons, comparisons are erroneous without knowing much more about other factors. Even the U.S Bureau of Economic Analysis does not endorse the idea of GDP reflecting Americans’ well-being.

The GDP was never intended for measuring our well-being. It was created in the 1930s and came into use during World War ll to measure war output. It is simply the value of all final goods and services within a country.

Elaborating on why the GDP cannot be used to describe our well-being is the following by Clifford Cobb and colleagues. They state, “much of what we now call the growth of GDP is really just one of three things in disguise: (1) fixing blunders and social decay from the past [paying for pollution, costs of crime, etc.]; (2) borrowing resources from the future [GDP excludes the costs related to farmland depletion, water, other resources]; or (3) shifting functions from the traditional realm of household and community to the realm of the monetized economy [i.e. eating out rather than at home].”

Read it all here.

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