Gross Domestic Product (GDP) Economics Essay

Growth is different from welfare. While economic growth is based more on material aspects and on financial measures of productive capacity, economic welfare is rather more on the social and global aspects of a human’s life. Happiness, satisfaction and well-being are at its forefront, from a purposeful life to a vivid belief in the world’s systems and a willingness to be a part of them. Economic welfare connects economic and strictly financial aspects, to the human, social ones. Numerous means to measure economic welfare have been developed, the standard, most known and relied on being GDP. An indicator that has long divided opinions about its efficiency. In a speech at the University of Kansas, in 1968, Robert F.Kennedy, states that GDP “measures everything in short, except that which makes life worthwhile.” 1  This essay explores and debates over the best way to measure economic welfare.

The measurement of GDP, as an indicator for a society’s welfare, is highly limited. Indeed, GDP neglects all variables that are social, human and that specify a citizen’s satisfaction levels, and all that constitutes welfare. The GDP measures strictly productive and financial growth, as it was elaborated to measure wartime capacity, in a post-war world where economic activity was viewed as a solution to all societal and financial concerns. Our current reality is different. 2 GDP cannot differentiate between an unequal and an egalitarian society, if they have the same GDP measures, the same economic size. 3 Kuznets, a main originator to the creation of GDP, warned after it’s making, that the GDP only measures market activity and is not to be confused for a metric of social and economic well-being. 4 He states that "the welfare of a nation can scarcely be inferred from a measure of national income. If

the GDP is up, why is America down?” 5

Therefore, various indexes and measures have been created, in attempts to statistically quantify a society’s real well-being, of an economy’s real prosperity. Amongst them we find, the IDH, a known indicator, the Gini Index, measuring wealth repartition. MEW, economists Nordhaus and Tobin developed their Measure of economic welfare, a GDP that includes more social measures and an environmental aspect. 6 Gross National Happiness, GNH Index, developed by the bhutanese government, to measure environmental and social fulfillment. 7 Justin Talbot and Ben Beachy, in HBR, enunciate that “given that standard GDP still has its uses, governments don’t need to abandon it. Rather, governments should transform it into a series of indicators.” They note, “The aim would also be to capture important gains that GDP currently misses.”8

However, barriers to achieving real progress measurement consist mainly of data and methodology issues, in addition to some parties' vested interest in keeping the status quo. The social paradigm placing growth as a universal solution to all, and as an inherently benefit, is a major obstacle.9 Thus, we need to modify our socio-economic goals, and to shift our focus from growth to progress and society’s welfare.10 Kapoor and Debroy, in an HBR article, point out that, in changing what we believe forms welfare, our policies and indicators will catch up. 11

To sum up what has been stated above, it is clear that economic welfare does not consist of GDP, an indicator that has blatant drawbacks. Indicators developed demonstrate that economic welfare relies on social parameters, and actual variables of well-being. Overcoming the identified barriers is necessary, to achieve the best, most efficient measure of economic welfare, which would rely on a thorough set of integrated indicators.