Essay Sample on Measuring GDP and Progress of Societies

Introduction

The increase in gross domestic product (GDP) has been perceived as a measure of the growing economy and a positive sign of social wellbeing. Generally, countries with high GDP are associated with high taxes paid to the government which equals to the provision of public services such as health and education. However, the measure of GDP has faced various critiques as a measure of wellbeing which is why it is important to evaluate how GDP can be used as a measure of social wellbeing together with its limitations. GDP is a significant indicator of a country's financial performance and despite the fact that it is the commonly used measure of social wellbeing it has some significant limitations of which include the omission of non-market trades (Barrington-Leigh & Escande, 2018). This paper aims at evaluating some of the ways in which measuring GDP fails to capture the overall progress of societies.

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The variations of GDP can predict the series of economic growth and most of the countries consider the increase of GDP to be the target for financial development. Even though GDP has been widely used as a measure of development levels of the global economy, there are essential demerits and flaws in this technique of measuring development that prevents its wide range application in fiscal growth. Generally, GDP does not replicate the contents of the economic activities which weaken the purpose of GDP as a measure of economic well-being.

The economic development can generally result in an increase in the income of people and even the economic welfare. The per capita GPD is generally used to show the typical level people's revenue in their various countries. However, the measure of GDP cannot reflect the variations in the welfare of people as a result of the differences in the distribution of income. Additionally, there are several considerations in the assessment of the welfare people besides the economic perspective. Therefore, the measure of the increase of the GDP does not replicate the increase in the general welfare of people. Regarding the market and non-market economic activities, GDP only reflects the market values of the final market products and services and does not cover the non-market economic activities. In this regard, the products and services that do not undergo market exchange are not easily evaluated. Therefore, in the calculation of GDP, the omission of non-market economic products and services limits the capability of the GDP measure to give a full replication of the economic activities (Boarini, Kolev and McGregor, 2014).

There are various factors that contribute to the social well-being of individuals that are not traded in the market which make the measure of GDP a limited approach for determining the standard of living. For instance, the measure of GDP is not likely to justify for free time. Therefore, higher GDP per capita on the US as compared to Germany does not account for higher standards of living in the US because average US workers work for several hours annually as compared to German workers. Therefore, the assessment of GDP does not account for the German extra weeks of vacation.

On the other hand, covers the expenditure on environmental protection, healthcare, and even education but it does not specify the levels of environmental sanitation, health, and learning. The GDP measure incorporates the expenditure in purchasing the control equipment for pollution but omits to specify whether the cases of pollution are dealt with. Similarly, GDP measure includes the expenditure of Medicare but does not address the concern of rising and fall of life expectancy and mortality. Also, regarding education, GDP measures present the general expenditure on education but do not directly assess the ratio of the population that is literate (Ahmad & Schreyer, 2016).

A noticeable critic of utilizing the GDP as a proportion of development was the U.S. representative Bobby Kennedy. He expressed that the GDP does not segregate the origin of its esteem, with the goal that every one of the things that do not represent a propelled society is considered. This incorporates things like war material, penitentiaries, ambulances and yet, it does exclude every one of the things that "make life beneficial, for example, health, and education standard, workmanship and nationalism (Coyle, 2014). All these and different other things are difficult to gauge with a fiscal value, hence being represented in the GDP, which is the explanation behind the reason why Bobby Kennedy stated that the GDP is inadmissible to quantify the development of the general public in a nation. Diane Coyle on the same note states that to quantify the progress of the economy and the general public, three factors ought to be considered. The first is the monetary power, which is normally estimated with the GDP. The following thing is the wellbeing of the people, which is progressively abstract, with the goal that the type of estimation must be to some degree unique. The last factor is sustainability, which implies the long haul manageability of the nation in respects of assets and natural issues (Coyle, 2014).

While Coyle considers that the GDP is a decent estimation for the financial power, there are numerous explanations behind not utilizing the GDP for that. The developer of the GDP measure, Simon Kuznets, is even in contradiction of the application of the GDP as an estimation for the prosperity of the economy. One of its enormous issues is that it neglects to gauge numerous administrations that are existent, yet are not specifically quantifiable. The supposed casual economy is totally overlooked by the GDP despite the fact that precisely the same administrations would impact the GDP essentially, in the event that they would be accomplished by a recognized service provider. A major issue particularly in developing nations is every one of the general population who are informally working as vendors on the streets for example (Coyle, 2014).

Another factor is the twisting of GDP by hypothesis in the share trading system and of the banks. As the monetary yield of this division is huge, it likewise assumes an imperative job for the estimation of the GDP. The issue is that the numbers that are created by them do not characterize the genuine economy as these do not exist in a genuine financial value. So if the stock exchange is going great, the expansion in benefit and subsequently increment in GDP is completely irrelevant to the prosperity of the general population. These models demonstrate that the measure of the GDP can change, without expanding the financial intensity of a nation.

Talking at Davos, Erik Brynjolfsson stressed that the GDP of a country is a gauge of the aggregate estimation of products and enterprises they produce. But even when the idea was first created back in the late 1930s, the man behind it, Simon Kuznets, cautioned it was anything but an appropriate proportion of a nation's monetary development since he understood that GDP is not a welfare measure, it is anything but a proportion of how well we are for the most part getting along. It checks the things that we are purchasing and moving, however, it is very feasible for GDP to go the other way of welfare. He also added that with the progressions expedited by the Fourth Industrial Revolution today, the measure of GDP is even to a lesser degree an impression of the things that extremely matter. In this way, we require another model for development just as we are revolutionizing business we have to reexamine the manner in which we measure the economy (Thomson, 2016).

Brynjolfsson accredits the rise in productivity to the increase of contemporary innovation, superseding an ever increasing number of services that could be possibly done just by people previously. So the improvement of technology can raise the GDP since it builds the profitability of the nation, without profiting the ordinary public. The expansion in efficiency benefits the rich individuals, who possess the organizations, as they can have the equivalent or even higher profitability with the equivalent or fewer employees. For this situation, an increase in GDP in light of innovation benefits a little minority, with the goal that it is beyond the realm of imagination to expect to state that the general prosperity of the general population expanded (Thomson, 2016).

Another issue is these days the numerous services of the internet which do not contribute anything to the GDP. This is a case of improvement for the general public, gainful for everybody without being reflected in any capacity in the GDP of every nation. The last estimation of prosperity is clearly the pleasure of the general population. Many Surveys were led before, demonstrating that the most joyful individuals were all from nations with a high GDP, and yet, they were not in the indistinguishable request from the nations with the most noteworthy GDP. This prompted the Coyles hypothesis, that happiness increases relatively with the GDP until a specific point, where, regardless of whether the GDP rises, the joy does not. After this point, delight is subject to different factors, for example, security and leisure time (Coyle, 2014).

On the same note, Christine Lagarde additionally made the very same contention talking in another session in Davos that we need to return to GDP, the calculation of productivity, the estimation of things so as to evaluate, and presumably change, the manner in which we take a look at the economy. Consequently, Joseph Stiglitz emphasized that GDP in the US has gone up each year with the exception of 2009, however, most Americans are more regrettable off than they were a third of the past century. The advantages have gone to the specific best. At the base, genuine wages balanced for now are lower than they were 60 years ago. He additionally included that it is a financial framework that is not working for many people. As per Stiglitz, what we measure illuminates what we do and in case we are estimating the wrong thing, we will do the wrong thing (Thomson, 2016).

Joseph Stiglitz, a beneficiary of the Nobel Prize in financial science, shows the concern with sustainability and GDP with the case of the time before the emergency in the United States, when the GDP was developing, making the fantasy of a well working economy despite the fact that it was not, with the consequence of an economic fall. The GDP resembled a rise before blasting; a major piece of its value originated from theory, which has no genuine value, yet it is joined into the GDP. Almost 80% of the Americans were utilizing 100 to 110% of their salary, creating an obligation which is for the long haul not manageable by any stretch of the imagination. This extraordinary spending prompted an expansion in the GDP of the nation. The accompanying breakdown of the economy was crushing for some, individuals living in the United States and unquestionably brought down the general way of life with the goal that the already rising GDP could not be inferred in any capacity as an advancement of the society into a superior future. Another issue is managing sustainable sources of energy and in addition the natural familiarity with a nation. These two variables are significant for a manageable economy, yet they are frequently overlooked by the legislature. The momentary reasoning of various nations might raise their GDP right now, dismissing the danger of having nothing left later on (Thomson, 2016).

References

Ahmad, N., & Schreyer, P. (2016). Are GDP and Productivity Measures up to the Challenges of the Digital Economy?. International Productivity Monitor, (30), 4.Barrington-Leigh, C., & Escande, A. (2018). Measuring progress and well-being: A comparative review of indi...