Paper Example on GDP: Aggregate Traded Income or Products & Services?

Introduction

Generally, GDP is interpreted to mean a measure of the aggregate traded income of a country, and a good number of its proposed substitutes (for example GPI) are also measures of adjusted average yearly "earnings" flows ( where adjustments are supposed to reflect issues (for instance environmental damage) which in many instances GDP ignores) (Decancq & Schokkaert, 2016 pp. 23). Other economists have defined GDP in terms of total value of produced products and services in a particular nation in a given period. However, it is essential to note that 'income' is a flow variable which, in most instances, does not directly depend on the total value of the bequest, which the current generation will leave to the future generation (Pretty et al., 2016 pp. 13). Economists point out that even though the current generation clearly mind about the degree of their consumption, they too mind (although in varying levels) concerning the wellbeing of the coming generations. Consequently, even though trends in average earnings are essential, people are justifiably mindful about the extent to which they individually will share as far as the prosperity of the average, and also the level to which their individual future economic is secure (Ganju, Pavlou & Banker, 2015 pp. 16). Therefore, the question of whether GDP is an excellent measure of personal wellbeing is more complicated than people understand it since it must be clarified which predictable aspect impact on this wellbeing and whether they are factored in the GDP or not.

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Trading manufactured products and services to the clients form the primary goal of all business firms in any given economy. These clients could be classified into four groups: households, companies, governments, and also the foreign sector. Corresponding to classified four groups of final consumers are four components in regards to expenditure: consumption, investment, purchases by government, and also net exports. Connecting the above expenses with GDP is vital to establish whether Gross Domestic Product highlights the manufactured goods and services or the actual amount requested by the above-mentioned consumption groups. According to economic experts, all goods and services that are manufactured within a given period will be in demand by at least one of the classified groups earlier mentioned (Decancq & Schokkaert, 2016 pp. 24). Therefore, the amount of produced products and services is equal to the amount of products and services needed. Accordingly, the classified groups of consumers are the factors influencing the economic activity. Hence, it will be essential in what way all the relevant factors are factored in the GDP calculations.

Generally, there exist three ways of computing GDP, which are; measuring the total amount in regards to spending on domestically manufactured final products and services. This means Gross Domestic Product is equals consumption plus what is invested plus purchases by the state plus total export. As a result, it is an effective measure that highlights the economic activity of a nation since it constitutes the four influencing aspects in its calculations. However, it is essential to note that GDP has its shortcomings since it does not account for issues like income distribution and also the impacts created on the environment as a result of economic growth (Ganju, Pavlou & Banker, 2015 pp. 24). This fact now leads to the question whether GDP growth is a good measure as far as individual wellbeing is concerned.

Economic scholars opine that Gross Domestic Product is an excellent technique to gauge the wellbeing of a society since GDP per capita gauges the earnings and also the expenses of the ordinary person (Ganju, Pavlou & Banker, 2015 pp. 26). As a result, it demonstrates the tangibles of an ordinary individual, and therefore it could be considered as an indicator in regards to the living conditions in a nation. Further, it is just an indicator since there is no information given regarding how the output produced is utilized to advance these conditions. Consequently, this amount lacks expressiveness regarding the quality of life. Due to this reason, it is known that GDP is not an excellent criterion for measuring individual wellbeing.

GDP Limitations as a Measure of Well-Being

Sustainability

In recent decades the notion that Gross Domestic Product growth is an unqualified product has come under fire in recent years. Previously used to gauge the effectiveness in regards to the US economy in the period of World War II, the theory has been widely considered as a universal gauge in regards to economic health and also progress (Frugoli et al., 2015 pp. 373). Even though its relevance is broadly criticized, no other concept has yet achieved in overturning the GDP concept as a dominant gauge of progress.

In the ecological economics which is a new study, researchers have decided to take a new observation at how six alternatives to Gross Domestic Product can establish more sustainable national trajectories. The areas covered by their analysis include all already developed measures like the Human development index utilized by UN Development Program and also Social Progress Index, as well as more measuring options such as sustainable society and happy planet index established by think tanks. The study analysis also involved two measures commonly known in academic circles, quality of life index, and also global wellbeing index that place a broader emphasis on education, freedom, trust, and even social life (Frugoli et al., 2015 pp. 375). The above societal initiatives focus beyond the narrow confines as far as economic development is concerned.

The principal argument that disqualifies GDP as the primary determinant of sustainability is because the factors that make up the GDP of a nation leave out individual considerations that keep the life of individuals moving. For example, GDP will measure the cost of protection of environment, Medicare, and also education (Nahman, Mahumani & De Lange, 2016 pp. 215). However, it fails to take into account the real degree of ecological sanitization, health, and education. Further, GDP will look at the expenses used to buy pollution-control tools, but it fails to account for the extent of cleanliness of air and water. Consequently, GDP will account for what is spent on healthcare but fails to account for the extent at which life expectancy has improved or whether mortality rate of infants has increased or decreased. Similarly, the same GDP will account for what is spent on education but fails to address the number of people directly in a population that can read or write.

Therefore, it can be concluded that GDP is more interested in things that bring economic benefits in a given society. Further, it can be said that the GDP of a nation is short of information regarding the social welfare of people of a particular nation (Nahman, Mahumani & De Lange, 2016 pp. 216). The gauge that is to address wealth distribution, environmental cleanliness, and individual health of a person, among other aspects, are not considered when it comes to calculation of nations' GDP. In a nutshell, the sustainability of a nation's welfare cannot be reflected by the GDP of a given society since it has more to do than just issues to do with economics.

Climate Change

Economists point out that various issues that add value to individuals' wellbeing are mostly not bought and also sold. Therefore, GDP happens to be a limited mechanism that measures living standards of individuals. In order to understand its drawbacks better, the following factors will be assessed to make it more understandable by various people since they are frequently left out when computing the GDP of a state. One of the essential factors that can be used to gauge GDP in view of individual wellbeing, for example, GDP will consider a positive count of motor vehicles manufactured but fails to account for environmental damage that results due to the emissions from the cars manufactured (Ganju, Pavlou & Banker, 2015 pp. 18). Consequently, GDP estimates for the building of new cities, but however, it fails to discount for the essential forests they replace. In his famous election speech, Robert Kennedy stated that GDP computes everything in short; however, it fails to consider what makes life worthwhile.

Still on environmental damage, the computation of GDP needs to discount the effects of climate change before coming up with the overall GDP of a nation. The manufacturing of more goods contributes a lot to the economy's GDP irrespective of the damage it causes to the environment. For example, in regards to the GDP of a nation like India, it is considered to be on a growth direction even though Delhi's winters are continuously filled with smog, and also Bengaluru's lakes are more prone to fires (Ganju, Pavlou & Banker, 2015 pp. 19). Therefore, current economies need a better computation of welfare, which takes the externalities into account to get an actual reflection in regards to a country's development. Widening the scope concerning assessment to factor externalities would help in establishing a policy focus in regards to addressing them.

The world economists point out that it is true that GDP may pose a good picture in regards to a nation's wealth, but it is also worthwhile to put in mind that the presumption that a country's total wealth is based on its GDP is not valid. As discussed above, it is clear that GDP computations are mostly based on the strength of a nation's economy (Pretty et al., 2016 pp. 12). However, when one focuses on factors that are mostly considered in measuring the GDP of a given state, he realizes that the negative impacts caused by economic factors are not taken into account. Climate change is mostly brought about by factors like emissions produced by industries, motor vehicles, etc. These emissions subsequently damage the ozone layer, which in turn causes global warming. The effects of global warming are massive in that they bring about human suffering, thus reducing the quality of life.

The wellbeing of an individual mostly starts with the quality of life that individuals lead in a given society. But as seen above, it is true that despite a country's steady growth in terms of GDP, there is a possibility that citizens of that country are suffering due to the effects of climate change. For example, destruction of the environment may bring about illnesses which subsequently reduce the happiness of a given population, thus affecting their welfare negatively (Frugoli et al., 2015 pp. 371). Again if, for example, you consider leisure time, which is also counted as a welfare factor which GDP does not recognize, you will realize that countries that don't give their workers enough leisure time have larger GDP than those that provide. But that does that mean GDP boosts the welfare of people based on its size? According to economists, this is not to true. For example, in the US average worker works for more hours than German workers, but you will realize that the GDP will not factor in its calculations the extra hours spent on vacation by German workers. Therefore, when measuring the welfare of citizens of a given country, it is important to look beyond the GDP of that country.

Alternatives to Gross Domestic Product

Gross Domestic Product (GDP) has over the years developed to be the standard measure in which the economic progress of any nation is based on. Borrowing its origin in the United States, where it was first used after the end of World War II, it has been the universal measure in which institutions and countries use to determine their economic health (Felice, 2016 pp. 972).

Economists have, over recent years, criticized the us...