IS GDP A GOOD MEASURE OF ECONOMIC WELL BEING

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IS GDP A GOOD MEASURE OF ECONOMIC WELL BEING

Earlier in this chapter, GDP was called the best single measure of the economic well-being of a society. Now that we know what GDP is, we can evaluate this claim

As we have seen, GDP measures both the economy’s total income and the economy’s total expenditure on goods and services. Thus, GDP per person tells us the income and expenditure of the average person in the economy. Because most people would prefer to receive higher income and enjoy higher expenditure, GDP per person seems a natural measure of the economic well-being of the average individual.

Yet some people dispute the validity of GDP as a measure of well-being. When Senator Robert Kennedy was running for president in 1968, he gave a moving critique of such economic measures [Gross domestic product] does not allow for the health of our children, the quality of their education, or the joy of their play. It does not include the beauty of our poetry or the strength of. our marriages, the intelligence of our public debate or the integrity of our public officials. It measures neither our courage, nor our wisdom, nor our devotion to our country. It measures everything, in short, except that which makes life
worthwhile, and it can tell us everything about America except why we are proud that we are Americans.

Much of what Robert Kennedy said is correct. Why, then, do we care about GDP?

The answer is that a large GDP does in fact help us to lead a good life. GDP does not measure the health of our children,’ but nations with larger GDP can afford better healthcare for their children. GDP does not measure the quality of their education, but nations with larger GDP can afford better educational systems. GDP does not measure the beauty of our poetry, but nations with larger GDP can afford to teach more of their citizens to read and enjoy poetry. GDP does not take account of our intelligence, integrity,
courage, wisdom, or devotion to country, but all of these laudable attributes are easier to foster when people are less concerned about being able to afford the material necessities of life. In short, GDP does not directly measure those things that make life worthwhile, but it does measure our ability to obtain the inputs
into a worthwhile life.

GDP is not, however, a perfect measure of well-being. Some things that contribute to a good life are left out of GDP. One is leisure. Suppose •.for instance, that everyone in the economy suddenly started working every day of the week, rather than enjoying leisure on weekends; More goods and services would be produced, and GDP would rise. Yet despite the increase in GDP, we should not conclude that everyone would be better off. The loss from reduced leisure would offset the gain from producing and consuming a greater quantity of goods and services.

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IS GDP A GOOD MEASURE OF ECONOMIC WELL BEING