{"id":7415,"date":"2017-11-26T16:49:34","date_gmt":"2017-11-26T15:49:34","guid":{"rendered":"https:\/\/altax.al\/gdp-is-not-the-good-measure-of-standards-of-living\/"},"modified":"2021-11-19T16:24:02","modified_gmt":"2021-11-19T15:24:02","slug":"gdp-is-not-the-good-measure-of-standards-of-living","status":"publish","type":"post","link":"https:\/\/altax.al\/en\/gdp-is-not-the-good-measure-of-standards-of-living\/","title":{"rendered":"GDP is not the good measure of standards of living"},"content":{"rendered":"

At the time it was conceived, GDP was a useful signpost on the path to\u00a0a better world: a path where increased economic activity provided jobs,\u00a0income, and basic amenities to reduce worldwide social conflict and prevent\u00a0a third world war.<\/p>\n

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That economic activity has created a world very different\u00a0from the one faced by the world leaders who convened at Bretton Woods\u00a0in 1944. We are now living in a world overflowing with people and manmade\u00a0capital, where the emphasis on growing GDP and economic activity\u00a0is leading the world back toward the brink of collapse.<\/p>\n

The world financial system is in crisis, partly as a result of over emphasis on\u00a0material growth at all costs and a neglect of real and balanced development.\u00a0Now, the world is in need of new goals and new ways to measure progress\u00a0towards those goals. There is a need for a global dialogue and consensus on\u00a0these issues.<\/p>\n

Measuring GDP requires adding up the value of what is produced, net of inputs, across a wide variety of business lines, weighting each according to its importance in the economy. Both the output and the materials (if any) used up in making it have to be adjusted for inflation to arrive at a figure that allows for comparison with what has gone before.<\/p>\n

Using GDP as a measure of welfare has well-known problems, which are among the first things macroeconomics principles courses cover.<\/p>\n

But the point of the discussions at Davos is that in the digital age, those problems are even deeper. Standard GDP statistics miss many of technology’s benefits, so we need to rethink how we measure the typical person’s well-being.<\/p>\n

Who are the reasons why GDP data may give a distorted picture of living standards in a country?<\/p>\n

The reasons could be more than those ranked below, but the most important on all this discussion is about how to reflect better the developments and inequalities that have raised nowadays in every country.<\/p>\n

Here are some of most important reasons:<\/p>\n

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  1. Regional variations in income and spending: National data can hide regional variations in output, employment and income per head of the population<\/li>\n
  2. Inequalities in income and wealth: Average (mean) incomes might rise but inequality could grow<\/li>\n
  3. Leisure and working hours and working conditions:\u00a0An increase in real GDP might have been achieved at the expense of leisure time if workers are working longer hours or if working conditions have deteriorated<\/li>\n
  4. Imbalances between consumption and investment:\u00a0High levels of investment as a share of GDP might be superb for creating extra capacity to produce but at the expense of consumer goods and services for the current generation<\/li>\n
  5. Changes in life expectancy: Improvements in life expectancy don’t always show through in GDP accounts. Putting a\u00a0monetary value\u00a0on the benefits of increased longevity is difficult<\/li>\n
  6. The value of non-marketed output: Much useful and valuable work is not sold in markets at market prices. The value of the output of people working for charities, self-help groups and of housework might reasonably be added to national income statistics<\/li>\n
  7. Innovation and the development of new products: New goods and services become available because of invention and innovation that simply would not have been available to the richest person on earth less than fifty years ago. About half of what we spend our money on now was not invented in 1870. Examples include air travel, cars, computers, antibiotics, hip replacements, insulin and many other life-enhancing and life-saving drugs<\/li>\n
  8. Environmental considerations:\u00a0Rising output might have been accompanied by an increase in air and noise pollution and other externality effects that have a negative effect on our social welfare<\/li>\n
  9. Defensive expenditures: Much spending is to protect against an\u00a0economic or social bad\u00a0e.g. crime, or spending to clean up the effects of pollution and waste<\/li>\n<\/ol>\n

    As a result, GDP statistics won’t capture the benefits we gain from free apps, just as it has difficulties accounting for changes in the quality of goods over time.<\/p>\n

    How can this be fixed?<\/p>\n

    Catherine Rampell provides a nice\u00a0summary\u00a0of the alternative measures that have been proposed, including<\/p>\n