Rise and Fall of GDP
The article ‘The Rise and Fall of the GDP’ by John Gertner discusses how gross domestic production has been a good source of our country’s economic output, but how recently we have been disregarding that, although it puts into account our spending, imports, exports and many other factors, it has failed to put into account our well-being and prosperity as a country. GDP has been just a single data point that represented us as a country, but we need to take into thought many other things that represent us as a society. Chris Hoenig has created a nonprofit system called the ‘State of the USA’. It will show not just our economic status as a whole, but it will also show how we need to improve in over 300 areas such as health, education, jobs, environment, etc. In the article, Gertner discusses how maybe we will eventually be able to get rid of using GDP, and that through achieving a sustainable environment and society can help us progress as a nation. Gartner also discusses this concept of a high GDP man and a low GDP man. A High GDP man lives above his means, he drives to work on a long commute, works hard and spends hard, has many stresses in his life, etc. While a low GDP man walks to work, grows vegetables instead of buying, hangs his laundry to dry instead of using a washer and dryer, and he lives below his means and saves a lot of money seems happier. In the view of economics, a high GDP man is superior to a low GDP man, even though if you really look at their lives, although a high GDP man may be more successful his quality of life is not as good and his happiness and satisfaction are most likely not as great as a low GDP man’s. Another very important thing we need to take into account is the environment. Building in a depletion charge would drastically change GDP in other countries because of how much they sell with oil, gas, timber and fisheries. Although this would not change the US that much, because of our technological advance it would be able to more accurately show other countries GDP. We can put monetary values on mineral stocks, fisheries and even forests but it’s hard to put a monetary value on alteration of the climate system, loss of species and the consequences that might come from those. On the other hand, you have to decide to measure something difficult before you can come up with a technique for measuring it. That was the case when the U.S. decided to create national accounts on economic production during the Great Depression.
The advantages of GDP as a measure of welfare are that using GDP as a measure of a nation’s economy makes sense, because it’s essentially a measure of how much buying power a nation has over a given time period, and it is a way to compare our country to other countries. GDP is also used as an indicator of a nation’s overall standard of living because, generally, a nation’s standard of living increases as GDP increases. Also, when GDP is high, production is high, which means that people are able to purchase goods, which is a good indicator as to how well our country is doing economically. The disadvantages of GDP as a measure of welfare are that it does not take into account certain factors such as quality of life or an individual’s well-being, and it disregards many important factors that are left out when factoring GDP. It also creates a distorted representation of our economic lives. Americans would have had a much clearer picture of our progress over the past decade if we had focused on median income rather than G.D.P. per capita, which is distorted by top earners and corporate profits. A president could go on the podium and point to GDP as proof that Americans are doing very well. But if you looked instead at median income you could say, a) it’s not sustainable; and b) most people are actually worse off.
The Human Development Index is calculated by taking into account the GDP, income index, citizen’s education and health. There are the dimensions, indicators and dimension index. The dimensions are a long and healthy life, knowledge and a decent standard of living. The indicators are life expectancy at birth, expected years of schooling/ mean years of schooling and GNI per capita. The dimension indexes are life expectancy index, education index and GNI index. All these things are what go into account when calculated the Human Development Index. The Human Development Index basically takes an average of all these things to calculate the overall index of human development. The Human Development Index, which happens to be used by the United Nations, has plenty of critics. For example, its three-part weightings are frequently criticized for being arbitrary; another problem is that minor variations in the literacy rates of developed nations, for example, can yield significant differences in how countries rank. The HDI has been extremely helpful in tracking the progress of the world’s poorer nations.
The major criticisms of GDP are that there is more to life than just material goods, wealth, status and economics. GDP tells us nothing about our overall happiness or satisfaction as people is just labels us on our spending and manufacturing as a society, and it has not only failed to capture the well-being of a 21st-century society, but has also skewed global political objectives toward the single-minded pursuit of economic growth. GDP only counts goods that pass through official, organized markets, so it misses home production and black-market activity. This is a big omission, particularly in developing countries where much of what is consumed is produced at home (or obtained through barter). This also means if people begin hiring others to clean their homes instead of doing it themselves, or if they go out to dinner instead of cooking at home, GDP will appear to grow even though the total amount produced has not changed.
My opinion on GDP is that it is not the best way to calculate a countries economy and overall status because there are many important things that determine the overall status of a country. I think we should have a new index of measuring our economic status that isn’t very black and white and that it accounts for many aspects of people’s life that could play a part in how our economy is and how different our GDP could be if we added in those important things. I think that even though there are some advantages to using a GDP as a measure of economy that eventually we should get rid of it and us a different way of measuring our country and other countries. I do not believe it is an effective measure of overall welfare because, as I said before, it does not take into account many important aspects such as people who grow and sell their own foods, individuals health, happiness, satisfaction and what people spend on certain things just to name a few. In the article when it discussed the comparison between money and happiness that money can lead to increased satisfaction in your life which can be a form of happiness, but overall money does not make a difference in our daily happiness. In my opinion I don’t think that money buys happiness. Although money does make life easier and can give you a lot of advances in life, I don’t think that its money is really corelated to happiness because happiness is a by-product of many other factors that we experience in life.
In conclusion I think that the article discussed a great argument and problem that is facing our economy today. GDP has been a measure that we have used for many years, and people are coming to realize that it may not be as helpful as we used to think. It fails to take into consideration certain things that effect our economy and would change our GDP. By measuring our economy spending tells us not a lot about our well-being of a country as a whole. Implementing a new system or making changes to our current system would make our view of our country more accurate and would be able to help us know where we need to fix and progress in our economy.