Discuss the criticisms of relying on GDP and GNI to measure human well being.

Question

What will be an ideal response?

Answer 1

First, GDP equates the value of an economic activity or product to its price and thus does not accurately gauge its worth to quality of life. GDP excludes the many activities that contribute to a sense of fulfillment and purpose but that have no market price: volunteer activity, time spent with one’s family, leisure activities, physical and mental wellness, intellectual fulfillment, political freedoms, happiness, cultural belonging, social connectedness, natural beauty, clean air, personal efficacy, and so on. Meanwhile, GDP gives value to many things that do not enhance quality of life. For example, traffic jams (which increase the demand for gasoline), rising crime (which raises demand for lawyers and security personnel), threats to national security (military hardware), natural disasters (construction materials and services), unnecessary medical procedures (health equipment and doctors), and environmental catastrophes (cleanup services) all boost GDP. Second, GDP overlooks the sustainability of production. For instance, politicians incentivized to grow short-term GDP figures have repeatedly created bubble economies driven by unsustainable debt that eventually implode in recession or depression. Similarly, it ignores what is destroyed in the production process. GDP makes no accounting for the depletion of natural resources used in production or for their availability to future generations. Environmental damage, greenhouse gas emissions (unless they are priced), and deaths caused by modern technologies are unaccounted for. As one example, the conversion of tropical rain forest to agricultural land by felling trees boosts a country’s GDP since it makes the land more economically productive, yet this has devastating consequences for the local and global environment. Finally, GDP per capita is indifferent to equality—that is, how dispersed the gains from production are around the average income. Decreases in inequality do not register as higher GDP, and GDP figures grow even when much of the newfound wealth accrues to the wealthy. Subsequent chapters in this book will introduce inequality measures and raise alternatives to GDP.