Human Development Index
Read the United Nation Development Programme's discussion of the .
Questions:
- What are the advantages of using a measure such as the to compare economic wellbeing across countries?
- Why might there be some problems is using per capita GDP as a way of comparing economic well being in different countries? As part of your answer, consider the effect of differences in:
- household production
- pollution
- crime
- leisure time
- income distribution
- While the may be a reasonable measure to compare wellbeing in different countries, would it be a very useful guide to policymakers conducting fiscal and monetary policy in a given economy? Why are most government policymakers more concerned with GDP?
The advantage of a measure such as the Human Development Index is that it provides a measure of the "quality of life." It includes measures of literacy and life expectancy as well as per capita income.
Comparisons based solely on per-capita income do not necessarily provide a good measure of the overall wellbeing of a typical individual. Particular problems include:
- household production - per capita GDP is a measure of market production; it does not include goods produced within the household. In economies in which a large share of production takes place within the household, per capita GDP understates the actual level of consumption relative to economies in which a larger proportion of production takes place in a market framework.
- The health and environmental costs resulting from pollution are not taken into account by GDP. Even if two economies share the same level of per capita GDP, the quality of life will be lower in an economy in which there is more pollution.
- Higher crime rates lower the quality of life, but this is not reflected in GDP.
- GDP is a measure of output produced. It does not take the value of leisure time into account. Suppose for example, that per capita GDP is the same in two countries, but in one a typical worker works 40 hours per week, while a typical worker works 60 hours per week in the other. More leisure time represents an improvement in the "quality of life" that is not reflected in measures of per capita GDP.
- When evaluating the outcomes of an economic system, individuals are generally concerned not only with the quantity of goods and services produced, but also with the distribution of these goods and services across individuals
The Human Development Index is not a very useful guide for fiscal and monetary policymakers since fiscal and monetary policy have relatively little direct effect on literacy rates and life expectancy at birth.
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