- 16th April 2018
- Posted by: Manolis
The growth of Gross Domestic Product (GDP) is usually considered as the indicator of a successful economy. To see why I believe that it is not the best indicator let’s have a look to how GDP is calculated.
GDP of a country is a measure of the monetary value of all goods and services provided in the given country.
GDP can be calculated on the basis of spending or by income (the other side of spending). In short, more spending of different groups, which participate in the economy (people, companies, and government) also produces greater GDP. GDP is also adjusted for inflation when it is compared to GDP of previous years so that it shows real, non-inflationary growth.
If GDP reflects real economic growth, why I do still think that it is not an appropriate indicator of a successful economy?
In my opinion, the measure of success is not how much money we spend but who spends it and for what purpose it is spent. Only the results matters. Here are some reasons why GDP is not the best measure of a successful economy or a welfare of a nation:
- When money is spent for a war, GDP raises
- When infrastructure is destroyed during the war it does not affect GDP; it does not decrease.
- Exploitation of natural resources increases GDP. It does not fall when they become scarce.
- How the wealth is distributed among citizens does not affect GDP. The wealth may be equally distributed or some may be over-wealthy and other may die of hunger. GDP stays the same.
- Some services may be too expensive. Expensive health care increases GDP although it decreases the quality of life (QoL).
- Although there is some correlation between GDP and QoL the correlation between QoL and equal distribution of goods is much greater.
I could go on and find even more reasons, however, I believe, that the reasons I mentioned above are enough to see that GDP is not the best measure of a successful economy.