The problem with GDP

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Why is GDP such a poor measure of the economic well being of the people of a country? For one thing, it only measures “goods” (and services) but not the “bads”.

Every year, when it comes to the Budget, one of most-watched figures is the GDP growth rate forecast. Can we really achieve 5-6 per cent growth this year, in the face of a global economic slowdown? (The forecast has now been reduced to 4-5 per cent.) That seems to be the main question. Similarly, many other countries look to GDP growth rate as a key indicator of how well their economies are performing.

The unstated assumption is that a higher GDP growth rate will translate to a better quality of life and greater prosperity for the people. But that has not happened for many people, has it? Instead in cities around the world the “99 percenters” have protested in the Occupy movement against an unfair distribution of resources and the wealth accumulation by the top 1 per cent.

What is Gross Domestic Product? Simply put, it is the market value of all the final goods and services produced in a country over a specific period.

That’s the mainstream definition. And that’s a problem: GDP only measures the “goods” and services produced but not the “bads” (resource depletion, pollution, carbon and green-house gas emissions, toxins that are the by-products of our economic system). We are harvesting the “goods” for the current generation but leaving behind the “bads” for future generations to bear. And they will curse us for it.

Full article on the Aliran website

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Inspector Lim

Anil It will be good if you could help to create awareness about the Gini Coeffiecient and its impact in Malaysia. Distribution of family income in Malaysia – Gini index: 46.2 (2009) 49.2 (1997) ===> Ok ???? Definition: This index measures the degree of inequality in the distribution of family income in a country. The index is calculated from the Lorenz curve, in which cumulative family income is plotted against the number of families arranged from the poorest to the richest. The index is the ratio of (a) the area between a country’s Lorenz curve and the 45 degree helping… Read more »

semuanya OK kot

We all know the problem of course, but will keep going to our doom like lemmings. “In economics or political science, we supposedly seek to maximize our individual wealth in the market. This is regarded as democratic because everybody has a vote. Never mind that the power of your vote depends on the number of dollars you have. It follows that if there is money to be made, you could destroy the environment or militarize outer space. The ones who will to be harmed are your grandchildren who have no votes; anybody who is con-cerned over them is therefore irrational.”… Read more »