Gross Domestic Product Isn't a Comprehensive Measure
Almost all nations across the world use GDP as an indicator of economic growth and development and only recently there has been much debate about whether or not GDP is an accurate measure of growth. GDP is the final value of the goods and services produced within the geographic boundaries of a country during a specified period of time, normally a year.
However brilliant the concept, a measure that was invented in the manufacturing age as a means of fighting the Great Depression is becoming less and less capable of imparting sensible signals about complex modern economies.Fast growth, as measured by GDP, has been considered a mark of success, rather than as a means to an end, no matter how the fruits of that growth are invested or shared. Modern economies have lost sight of the fact that gross domestic product, which merely measures the size of a nation’s economy and doesn’t reflect a nation’s welfare.
GDP is overrated for a number of reasons. GDP is a gross number. It is a measure that treats all production equally. It does not deduct the negative products which are detrimental to human well being.For example, environmental degradation is a significant externality that the GDP fails to reflect. Another aspect of modern economies that makes GDP anachronistic is its disproportionate focus on what is produced. Today’s societies are increasingly driven by the growing service sector. If the food/service improves in your local restaurant, GDP will not reflect it but it improves wellbeing. As the quality of experience is superseding relentless production, the notion of GDP is quickly falling out of place.
In an age where a huge cause of social dislocation is inequality,GDP also fails to capture the distribution of income across society. For example, A rise in average GDP could actually be retrograde, if it leaves 99% of people resentful at how the 1% is making good. It fails to differentiate between an unequal and an egalitarian society if they have similar economic sizes. In poor countries, the informal sector is practically invisible to GDP. Yet in much of the world, the informal economy counts for most.
GDP consists of only those goods that are exchanged in the market for a price. It does not include non monetised goods or services such as services of housewives which contribute to economic well being. GDP does not include many indicators of quality of life such as life expectancy and child mortality rate,
We live in a world where social media delivers troves of information and entertainment at no price at all, the value for which cannot be encapsulated by simplistic figures. Our measure of economic growth and development also needs to adapt to these changes in order to give a more accurate picture of the modern economy.
Broadening the scope of assessment to include externalities would help in creating a policy focus on addressing them. Monitoring economic activity from space, through satellite images of nightlights, might be more accurate than on-the-ground GDP, academic studies have found. As rising inequality is resulting in a rise in societal discontentment and increased polarization, policymakers will need to account for these issues when assessing development.
