What's the article about?
- It talks about the limitations of using Gross Domestic Product (GDP) as the sole measure of economic growth in a country.
- GS3: Indian Economy and issues relating to Planning, Mobilization of Resources, Growth, Development and Employment
- Gross Domestic Product (GDP) is a widely used statistic to measure the economic growth of a country.
- It is the sum of consumption, investment, and government spending (plus exports, minus imports).
- However, GDP has many limitations in measuring people's well-being, as it ignores many important aspects of society and daily life, such as pandemics, war, environmental pollution, social crime, and even traffic congestion. Additionally, the contributions of unpaid workers are not taken into account.
- This article discusses the limitations of GDP and the need for a new measure to assess the health of our economies and the people living in them.
- History of GDP:
- Cambridge professor Diane Coyle’s 2016 book GDP: A Brief but Affectionate History chronicles the history of the development of GDP from its eighteenth- and nineteenth-century forebears through its invention in the 1940s following the devastation of the Great Depression and World War II and then through its postwar golden age and the Great Crash up to the present time.
- Economist Simon Kuznets sought to encompass all economic production by individuals, companies, and the government in a single measure that would rise in prosperous times and fall in tough ones.
- GDP has continued to rule the world, possibly because it displays a single headline figure in a deceptively easy format.
- Limitations of GDP:
- Using GDP to measure people’s well-being has many limitations. A tiny group of wealthy people has had a significant impact on GDP values.
- Additionally, the GDP ignores many important aspects of society and daily life, such as pandemics, war, environmental pollution, social crime, and even traffic congestion.
- While different economies are recovering in the post-Covid era, the GDP doesn’t show how their underlying inequities are likewise intensifying.
- When calculating GDP, the contributions of unpaid workers are also not taken into account.
- A 2011 OECD study found that so-called “home production” would boost the GDP of its member countries by 20% to 50%.
- Importance of Fixing How We Measure Growth:
- The increasing GDP is the central goal of policies adopted by most countries. However, there is urgent need to find a new measure to assess the health of our economies and the people living in them.
- The method used to calculate GDP also has flaws, as demonstrated by the changes in GDP figures in America, Ghana, and Nigeria.
- We must remember that what we measure informs what we do, and if we're measuring the wrong thing, we're going to do the wrong thing.
- Alternatives to GDP:
- There is a global trend developing against the use of GDP as a single measure of economic and social welfare.
- The OECD's commission recommended creating a dashboard of indicators that go beyond GDP and provide a more multifaceted picture of a nation's quality of life.
- The UN secretary-general also calls to urgently find measures of progress that complement GDP by 2030 and the United Nations Statistical Commission's discussion of statistical measures beyond GDP.
- The conclusion of Diane Coyle’s book makes the case that while GDP was a useful measure for the twentieth century, it’s becoming increasingly inappropriate for a twenty-first-century economy driven by innovation, services, and intangible goods.
- Therefore, there is a need to expand the statistical measurement framework beyond GDP to provide a more multifaceted picture of a nation’s quality of life.
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