Gdp Failure To Measure Standard Of Living Economics Essay

Presents, the more economic and engineering develop, the more steps of populating criterion are used. TheA gross domestic merchandise ( GDP ) is oneA the primaryA indexs used to estimate the wellness of a state ‘s economic system. By utilizing existent GDP ( Gross Domestic Product ) as the chief index of good – being, it is recognised that the index is non a perfect step as many of import factors are neglected ( Economics aid, 2007 ) . Some people said that existent GDP is progressively criticized for its failure to adequate step the criterion of life. In my position, the unfavorable judgment is seemed right. GDP per capita is a normally used step of the criterion of life but non needfully an accurate 1. Therefore, this essay will reason that existent GDP is failure to mensurate the life criterion or non. This essay is divided into three chief subdivisions. Section one, which will analyze some supportive statements and some grounds to back up the cardinal statement. However, the 2nd subdivision will take to analyze the opposite position. It will demo the function of GDP as a step of economic development. Furthermore, it is a unsmooth usher to populating criterion. Finally in the decision, the syntheses will be concluded based upon the statements and grounds in the chief organic structure.

Gross Domestic Product

GDP is the most normally used index of national income. It attempts to mensurate the amount of the incomes received by the assorted wealth-creating sectors of the economic system, from fabrication and retail to agriculture and serve industries. Besides, it is used for some intents, for case, economic public assistance comparings, international comparings of GDP and concern rhythm appraisal and prediction, etc ( Michael Parkin, 2008 ) . There are many ways to specify GDP such as Michael Burda and Charles Wyplosz ( Macroeconomics a European Text, 4th ) indicated: GDP is the amount of all net concluding gross revenues within a geographic location during a period of clip ( normally a twelvemonth ) .

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Harmonizing to Makiw, GDP is divided into 4 constituents ( Principles of economic sciences, 7th, 2001, page 499 ) : GDP ( Y ) = C + I + G + NX

Degree centigrades: ingestion ( disbursement by families on goods and services, with the exclusion of purchases of new lodging )

I: investing ( passing on capital equipment, stock lists, and constructions, including family purchases of new lodging )

Gram: authorities purchases ( passing on goods and services by local, province, and federal authoritiess )

NX: net exports ( passing on domestically produced goods by aliens ( exports ) minus passing on foreign nutrients by domestic occupants ( imports )

Nominal GDP is GDP evaluated at current market monetary values

Real GDP is GDP evaluated at the market monetary values of some basal twelvemonth

Nominal GDP = P current twelvemonth ten Q current twelvemonth

Real GDP = P base twelvemonth x Q current twelvemonth

In which, P: monetary value of goods and services

Q: entire concluding goods and services

GDP per capita is an estimate of the value of goods produced per individual in the state. Therefore, ‘GDP per capita Tells us the income and outgo of the mean individual in the economic system ‘ ( Principles of economic sciences, 7th, N. Gregory Mankiw, 2001, p. 504 )

Standard of life

The criterion of life is a step of economic public assistance. It by and large refers to the handiness of scarce goods and services, normally measured by per capita income or per capita ingestion, calculated in changeless dollars, to fulfill wants instead than demands. Improvement in criterion of life can ensue from betterments in economic factors such as productiveness or per capita existent economic growing, income distribution and handiness of public services, and non-economic factors, e.g. , protection against insecure on the job conditions, clean environment, low offense rate, etc. It incorporates material comfort, easiness of life, and chances for personal satisfaction. When we mention to standard of life, it is of import to analyse some factors such as:

Social Health: Medicine attentions per individual, infirmary beds, life anticipation rate, infant mortality, adolescent births, unemployment, etc.

Environment: H2O pollution, air pollution, etc.

Infrastructure: transit, leisure centres, etc.

Restrictions of GDP in mensurating the criterion of life

Unpaid work: family production ; volunteer work and community services

GDP focal point on goods and services sold in the market creates a measuring job. In the societal, there are a big figure of activities do non come in the market like housekeeping, place attention, voluntary work and community service etc… , but these things are practical for good – being. We can see the value of these undertakings performed at place and in the community in which no money is exchanged: Simply fall ining in housekeeping or basking a field day in the park with household or friends is leisure clip, added to good – being. Besides, voluntary, who are passing their clip and energy to make the societal occupations, are gratified in demoing the love and attention for human. Therefore, a society in which kids run recklessly in the street without counsel, senior citizens are left to decease in their beds, lonely and un – attention or public topographic points are a haunt for drug traders could non in high criterion of life. Therefore, existent GDP per capita increasing does non intend the life criterion is turning up. Overall, the activities that are affected the populating criterion of community do non affect market minutess and hence are non reflected in GDP.

Changes in the quality of life


Harmonizing to Perkins, GDP is a step of goods and services produced by an economic system ( Economics of development, 2006 ) but it is non deducted the cost of ‘bad ‘ society green goodss like pollution, natural resources. If a soap or baccy pollutes the air and H2O resource, the value of soap/tobacco merchandise is included in GDP while the costs of pollution are non deducted. The environment is straight affected by the economic activity such an industry or agricultural sector like dog-tired smoke, deforestation, polluted air and H2O, etc. If we have a high existent GDP, the environment amendss, we could non trust to hold a good criterion of life.

Table 1: Air pollution in China Beginnings: World Bank Statisticss


City population

Particulate affair

Sulfur dioxide

Nitrogen dioxide

1000s 2005

mcgs per cubic metre 2004

mcgs per three-dimensional metre 1995-2001

mcgs per three-dimensional metre 1995-2001




































In recent old ages, China is one of the states have higher economic growing and China ‘s GDP figure is standing in the top five – largest states. For cases, China achieved existent GDP growing around 10 per centum from 2004 until 2008.

Table 2: China ‘s chief indexs Beginning: World Bank Statisticss

The more economic system is traveling up, the more pollution is increasing. We can see in Table1 ; Beijing, Shanghai and Kunming are the large metropoliss in China and have extremely – developed industrial rate. Almost China ‘s metropoliss ( referred in Table 1 ) do non make WHO air quality. Hence, Production in the industry sector is added to GDP lending the higher GDP, whereas, pollution from industry sector is ignored and is non deduced.

Although the outgo to better the environment is added to GDP, it does non intend that the criterion of life is increasing. Generally, GDP does non advert to environment which is one of the of import indexs to mensurate the criterion of life.

Health: life anticipation and infant mortality…

Life anticipation and infant mortality besides are to measure the criterion of life. Similar to environment, these factors are non clearly showed up in existent GDP. A higher existent GDP enables us to pass more money to medical research, wellness attention ; and lend to lengthen our life anticipation. Besides the good point in a higher existent GDP that we have merely seen, the homo has to confront new healthy and life anticipation jobs every twelvemonth. Peoples died in AIDS, drug maltreatment and malignant neoplastic disease… addition. Although the operation of passing money to medical research and other equipment is made a higher existent GDP, we can see that existent GDP growing overstates the betterments in public assistance.

Leisure clip and felicity

Therefore, leisure clip and felicity are the factors that add to standard of life but it is hard to demo these things though GDP. Our clip spent working is valued as portion of GDP, while, our leisure clip is non. The more clip we spent on working, the higher GDP we got. To the contrary, we have less clip to bask the life, it means leisure clip lessenings.

Economic equality and societal justness

Harmonizing to Parkin ( Economics, 3th, p.21.21 ) , a state might hold a big existent GDP per individual, but with a high grade of inequality. GDP could demo the income of society in general but could non demo the spread amongst citizens: some people might be affluent, whereas others live in poorness and unemployed. If income distribution is really uneven, so despite high per capita handiness of trade goods, big Numberss of individuals may hold a really low criterion of life and other really high criterion – valid comparings can be made merely among moderately homogenous groups. Vietnam is considered one of the states has the highest GDP growing in recent old ages. However, the spread populating criterion between urban and rural country is rather big and this tendency is increasing.

GDP ( 2008 ) : $ 84.98 billion, existent growing rate ( 2008 ) : 6.23 % , per capita income ( 2008 ) : $ 1,024

GDP ( 2006 ) : $ 61 billion, Real growing rate ( 2006 ) : 8.3 % , per capita income ( 2006 ) : $ 726.

( Beginning: US Department of State )

So, even GDP is increasing we could non accurate occupants have better off good – being or worse off good – being.

Additionally, some states have the same sum of existent GDP but criterion of life is rather difference. It would be incorrect to presume that higher per capita GDP means higher income for all, or even most households. Harmonizing to Perkins ( Economic of development,2006 ) , there are several grounds in this instance: The Governments promotes economic growing non merely to better the public assistance of their citizens but besides to augment the power and glorification of the province and its swayers like spread outing their armed forcess, developing arms of mass devastation. When the additions from growing are changed to such expensive undertaking, they frequently provide small benefit to the state ‘s citizens. Or other ground, resources may be to a great extent invested in farther growing, with important ingestion additions deferred to a ulterior day of the month.

Underground economic activity

Underground economic system is a portion of the economic system that intentionally hidden from the position of the authorities ( Parkin M. , Economics, 8th, 2008, p.494 – 495 ) . It includes the production that uses illegal labors, occupations done for hard currency to avoid paying income revenue enhancements, etc. It is depended on the economic that these activities are big or little. Sometimes, these activities are big so we could non cognize precisely income per population or the leisure clip they have.

Inflation and Population

Inflation and population besides affect on the GDP to mensurate the criterion of life, particularly when comparing GDP between other period in one state or other states. For case, if we see GDP of two states and said that this state is better than other is incorrect because it depends on population. Like Indian and Norway: Indian has higher GDP than Norway, but when we compare GDP per capita is different because Indian population is bigger than Norway. Although GDP is non perfect to mensurate the criterion of life, it has some good affects that we will advert in the following paragraphs.

The balance between ingestion and investing

We need to analyze the balance between ingestion and investing. If an economic system devotes excessively many resources to fulfilling the short tally needs & A ; wants of consumers, there may be deficient resources for investing needed for long term economic development.A

Faster economic growing might better life criterions today but lead to an over-exploitation of scarce finite economic resources thereby restricting future growing prospects.A

Buying power – differences in the cost of populating between states

Datas on comparative criterions of life is usually adjusted to reflect estimations of buying power para to take history of differences in the cost of populating – so that each unit of currency has ( about ) the same buying power. One Euro of income in each state may non hold the same existent buying power because of differences in the mean cost of life. For illustration, comparative monetary values of a basket of goods and services for consumers in Britain are estimated in 2003 to be 18 % higher than the EU15 norm. The Norse states have significantly higher monetary values whereas Mediterranean states have comparative monetary value degrees less than four fifths of the EU norm. As the undermentioned transition makes clear, motions in the exchange rate besides have an consequence on the comparative cost of life in different locations around the universe.

GDP step the criterion of life

GDP step both the economic system ‘s entire income and the economic system ‘s entire outgo on goods and services. Furthermore, GDP per capita show the mean sum of income that each person of the population potentially has entree to. The more money each person is able to entree, the higher the possible criterion of life they have. And ‘because most people would prefer to have higher income and bask higher outgo, GDP per capita seems a natural step the criterion of life ‘ ( N. Gregory Mankiw, Principles of economic sciences, 7th, page 504 ) .

There are hard to mensurate the criterion of life as it consists of immense factors like health care, instructions, life anticipation, etc… We merely can come close. GDP reasonably estimates the criterion of life in the economic system to assist the Governments carry through their policy and comparison to other economic systems. So, GDP is a unsmooth usher to life criterions. We could non disregard that a big GDP does in fact help us to take a good life. GDP does non mensurate the leisure clip, the wellness of citizens but with a higher GDP, Government can afford better conditions for all of these things.

Table 5: Beginning: World Development Indexs









Population, entire ( 1000000s )




Population growing ( one-year % )




Life anticipation at birth, entire ( old ages )




Mortality rate, baby ( per 1.000 unrecorded births )




Literacy rate, youth female ( % of female ages 15-24 )




Prevalence of HIV, entire ( % of population ages 15-49 )




GDP per capita ( current US $ )




Liberia is one of the poorest states with low GDP per twelvemonth. Even the Government wants to better the wellness – attention, they could non make their aim decently because of limited their resources like budget. And, Japan is one of the highest GDP states with GDP per capita 2006 about $ 32,040.05 and higher than Liberia around 10 times. We can see the different between two states that have a immense spread in GDP: in 2006, Average life anticipation at birth in Liberia was 49.3 ages, whereas, this index in Japan was 82. Infant mortality rate in Liberia was 157 deceases per 1000 unrecorded births, comparing to this rate in Japan was 2.8 deceases per 1000 unrecorded births.

Therefore, it could be said that higher GDP is one of the indexs to better health-care and so better the populating criterion of states. Therefore, Higher GDP is still a chief intent of hapless states.

Furthermore, GDP does non mensurate the quality of instruction, but with a larger GDP states can afford better instruction systems. America is one of the states stayed the highest criterion of life with a high GDP. As we mentioned before, Japan has a high existent GDP, so how Japan ‘s instruction is suited for this index.

Table 6: Beginning: OECD Statisticss

Outgo on instructions was 4.92 per centums of GDP 2005 ( around $ 190,540 1000000s ) that was larger than GDP of Liberia 2006 many times ( harmonizing to table 6 ) .

Addition to higher GDP, it means citizens have higher income, they will hold more picks to take the luxury topographic point for vacation and their leisure will be enjoyed with higher status. All the material necessities of life are become easier for citizens.

Table 8: Beginning: OECD Statisticss

That is the ground why Mankiw said that ‘GDP does non straight measure those things that make life worthwhile, but it does mensurate our ability to obtain the inputs into a worthwhile life ‘ ( Principles of economic sciences, 2001, page 505 ) .

Overall, as we discussed about both sides of GDP, it is clear that in some instances GDP is a good measuring of criterion of life but non all. To mensurate the criterion of life we will notice some indexs besides existent Gross domestic products:

Alternate steps:

The Genuine Progress Indicator ( GPI )

GPI as an option to the gross domestic merchandise ( GDP ) , ‘The GPI enables policymakers at the national, province, regional, or local degree to mensurate how good their citizens are making both economically and socially ‘ .

The GPI starts with the same day of the month that the GDP is based on, but GPI cover some points that GDP diminished like family and voluntary plants, costs of offense and pollution. Measure that makes up GPI includes:

Income Distribution

Housework, Volunteering, and Higher Education


Resource Depletion


Long-run Environmental Damage

Changes in Leisure Time

Defensive Outgos

Lifespan of Consumer Durables & A ; Public Infrastructure

Dependence on Foreign Assetss

The Human Development Index ( HDI )

The Human Development Index is a drumhead step of human development. It includes three basic facets of human development: wellness, cognition, and a nice criterion of life:

A long and healthy life

Access to knowledge

A nice criterion of life

HDI = 1/3 ( life anticipation index ) + 1/3 ( instruction index ) + 1/3 ( GDP index )

The HDI has had a important impact on pulling the attending of authoritiess, corporations and international organisations to facets of development that focal point on the enlargement of picks and freedoms, non merely income.

Happy Planet Index

The South Pacific island state of Vanuatu is the happiest topographic point on the planet harmonizing to the Happy Planet Index, has been constructed by the New Economics Foundation and Friends of the Earth utilizing three factors: life anticipation, human well-being and harm done via a state ‘s “ environmental footmark ” . The UK ‘s heavy ecological footmark, the 18th biggest worldwide, is to fault for the state ‘s low evaluation in the index. Life satisfaction varies greatly from state to state: questioned on how satisfied they were with their lives, on a graduated table of one to 10.

Beginning: Adapted from the Guardian, 12th July 2006 and BBC intelligence online


In decision, this essay has sought to happen out the reply for the unfavorable judgment of ‘real GDP is failure to adequate step the criterion of life ‘ . Whether GDP is failure or non, we do cognize that everything has negative and positive sides. GDP does non include the value of unpaid work, nor does it capture the quality of the environment or public health care. However, GDP estimates the economic growing and guides the criterion of life. Therefore, a higher GDP statistic is showed our ability to bring forth more and finally to devour more in the hereafter. N. Gregory Mankiw position is that GDP is a good step of economic well – being for most but non all intents… GDP is merely showed some positions of criterion of life, it is a ground why existent GDP is increasing criticized for its alleged failure to adequate step the criterion of life.



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