GDP and its Flaws

The Gross domestic product of a country primarily indicates the state that the country’s economy is in. Gross domestic product (GDP) is a measure of all market activity, as well as all the money that changes hands in a country during a fiscal period. GDP is usually calculated on an annual basis and it measures the total output of all goods and services produced in a country. It is a standard measure of the country’s total economic activity. As a country’s GDP rises, it is an indication that the economy is doing well, but as the GDP decreases, this is a clear sign that the country is experiencing economic downfall. However is the GDP an adequate measure of the countries well being? There are many flaws when considering the GDP, therefore it isn’t s good economic indicator.

In today’s society, unemployment rates are increasingly high. There are many people whose income relies on jobs in which they do not receive a direct pay cheque. Individuals who are unemployed often volunteer in their communities, or find other ways to occupy their time. GDP only counts money transactions, so it leaves out many favours that people provide for each other at no cost. Moreover major parts of the household economy are ignored such as care for the elderly and for children, home maintenance and cleaning, food preparation. To add on voluntary service for the environment such as church and civic groups are also uncared for when considering the GDP. However GDP assigns all these activities a value which isn’t worth anything.

GDP treats all transactions that are made as a positive indicator to the economy. This includes crime, divorce, pollution and the reduction of natural resources; all of which society would see as negative aspects to the country, are considered beneficial in terms of the country’s gross domestic product. GDP accounts the breakdown of social structure, and environmental flaws as gains in terms of the country’s economy. When citizens purchase expensive items such as cars, the GDP increases, however when the car gets into an accident and requires thousands of dollars in repair, despite the trouble the citizen may experience in paying for the damage, these types of situations are considered extremely beneficial in terms of the country’s GDP. There is an increase in GDP for every aspect of this accident. If the driver is in fatal condition and must be hospitalized, the GDP goes up. If there is a lawsuit placed on one of the drivers involved in the accident, to find a lawyer, in many cases may be extremely pricey. Although GDP doesn’t consider the difference between activities that contribute to well being. On the same note, the gross domestic product of a country can increase based aspects which may harm the environment.

Lastly GDP treats reduction of natural assets as current income. So if forest is converted to lumber, or farmland is turned into parking lots, GDP treats all the money involved as current income and none of its capital depreciation. Expenditures such as health care, crime prevention, highway construction, water treatment and school expansion all increase GDP but it doesn’t improve our standard of living because we already had those things, it’s the quality of life we already had.

New measures of progress are needed. Several new measures of well being have been established. One example is Genuine Progress Indicator (GPI). GPI is a better alternative as it measures how well we are doing as individuals, families, communities and as a province using 51 economic, social and environmental indicators. GPI provides a more balanced picture of progress.

In conclusion