Among most people, even those who are not as well-versed in economics as others, GDP, or Gross Domestic Product, is universally accepted as the way to measure a country’s wellbeing and determine whether an economy is “good.” By measuring the amount of production within a certain economy, GDP serves as a guideline for economic well-being, based on the assumption that the more a country produces, the better off that country is. However, there are many other factors that affect a country’s well-being besides the amount it produces. Because of this, the current measure of GDP is flawed, and does not truly reflect economic well-being. Economists should take a different approach to measuring economic stability that accounts for the many other factors that determine economic well-being.
According to Naked Economics, while GDP can serve as a good starting point, it does not give the full picture of an economy and whether its functioning well in comparison to other economies. It states several issues with GDP, those being that it does not count economic activity that is not paid for, it does not account for environmental degradation, it does not take into account distribution of income, and it has a tautological view of happiness. These flaws become visible when comparing the countries ranked highest by GDP with their rank in overall happiness (1). The measure of overall happiness is measured by looking at a particular country’s GDP, social support, healthy life expectancy, freedom to make life choices, generosity, trust in the government (2), The United States has the largest nominal GDP per capita in the world, and yet it only ranks at 14th in terms of its citizen’s happiness (2). According to investopedia, the United States has a GDP of $18.5 trillion (3). On the other hand, Finland has a GDP of 267.3 billion USD, and yet, is ranked ten spots higher than the United States (4). Even more shocking is looking at China’s GDP compared to their rank in overall happiness. According to Investopedia, China has the second largest global economy, but it is ranked 120th for happiness (3). For perspective, Venezuela, which has arguably one of the worst economies in the world, is ranked 82 in terms of happiness (2). Traditionally, most people would determine the well-being of a country simply by looking at the GDP and making a judgement based on that. However, as these numbers show, looking at the GDP is not enough to determine the well-being of a country. In fact, the way that happiness is measured might actually be a better way to look at the well-being of country rather than just GDP, because it takes into account several other factors other than production that help determine whether the citizens of a country are actually doing well. It is, of course, difficult to put the complexity of well-being into one tangible number, but, doing so in a more effective manner than it is being done now will help economists and politicians make more informed decisions and help shape a better future for the people of their country. Economics, by definition, pertains to the well-being of people, which is why it categorized as a social science rather than a traditional science. If the people within the economy are not happy, even if the math says otherwise, the economy is failing in what it’s intended for.
1- Wheelan, Charles J., and Burton G. Malkiel. Naked economics: undressing the dismal science. New York: W.W. Norton & Company, 2012. 2- “World Happiness Report.” Wikipedia. March 27, 2017. Accessed March 28, 2017. https://en.wikipedia.org/wiki/World_Happiness_Report. 3- (ICFAI), Prableen Bajpai CFA. “The World’s Top 10 Economies.” Investopedia. March 03, 2017. Accessed March 28, 2017. http://www.investopedia.com/articles/investing/022415/worlds-top-10-economies.asp.
4 – “GDP (current US$),” GDP (current US$) | Data, , accessed March 29, 2017, http://data.worldbank.org/indicator/NY.GDP.MKTP.CD