Measuring National Income and Individual Well-Being with GDP

Gross Domestic Product (GDP), as per Investopedia, is defined to be the main indicator that is used to describe the wellness of any nation on economic scale. It determines the country’s overall economic health. It tells us the value of various things in dollars that are produced in a specified period of time. Every government wants to raise their economy; thereby increase the Gross Domestic Product. But is GDP really the right measure of an individual’s well-being? GDP has always come up as a measure of output rather than welfare. It ignore various important factors like personal assets, individual well-being, effects on the environment and non-paid activities such as mother care, which is not considered important in-spite of its significance for building a civilized society.

It is a sad thing to say that GDP only counts the output of a country over a specified period of time. It does not cover the personal assets of those, who are said to be the economy changers. It is evident from various surveys in different nations that only a few of the rich people have the assets that are equivalent to at least one-third of the nation’s wealth. But their richness is not covered in the GDP. These people own businesses, real estates and many of the other assets in the country, Income extracted from these assets does not count in GDP. On the contrary, think of a car company owned by a corporation that is under the ownership of the government, the income from the cars that are being manufactured will be counted in the GDP. Social security and welfare payments of the government, stock and bond exchanges and changes in the personal asset’s value are a few things that matter a lot, but are ignored from GDP. Even some of the black market channels of income are being utilized by some people to create huge incomes, mostly in the third world countries, where a large share of the economy can be changed if the system is rectified. The Oracle of Omaha, Warren Buffet, clearly stated in his words that whenever a country needs more income, it should be extracted from the people who have it. And there is no reason not to do it. Rich people can afford to pay high taxes, donate huge sums of their fortune. Buffet had donated 37 billion dollars, even then he is a multi-billionaire. Thus, there is a very feasible solution to raise GDP in terms of finances and economy; interact with such great minds and help in developing your nation.

Surveys of well-being indicate that in most of the countries, only rich people show signs of happiness than the poor people. But if these surveys are repeated in the same nation, it revealed the fact that there is no increase in the overall happiness of wealthy people although their income increases. The creator of GDP, Simon Kuznets (1934) stated, “The welfare of a nation can scarcely be inferred from the measurement of national income”. A general explanation for this paradox is that after attaining a certain level of wealth, people care more about retaining that position in income scale rather than their absolute position. Their happiness is looking down on less successful people; to get satisfaction. These results of surveys on happiness are puzzling as they are not consistent with facts of an individual’s behavior. For instance, if people are so much concerned about their economical safety, then why did the financial-crisis worry everyone? Surveys show that by reducing the work hours, productivity is increased because of refreshed mind. Apart from this, everyone is working so hard, that they are not having enough time for their leisure activities. Such activities are needed for efficient, effective and productive performance.

GDP has always ignored the negative effects on the environment. See the irony of it, the GDP of a country rises if it is struck with a natural disaster like tsunamis and earthquakes. The reason behind this is that the damage has to be replaced, the loss has to be covered; and for this, people have to buy new stuff. Consumers increase, so does the production, hence the GDP rises. Similar is the case of with natural resources of a country, the more it is used, more is the GDP, irrespective of the negative effects of its usage and depletion. Getting treatment for illness contributes for a significant portion of GDP as money is invested in nation’s economy. Thus, death can be considered as source of profit for a nation. But the shameful thing is that important things like mother care and household work, which are the building blocks of a society are not covered in GDP. If a child is deprived of a mother’s love, just think what society we would create. Robert F. Kennedy (1968, March 18), has clearly demonstrated in his words about the weakness in measuring ourselves only on wealth:

• “Yet the Gross National Product does not allow for the health of our children, the quality of their education, or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials. It measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country; it measures everything, in short, except that which makes life worthwhile.”

Although GDP represents the wellness of a nation on economic scale, but still it has many shortcomings. Many alternatives and amendments can be done to the GDP to measure wellness. GDP can be substituted by a term GNP (Gross National Product). If we consider the example of Saudi Arabia, with people having huge personal assets, this is the perfect way to measure the per-capita income; and GNP in such a scenario would be much higher than the GDP, as income from the external assets are so large. A few ways to change this system are measuring actual well-being, improving the existing setup and also by assessing various surveys and there results to get a new theory; that could contribute to all-round development of the nation. David Cameron (May, 2006), the Prime Minister of the United Kingdom stated, “It’s time we admitted that there’s more to life than money, and it’s time we focused not just on GDP but on GWB- general well-being.”