GDP and Economic Well-Being

GDP and Economic Well-being

GDP is only a measure of the volume of goods and services produced.

There is thought to be a strong positive correlation between real GDP and economic well-being.

(See page 111 to compare relative sizes of GDP)

Greater production means “the good life”. But… there are some

Shortcomings that must be taken into account that alter the accuracy of info.

1. Non market transactions—by not counting some kinds of production

(homemaker, work done for oneself), we understate the well-being.

2. Leisure—the decline of the US workweek in terms of hours worked, and the

addition of a range of fringe benefits are not accounted for, and thus, we understate our

well-being. The “psychic income” of working is also ignored.

3. Improved Product Quality—GDP is a quantitative measure, not qualitative.

Improvement in quality over time is not truly measured and well-being is understated.

4. Composition and Distribution of Output—GDP tells us nothing about who

gets the goods and services produced, or the “goodness” of the goods and services. A shift

to a more unequal distribution of income (rich are richer, poor are poorer) is not reflected in

a rising GDP.

5. Per Capita Output—if GDP growth is less than population growth, the figures

reflect a lower well-being.

6. GDP and the Environment—”gross domestic byproducts” accompany the

growth of GDP. The costs of pollution reduce our well-being; these spillover costs are

associated with production, but are not deducted from GDP, overstating our economic well-being. Ironically, payments for clean-up, of the mess we made, are counted.

7. The Underground Economy—both illegal activities and unreported activities

are not reported. It is estimated to be between 7 to 12% of recorded GDP. In 1997, that

would mean $566 to $970 Billion Dollars. (see page 119 for % of GDP )

8. Government transfer payments—are not counted as part of GDP. These are

the payments made for Social Security, Veterans, unemployment benefits, and welfare

programs like AFDC and Food Stamps. The logic of this is that NO current production is

generated. Yet…these sources of income are used to purchase goods and services and hence

raise our overall well-being.

Question: “Now, I’m interested. But, how do “they” compile all of this information? I mean, we are talking about some serious computation.”

Answer: Read the “Last Word”, page 120

Links to “Real” numbers

International: Data site. Start on page 9

List of countries by GDP:

General GDP with several indexes

Colorful world map of nominal GDP:

Nominal and Purchasing Power Parity (PPP)

Per capita GDP

Growth Rate of GDP, world:

World GDP last 200 years, give or take a few years: