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Do You Like the GDP?

by Elaine Schwartz    •    Nov 28, 2012    •    288 Views

Having just come across the “Better Life Index,” I started thinking about Ed Koch, a former mayor of NYC who often asked everyone, “How am I doing?” Here are some thoughts about how to measure how well we are doing.

The GDP:

Frequently condemned as a measure of well-being, the GDP is the value of the goods and services produced in a country during one year. As a dollar amount, some scholars say it ignores too many variables to be a valid measure of economic health and wealth. One gentleman, though, from the Center for Economic Performance at the London School of Economics, says “Hooray for the GDP.”

Here is a brief summary of his arguments from an excellent Timothy Taylor Conversable Economist blog post:

  1. A growing GDP makes it easier to improve our welfare.
  2. We should consider economic growth and income equality separately.
  3. If happiness is a societal goal, we should note that we get pleasure from many contemporary goods and services.
  4. Thinking of environmental damage, we should support GDP growth for the foreseeable future and debate its very long-term impact.
  5. If we had to select one statistic to measure how we are doing, then GDP is a valid choice.

The “Better Life Index:”

In a wonderful interactive exercise, the OECD (Organization for Economic Cooperation and Development) has presented a “Better Life Index.” At their website, you can weight their variables according to how you believe national well-being should be assessed and then see where the US and other countries rank. It is fun.

Below is the OECD illustration of countries’ ranks when all variables are equally weighted. These are the variables: housing, income, jobs, community, education, environment, civic engagement, health, life satisfaction, safety, work-life balance.

Our Bottom Line: What we measure tends to determine what our fiscal policies will target. Indeed, the yardstick we use to answer, “How are we doing,” influences what our politicians do.

Ranking National Well-Being

Sources and Resources: Here, you can manipulate the “Better Life Index,” see how national rankings change, and decide whether it could work as a well-being yardstick. On the other hand, here is the “Hooray for the GDP” essay with persuasive arguments that support the GDP and its summary at the Conversable Economist. Finally, for some GDP history that explains the decisions behind its components, here is an excellent video from Annenberg/CPB’s Economics USA series.

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