Utility of GDP
Economic growth has been the measure of countries’ well-being for almost a century with Gross Domestic Product (GDP) being the primary instrument for this. Even though GDP has proven its usefulness over the years, there are opinions that it is a faulty method that tells little about life in a country. The most explicit example of the matter is the phenomenon of Brexit that is often thought of as a suicidal decision (Pilling, 2018). While the arguments provided by people believing that GDP is not a reliable indicator of the situation inside a country, better instruments are yet to be designed and tested before GDP can be abandoned.
The opinion that GDP is not a trustworthy indicator is not new and has solid logic behind it. In 1968, Senator Robert F. Kennedy gave a speech where he declared that GDP tells nothing about why US citizens are proud to be Americans (ipyramid, 2008). Indeed, the instrument was developed in the 1930s and is deemed outdated, as it is suitable for evaluating physical production and not the services that dominate the modern economy (Philling, 2018).
Additionally, GDP is open to speculations and revisions as it is often based on assumptions (“How to measure prosperity,” 2016). The measure operates with averages that fail to represent the real changes in lifestyle, healthcare, education, and even monetary distribution inside a country. GDP simply states how much all the products and services cost, without acknowledging their usefulness to the society (Haft, 2019). Therefore, GDP may seem to be a tool that is no longer relevant to modern society.
Even though all the arguments mentioned above are relevant, GDP is not designed to measure well-being. Historically, it has been a way to assess production capacity, and it has proven its convenience for measuring short-term financial fluctuations and long-term dynamics (Fox, 2008). GDP can be estimated rather frequently, and the reliability of the methods for its evaluation has been tested for almost a century (Fox, 2008). In short, while it may seem that GDP does a poor job, the reality is that it is not designed to do what it is asked.
While economic growth may not be the most accurate way to measure the happiness of a country’s citizens and GDP is not an adequate tool to do so, it is still the most convenient way to evaluate a country with a relatively high degree of precision. There is a suggestion that a new tool should be introduced to measure prosperity that would include indicators for services quality, government assets, intangible capital, and real spending patterns of citizens (“How to measure prosperity,” 2016). Haft (2019) states that financial health should be evaluated considering not only the spending but it should also assess all assets and liabilities. However, the exact methods for evaluating these matters are yet to be created and tested. Until then, GDP remains an adequate tool to measure economic growth.
GDP is outdated and it should be replaced with a new method to indicate a country’s financial well-being. However, while there are numerous attempts to create a different measure, none of the concepts introduced by modern economists can compete with GDP in terms of reliability. Therefore, GDP should be used until a more accurate and appropriate way of evaluating economic growth emerges.
Fox, J. (2008). Totally gross. Time, p. 14.
Haft, J. (2019). Decoding U.S. – China trade. Great decisions (pp. 59-63). New York, NY: Foreign Policy Association.
How to measure prosperity. (2016). The Economist. Web.
ipyramid. (2008). Robert F. Kennedy challenges gross domestic product. Web.
Pilling, D. (2018). The growth delusion. London, UK: Bloomsbury Publishing Plc.