GDP and the measure of a society’s well-being

Should we stop using the GDP?

Since the 1940s, the GDP has been the reference indicator for an economy. As the most popular economic indicator for measuring the economic output of a country, it is generally used to measure the economic health of countries and thus, also the well-being of their inhabitants. However, the metric is increasingly challenged.
GDP was developed by Simon Kuznets in 1934 during an economic crisis. Abbreviated from Gross Domestic Product, the GDP has since been calculated for each country since the 1950s. The metric evaluates the economy outputs, or in other words, all the “wealth” created in one country during a year. GDP has quickly become an important indicator in the economy and more generally used to measure the economic health as well as the level of well-being of countries. Today, to make political decisions, leaders around the world use GDP as a reference.

An indicator that makes debate

Since its creation, GDP has continuously been debated about and challenged against. Its use as a purely economic indicator is not called into question. However, it is the abusive usage on such metric that is being debated. Thus, even its creator, Simon Kuznets, warned his fellow citizens about a biased use of this indicator, “The welfare of a nation can scarcely be inferred from a measurement of national income”. Indeed, it is important to realize that GDP in no way measures the wealth of a country.” It is not an indicator of wealth”, explains Jean-Paul Fitoussi, a French economist and professor of economics at the Paris Institute of Political Studies. There are two main problems with the GDP. One is that it only takes into account the commercial exchanges. For example, if you do housework, it is not counted towards the GDP but if you take a cleaning lady,it does. That is why Alfred Sauvy said “Marry your housekeeper and you will lower the GDP!” Also, its another shortcoming is that it does not make the difference between a nuisance and a gain of wealth.

For example, as Jean-Paul Fitoussi explains, “GDP can increase because of a bout of violence in society. This is what is happening today in France since the terrorist attacks have happened. There are now guards at the front of the universities’ gates. This means that employment and therefore GDP has increased, nor can it be said that well-being has increased too… It has rather dropped!” In fact, GDP does not make much sense when it is used to measure well-being or to make specific political decisions. Lowering the public sector budget, such as health or education, willincrease GDP, but aside from that, people will lose benefits and therefore it will not increase their standards of living and their well-being.

Changing the indicators to change the society

As Rutger Bregman said in Utopia for Realists: How we can build the ideal world, the GDP have been created during a crisis in the 30s. It suited the society and the crisis of that time but not the actual one with employment crisis, economic depression, climate changes… Nowadays, world leaders and economists have to find a new indicator to measure all the realities of today’s society for more money, growth, voluntary work, employment, time, social cohesion, etc. for everyone. For now, there are plenty of new indicators, one of which is the Human Development Index (HDI). It is calculated from life expectancy, level of education and standard of living (purchasing power). However, it is not perfect as it does not reflect inequalities, poverty, human security and empowerment for example.

All in all, GDP remains an interesting indicator in a purely economic context. But when it comes to the talk about well-being, GDP cannot be used and should not be misused. Today, there are many new indicators that are emerging. It remains our responsibility to find the best possible indicator that will measure a truer general level of well-being. One thing to keep in mind is that any statistics might just have their flaws.