GDP was not designed to assess welfare or the well being of citizens. Suppose, for instance, that everyone in the economy suddenly started working every day of the week, rather than enjoying leisure on weekends. The U.S. Supreme Court: Who Are the Nine Justices on the Bench Today? So does a society in which 10 people earn $500,000 and 90 suffer with nothing at all. Thus, GDP per person tells us the income and expenditure of the average person in the economy. Kennedy had a point. Using current prices, it measures the value of goods and services produced for final consumption, private and public, present and future. It measures everything, in short, except that which makes life worthwhile, and it can tell us everything about America except why we are proud that we are Americans. Is GDP a satisfactory measure of growth? In short, GDP does not directly measure those things that make life worthwhile, but it does measure our ability to obtain many of the inputs into a worthwhile life. The answer is that a large GDP does in fact help us to lead good lives. Wenzel (2009) posits that, the use of GDP as a normative indicator of economic capacity of a nation does not give quality measure of economic growth because it gives a distorted view economic welfare (p. 7). The GDP has always been based on market transactions alone, so actions that might be ultimately harmful to society can be seen as positive in the GDP if it raises the amount of money that is coming through the markets. Hence, the contribution of each single product to the GDP is measured by its market price. by peter. (Future consumption is covered since GDP includes output of investment goods.) François Lequiller: If by growth you mean the expansion of output of goods and services, then GDP or preferably real GDP – which measures growth without the effects of inflation – is perfectly satisfactory.It has been built for this purpose. Nominal GDP evaluates are commonly utilized to decide the economic performance of a whole country or region and to make international comparisons. Imagine that the government eliminated all environmental regulations. (4) GDP ignores externalities: When there is industrial growth in the country, its side effects such as pollution of air, water etc., are not taken into account. Fundamentally, GDP has several limitations because it does not consider intricate factors that determine economic status of a nation and economic welfare of populations. In this Monday briefing of September 28th 2015, Ian Stewart asks whether new technology has really improved our lives. A society in which 100 people have annual incomes of $50,000 has GDP of $5 million and, not surprisingly, GDP per person of $50,000. On one level of welfare, consumer surplus, Google argues there are measurable net gains. It could reflect the quantitative changes of the economic development, but its qualities. Yet some people dispute the validity of GDP as a measure of well-being. If all prices double without any change in quantities, GDP would double. In the end, we can conclude that GDP is a good measure of economic wellbeing for most — but not all — purposes. Much of what Robert Kennedy said is correct. A very important part of this definition is the term ‘market value’. GDP does not take account of our intelligence, integrity, courage, wisdom, or devotion to country, but all of these laudable attributes are easier to foster when people are less concerned about being able to afford the material necessities of life. In this case, the GDP would not be a true indicator of economic well-being. History of GDP per Capita as Measure of Quality of Life . Economists use it … It is important to keep in mind what GDP includes and what it leaves out. These kinds of moral implications are not measured in the GDP. Article: Is Economic Growth a Good Measure of Welfare? GDP represents the market value of all goods and … It was designed to measure production capacity and economic growth. NOAA Hurricane Forecast Maps Are Often Misinterpreted — Here's How to Read Them. Furthermore, the GDP does not measure the kind of wealth found among the citizens. ‘GDP is a flawed measure of human welfare’ GDP has always been a measure of output, not of welfare. Some things that contribute to a good life are left out of GDP. The GDP (gross domestic product) is not considered to be a good measure of economic well-being by many because it only measures the sales and income from economic purchases rather than looking at any moral implications.