Download GDP as a measure of national well being or of the standard of living

GDP as a measure of national well being or of the standard of living of the people in a country
GDP is a measure of national output, not of national well being. However it is frequently used as such a
measure so we need to know its strengths and weaknesses when it is so used.
First it should be noted that Real GDP per capita is what is compared because it is Real GDP per capita
that gives a snapshot of the actual output (real) of goods and services available for the people (per
capita) to share. In other words, how big of a piece of pie is available to each person in a country.
A. Strengths
1) It is readily available for every country.
2) It is highly correlated with many measures
of well being
b) Longevity-life expectancy
c) Infant Mortality
d) Access to Medical Care
e) Literacy
f) Educational attainment
g) Shelter-sq.ft. per person
h) # of cars per 1000 people
i) # of cell phones per 1000 people
j)
A. Weaknesses
1- Ignores non-market production (within
households)
a) Work of housewives
2-
34-
# of homes with running water
k) # of homes with sewer connections
l) # of TVs per 1000
5-
m) # of personal computers per 1000
6-
n) Etcetera etcetra
7-
b- doing your own repairs
c- growing your own food
Ignores non-market transactions (between
households)
a-working on open source software
b- doing volunteer work
Ignores non-monetary transactions—
barter arrangements
Ignores underground production
a- Production and sale of illegal goods
and services
b- Unreported income from production
to avoid taxes
Quality improvements and inventions
a- for example cell phones, the Internet,
flat screen TVs, automobiles
Ignores bads (negative externalities- e.g.,
pollution)
Ignores leisure time
B. Strengths
B-Weaknesses
1) Same as above
1- Same as above
2) Better if Purchasing Power Parity is used to
2- Using widely fluxuating exchange rates can
translate one country’s monetary units
throw off comparisons radically
into another country’s
http://en.wikipedia.org/wiki/GDP#Standard_of_living_and_GDP
http://en.wikipedia.org/wiki/GDP#Limitations_of_GDP_to_judge_the_health_of_an_economy
http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)_per_capita
http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)_per_capita -- exchange rate based
C. Strengths
1) Same as in A.
2) As long as we are comparing inflation
adjusted (real) GDP per capita
C-Weaknesses
1- Same as in A, especially A.1, 2, 5, and 7
2- Inflation can badly bias the comparisons
3- Difficult to construct a Price Index over
long periods of time