For years, measuring economic welfare has been pretty straightforward. Classic economics obsess over a single value: gross domestic product. Luckily, economic paradigms are shifting, and experts are beginning to look beyond GDP to determine national welfare.
GDP is a measure of the total market value of a nation’s goods and services within a certain period of time. It is simply a broad measure of economic growth, and it does not provide information about the well-being of individuals.
India, for example, has the world’s fifth-largest economy, with a GDP of 2.869 trillion dollars, according to the World Bank. However, as reported by The Economist, economic inequality in India is widening, and approximately twenty-two percent of the population lives below the poverty line, according to The World Factbook.
That is, a country may have a high GDP, even if the majority of its people are hungry, sick and sad. Measures that quantify welfare solely through GDP fail to touch on individual wellbeing.
Since economic success is measured solely through the value of goods and services, these measures encourage laissez-faire capitalism. Of course, the prioritization of unrestricted economic growth creates inadequate living and working conditions. Corporations harm citizens and the environment in favor of a larger profit.
All of this raises the question: if GDP is inadequate, how should welfare properly be measured? Different measures are being considered, and many have certain measurements in common.
In “Measuring Economic Welfare: What and How?,” Reinsdorf describes attempts to rebrand economic performance as a shift to a more “people-focused approach.” This paper discusses measures that are decidedly more people-focused than economic output, such as environmental impact.
It also discusses how inequality plays into welfare, measured in the form of income, consumption and wealth distribution. As described by Economics Help, other such “people-focused” factors include job satisfaction, life quality, happiness levels, political freedom and leisure time.
The attempt to redesign the measurement of welfare has raised concern about the objectivity and feasibility of measuring factors such as leisure and happiness.
In his paper “Measuring Welfare Beyond GDP,” Aitken discusses the difficulties of measuring such factors, yet insists that more efforts should be made to include both objective and subjective factors in the measurement of economic welfare. Newer fields such as happiness economics combine econometric analysis with data collection that is less commonly utilized in economics, such as surveys and happiness indices.
Despite the drawbacks of complexifying welfare measurements, economic welfare must be sufficiently redesigned in order to benefit the public. It is essential that national leaders begin to associate economic welfare with individual wellbeing through the aforementioned factors in place of GDP.
This, in turn, will lead to communities with healthier and happier individuals, and it will set countries on a path to healthy economic growth.