>>GDP SHORTCOMINGS
For various reasons, GDP omits certain measures of overall economic
well being. Because GDP is the basis of government economic
policies, the concern is that a false impression of the nation's
material well-being may result from a flawed GDP. GDP is a less-
than-perfect measure of the nation's economic pulse because it
excludes the following factors:
NONMARKET TRANSACTIONS
Because GDP counts market transactions, it excludes certain unpaid
activities such as homemaker production, child rearing, and do-it-
yourself home repairs and services. For example, if you take your
dirty clothes to the cleaners, GDP would increase by the amount of
the cleaning bill paid. But GDP ignores the value of cleaning these
same clothes if you cleaned them yourself at home.
There are two reasons for excluding nonmarket activities from GDP.
First, it would be extremely imprecise to attempt to collect data
and assign a money value to services people provide for themselves
or others without compensation. Second, it is difficult to decide
which nonmarket activities to exclude and which ones to include.
Perhaps repairing one's own roof, painting one's own house, or
repairing one's own car should be included. Now consider the value
of polishing one's shoes. GDP does include the price of the
shoeshine if purchased at a barber shop, so it could be argued that
GDP should include the value of people polishing their own shoes.
DISTRIBUTION, KIND, AND QUALITY PRODUCTS
GDP is blind to whether a small fraction of the population consumes
most of one country's GDP or consumption is evenly divided. GDP also
wears a blindfold with respect to the quality and kinds of goods and
services that compose a nation's GDP.
Consider the fictional economies of Z and E. Z has a GDP of $2,000
billion, and E has a GDP of $1,000 billion. At first glance, Z
appears to possess superior economic well-being. However, Z's GDP
consists of only military goods, and E's products include tractors,
wheat, milk, houses, and other consumer items. Moreover, assume that
the majority of the people of Z could care less about the output of
military goods and would be more pleased with the production of
consumer goods.
Conclusion: GDP IS A QUANTITATIVE, RATHER THAN QUALITATIVE, MEASURE
OF THE OUTPUT OF GOODS AND SERVICES.
LEISURE TIME
The wealthier a nation becomes, in general, the more leisure time
its citizens can afford. Rather than working longer hours, workers
often choose to increase their time for recreation and travel.
During this century, the length of the typical workweek in the
United States has declined steadily from about 50 hours in 1900 to
about 34 hours in 1993.
Conclusion: IT CAN BE ARGUED THAT GDP UNDERSTATES NATIONAL WELL-
BEING BECAUSE NO ALLOWANCE IS MADE FOR PEOPLE NOT WORKING AS MANY
HOURS AS THEY ONCE DID.
THE UNDERGROUND ECONOMY
Illegal gambling, prostitution, loan-sharking, and illegal drugs are
goods and services that meet all the requirements for GDP. They are
final products with a value determined in markets, but GDP does not
include unreported criminal activities. The "subterranean" economy
also includes tax evasion. One way to avoid paying taxes on a legal
activity is to trade or barter, rather than selling goods and
services. One person fixes a neighbour's car in return for baby-
sitting services, and the value of the exchange is unreported. Other
legal sales are made by some individuals and businesses for cash,
with no report of the income earned to the internal revenue service.
Estimates of the size of this subterranean economy vary. Some
studies by economists estimate the size of the underground sector is
between 5 and 20 percent of the GDP (in the U.S.A.). This range of
estimates is comparable to the size of the underground economy in
most European countries.
Conclusion: IF THE UNDERGROUND ECONOMY IS SIZEABLE, GDP WILL
UNDERSTATE AN ECONOMY'S PERFORMANCE.
ECONOMIC BADS
More production means a larger GDP, regardless of the level of
pollution created in the process. There exist 'negative
externalities' such as pollution caused by steel mills, chemical
plants, and cigarettes. Air, water, and noise pollution are
'economic bads' that impose costs on society not reflected in
private market prices and quantities bought and sold. When a
polluting steel mills sells many tons of steel, this transaction
increases the GDP. However, critics of the GDP argue that it fails
to account for the diminished quality of life from the "bads" not
reported in the GDP.<<
robinsonrojas.com
Some things just can't be measured by GDP. Not sure why that matters. It's a very broad brush, can't paint a fine picture. The fine picture is being studied, too. |
