Limitations of GDP as Welfare Indicator

GDP (and its derivatives) is a measure of economic activity, actually. Narrowly understood economic activity, one should add. However, this does not prevent economists and policy makers from making welfare comparisons across countries and across time on its basis. The argument goes as follows: GDP is a good proxy of the consumption possibilities people have, and consumption is a good proxy of well-being/welfare. Therefore, we allegedly can use GDP per capita for comparing welfare between countries and GDP growth as an indicator of social progress within a society. This may sound compelling to many and, indeed, we are used to this rhetoric from authorities and the media. But it is wrong to assume that GDP or any of its common derivatives provides a measure of social welfare, for a number of reasons. Continue reading

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Why GNP Growth Doesn’t Increase Welfare

What does the measure called “gross national product” express? This is not as easy a question as it sounds. Indeed, there is much confusion about what GNP (or GDP, in this context it doesn’t really make a difference) means – especially what its growth means. I shall argue here that how we usually interpret (growth in) GNP is not only wrong, but also bad for us. Continue reading