Measuring growth
The real GDP per capita of an economy is often used as an indicator of the average standard of living of individuals in that country, and economic growth is therefore often seen as indicating an increase in the average standard of living.
However, there are some problems in using growth in GDP per capita to measure general well being.
GDP per capita growth varies depending on the basket of goods used to deflate the nominal value or on the base year of measure.
GDP per capita does not provide any information relevant to the distribution of income in a country.
GDP per capita does not take into account negative externalities from environmental damage consequent to economic growth. Thus, the amount of growth may be overstated once we take environmental damage into account.
GDP per capita does not take into account positive externalities that may result from services such as education and health.
GDP per capita excludes the value of all the activities that take place outside of the market place (such as cost-free leisure activities like hiking).
GDP per capita does not include activities of the informal sector of the economy in precise form. Only as approximate estimates.
GDP per capita does not account for purchases on goods that was not produced in a given fiscal year, such as used cars or houses.
Economists are well aware of these deficiencies in GDP, thus, it should always be viewed merely as an indicator and not an absolute scale.
Economists have developed mathematical tools to measure inequality, such as the Gini Coefficient. There are also alternate ways of measurement that consider the negative externalities that may result from pollution and resource depletion
Other measures of national income, such as the Index of Sustainable Economic Welfare or the Genuine Progress Indicator, have been developed in an attempt to give a more complete picture of the level of well-being, but there is no consensus as to which, if any, is a better measure than GDP. GDP still remains by far the most often-used measure, especially since, all else equal, a rise in real GDP is correlated with an increase in the availability of jobs, which are necessary to most individuals' survival.
However, there are some problems in using growth in GDP per capita to measure general well being.
GDP per capita growth varies depending on the basket of goods used to deflate the nominal value or on the base year of measure.
GDP per capita does not provide any information relevant to the distribution of income in a country.
GDP per capita does not take into account negative externalities from environmental damage consequent to economic growth. Thus, the amount of growth may be overstated once we take environmental damage into account.
GDP per capita does not take into account positive externalities that may result from services such as education and health.
GDP per capita excludes the value of all the activities that take place outside of the market place (such as cost-free leisure activities like hiking).
GDP per capita does not include activities of the informal sector of the economy in precise form. Only as approximate estimates.
GDP per capita does not account for purchases on goods that was not produced in a given fiscal year, such as used cars or houses.
Economists are well aware of these deficiencies in GDP, thus, it should always be viewed merely as an indicator and not an absolute scale.
Economists have developed mathematical tools to measure inequality, such as the Gini Coefficient. There are also alternate ways of measurement that consider the negative externalities that may result from pollution and resource depletion
Other measures of national income, such as the Index of Sustainable Economic Welfare or the Genuine Progress Indicator, have been developed in an attempt to give a more complete picture of the level of well-being, but there is no consensus as to which, if any, is a better measure than GDP. GDP still remains by far the most often-used measure, especially since, all else equal, a rise in real GDP is correlated with an increase in the availability of jobs, which are necessary to most individuals' survival.