How Can We Measure the Economic Growth of a Country? Essay

Experts have proposed many a(prenominal) techniques to assess the stinting progress of a country. One of these techniques is to calculate the sum of all in all the goods and service produced in the country which is k instantern as earn domestic intersection point (gross domestic product). The indicator was created in the wake of vast depression in thirty-something and still is used to flier individual countries economic effect. But now most of the economists claim that gross domestic product alone can non reflect the economic performance of a family because it has many flaws and does non acceptably measures the household exertions, unforced crap, defensive and healing(p) spending and cash for clunkers.To begin with gross domestic product does not account for the household productions which have sizable effect on the delivery of a nation. Unpaid lop for instance, causes fall in gross domestic product as there is no value addition. For example, if a person cooks food f or his or her family so it causes fall of gross domestic product but if the family hires a chef then gross domestic product boosts up. Lets take the example of drying clothes in sunshine. If you allow the sun dry your clothes, the service is free and doesnt show up in our domestic product but if you throw your laundry in the dryer, you burn fossil fuel, increase your carbon footprint, make the economy more than unsustainable and give GDP a bit of a bump. This seems illogical that if a person reduces his or her consumption then it will cause GDP to drop, eventually resulting into reduced welf are of the nation. According to various studies carried out in France, domestic production could represent as much as 75% of threadbare GDP. If GDP does not accurately responds to domestic production then how it can be considered a good measure for the welfare of a nation?Moreover, GDP does not correctly respond to voluntary work and public administration resulting into imperfect measuremen t of the welfare of a nation. A bicycle repaired by a friend makes GDP fall if the work used to be done by a professional. thusly, a society where voluntary work is widespread will enjoy a high level of economic well-being but a lower GDP. As far as public administration is concerned, GDP always underestimates the share of public services. They are generally not bought by anyone ona market. For example, public gardens maintenance or tax collection. By the connatural token, a free service resulting from a past public investment (a road, a fountain, a public park or a public period of play facility) will not appear in GDP, contrary to its private eq (priced road, private sport facility, etc.).Besides household production and voluntary work, other major flaw in the estimation of economic growth by GDP is that it does not appropriately measure production and frequently further represent it as a compensation for a previous destruction. For example, reconstruction of a destroye d bridge or repairing of inoperative machinery causes a nobble in GDP. Another similar example is a boom in the business cycle after the period of recession. Now consider the tidy sum in the income of the lawyers. If lawyers prosper because there are more hatreds and more offences, does that have in mind the country is richer? Obviously not, but GDP states country is richer because GDP does not count for these crimes rather it only takes the rise in the income of the lawyers into account. Moving further, production is the decline of human and natural capital. But while calculating GDP this definition is mistreated. This can be illustrated by the example of two countries having same GDP but depreciation of human and natural resources are not same. It reminds us of those companies who report profits only by under-reporting depreciation of assets. The racing shell is not just theoretical Britain and France have roughly the same GDP but British workers work 25% more.Furthermore, the contribution of defensive and remedial spending towards GDP has many shortcomings. For example, expenditures on health care, pollution abatement, overspill control and costs associated with population growth and increasing urbanization including crime prevention, highway construction, water treatment and school expansion increase gross domestic product, although mostly what we aim to buy isnt an improved standard of live but the restoration or protection of the quality of look we already had. (Polley) In this case, its clear that GDP indicates the growth in the economy but its only the maintenance of our standard of living. Thus GDP is not reliable to judge the standard of living of a community.Whats more is the cash for clunkers whose influence on GDP is besides flawed. The new car bargain fors are added to GDP, but the destruction of the older vehicles is not subtracted. If instead we had a trade in program for new push button efficient dwelling houses that required destr oying the older, less energy efficient home, we would reach a different result about GDP effects. The new home purchase would add to GDP as for cars, but the destruction of the old home would result in a reduction of GDP because imputed rent on homes is included in GDP unlike cars. In this case, the economic multiplier effects are different about two very similar programs and as a result our economic policies are affected. There are also hidden problems like underground economy which cant be taken into account as there are only any statistics available. (Polley) If economic development is indicated by GDP, then our experts are proposing improper policies because GDP is not an accurate measure for the economic growth.If we consider the problems in the calculation of GDP, then inaccuracy of the indicator clearly depicts that its not an adequate measure of economic progress. For an instance, lets assume that GDP is a good indicator of economic well being. In this single number, you uprise an idea of whether the economy is expanding or contracting. Paul Samuelson, Nobel Laureate and author of many textbook references, once described GDP as truly among the great inventions of the 20th century, a beacon that helps policymakers steer the economy toward key economic objectives. But, we forget that how hard it is to accurately sum all of the goods and services produced in a country together, from bricks and tableware to banking and software. First of all, our definition of production is not clear. We often mix the restoration and production. Secondly, statistics for each component of GDP are not easy to gather. For example, there are no statistics available on bootleg economy. Third, we need a sophisticated system that can add it all together, from the number of new cars and haircuts, to the volume of teaching etc. (Blades et all) Due to these problems, GDP cannot appropriately measure the welfare of a nation.Given the fundamental problems with GDP as a leading ec onomic indicator, we should not consider it as a measurement of economic well being. Instead, itis just a measure of economic activities within an economy and no where it is close of accurately reflecting the living standards of the people of that economy.