Why we shouldn’t rely too much on GDP and Human development index to tell us how we are doing

Up to now, I personally think we are yet to come up with a more accurate and adequate way of measuring our welfare, our quality or standard of living, that is, how happy we feel in our lives or how enjoyable and satisfying our lives are. If this is what we are measuring GDP (output) is in so many ways an inadequate measure of welfare because it is concentrating on output, it focuses more on commodities therefore GDP does not capture the happiness and joy got from family and social networks. So some economists have tried to come up with new ways to better measure GDP as a measure of our welfare, and they have broken down welfare into three things that they believe constitute welfare. Firstly, welfare has something to do with consumption of goods and services giving us utility, pleasure, or happiness. Secondly, it also has something to do with our life expectancy because obviously the longer we live, the longer we can enjoy the pleasure we get from consumption. Last but not least, as humans we have the desire to reach our potential in life, to feel that we have achieved what we are capable of achieving and so this should also be included in any measure of welfare. With this in mind, economists came up with a measure called the human development index (HDI), which includes GDP per capita (Consumption), healthcare and education. When calculating countries’ HDI, the United Nations Development Programme (UNDP) includes healthcare, and this healthcare is measured in terms of infant mortality rate (ie number of infant deaths below the age of 1 per 1000 births which translates into an infant mortality of 10%). Another measure of healthcare in the HDI is the number of doctors per 1000 people as well as the life expectancy. In terms of education measures, the HDI includes literacy rates, the average number of years of school education and for the output measures, the GDP per capita. Taking these three measurements, the HDI comes up with an index number, which is a combination of GDP per capita, healthcare measures and education measures.When the UNDP tries to compare countries as they appear in GDP ranking and HDI ranking we do see a very strong correlation between countries measured in each way. The ones that are ranked high up tend to be also high up in the HDI ranking, which tells us that they are not measuring things that are completely different, and it also tells us that despite GDP faults is not such a bad measure of welfare. However there are exceptions to this rule and China is a notable example. China is second in the ranking of GDP in the world, but not even in the first 90 countries in UNDP 2013 HDI ranking report. So we can argue that China has an economy that produces a lot of output but where the welfare of its population is relatively low compared to other countries. This shows again that there are differences in measurement between GDP and HDI within countries, and that in some cases HDI is probably a better measure of welfare than the GDP.

The HDI of these countries does not necessary equal to their GDP, infact the U.S and China were among the countries with the highest GDP but they had relatively low HDI compared to other countries.

The HDI of these countries does not necessary equal to their GDP, in fact the U.S and China were among the countries with the highest GDP but they had relatively low HDI compared to other countries.

However, HDI does not capture accurately what happens in everyday life of the population to be able to measure the people’s development. If a metaphor is used, GDP represents a house and the HDI is the door to the house. One should not mistake the door to be the house and one should not stop at the door, rather one should enter the house. According to the British Medical Journal article by Tony Delamonthe, research done in Mexico, Ghana, Sweden, the U.S. and the U.K. shows that although individuals typically get more wealthy (increase in per capita) during their lifetimes, they don’t get happier. Rather, argues Delamonthe, family, social and community networks bring joy to one’s life, and these are the things HDI can not really capture in terms of numbers. Additionally, the value of leisure has a straightforward interpretation. A worker makes a choice between working an extra hour and enjoy the utility from consumption of the goods that extra hour buys or to use that hour as leisure time which also contributes to the welfare of the worker. Therefore the value of life is more tricky to measure. Even though HDI is probably in some cases particularly in some countries a better measure of welfare and logically because it includes more than just GDP does, it still leaves important items out of the question, and this type of measurements have us fooled that the population is developed in most aspects of life when in reality it is a commodity-based interpretation of one’s quality of life.

Works cited

“Human Development Report 2014 Sustaining Human Progress: Reducing Vulnerabilities and Building Resilience” UNDP.Web. 2014 http://hdr.undp.org/sites/default/files/hdr14-report-en-1.pdf

“Dynamic spread of happiness in a large social network: longitudinal analysis over 20 years in the Framingham Heart Study” . Dr. Tony Delamonthe. The British Medical Journal (Thebmj). 05 december 2008. Web. http://www.bmj.com/content/337/bmj.a2338

Advertisements

One thought on “Why we shouldn’t rely too much on GDP and Human development index to tell us how we are doing

  1. sheppadm says:

    I think that GDP is a great way to measure material happiness, but that can’t get confused with happiness as a whole. Material goods provide the temporary happiness that we love, but family and friends provide the unconditional happiness that is priceless. I don’t think there is any way to quantify this type of happiness. That would be like attaching a number to how much a family member means to you and that is not possible. It is very interesting that people get wealthier as they get older, but they do not get happier. I wonder what age one’s happiness is maximized.

    Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s