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Gross Domestic Product: A Skewed Way to Ascertain Society’s Welfare

Alex Coiov, 11A

Gross domestic product (GDP, ‘PIB, Produs Intern Brut’) is the primary metric for economists to gauge a country’s economic prosperity. It measures the value of the goods and services produced within a country’s borders over a given time, usually one year. Among many things, GDP includes private consumption (money spent by us, the consumers) and government spending (on infrastructure, education, subsidies, healthcare, et cetera). When GDP is divided by a country's population, the resulting figure is GDP per capita, closely linked to a country's standard of living. For example, high GDP per capita indicates an elevated ‘total output’ per person, generally correlated with a person’s wealth and, thus, well-being.

However, GDP is not without limitations as a measure of societal prosperity. For example, GDP does not accurately reflect an economy’s wealth distribution. To illustrate, although Romania experienced a 4.8% GDP growth in 2022, preliminary estimates showed, it remains one of the most unequal nations in Europe. Consequently, the benefits of economic growth were not distributed evenly, with many households’ budgets continuing to be squeezed by persistently elevated prices.

Besides, GDP fails to consider activities that do not have a monetary value, such as volunteer work, informal transactions (the government cannot tell whether somebody is growing carrots in their backyard and selling them to their neighbour, obviously), national beauty (think of green parks and pretty buildings!), and housework (grandma’s meals). Furthermore, economic growth (a GDP increase) can be misleading if it is accomplished at the expense of ‘negative externalities’, such as environmental degradation.

Accordingly, peculiarities occur when striving to measure a nation’s welfare. For example, a daily biker can be perceived as an ‘astronomical economic catastrophe’. Such a person does not pay for fuel or car insurance and does not need eight-lane mega-roads; perhaps, also being healthier due to biking, thus forgoing health insurance and medication. Thereby, active and robust individuals can be deemed ‘deleterious’ to the economy, as they may not consume as many resources as an unhealthy counterpart. Such a curtailment in economic activity will lead to a reduction in output (i.e., GDP), thus causing a decrease in GDP per capita, provided the denominator (the population) does not change drastically. Therefore, a fall in GDP per capita would indicate lower prosperity and wealth per person, evincing a drop in societal prosperity. However, things could not be further from the truth. Assuming, in our fictitious world, that people are biking more, getting healthier, polluting less, and needing less intensive medical care, one can conclude that society is genuinely doing better, despite the economic markers indicating otherwise.

To sum up, statistics can be delusive when looked at individually. Not only can statistics and data be manipulated to tell a different story, but a conspicuous dearth of context can have a commensurate negative impact. Look at GDP; one might duly conclude that a fall in GDP per capita reveals an egregious decline in societal prosperity. Yet, without a proper context, the implications of such economic shifts are hazy. In verity, the truth can be utterly different.


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