Shortcomings of GDP Homework =)

Why Do We Neglect Leisure and Cheer for Divorce?

1. The CIA uses GDP as an indicator of economic activity in countries around the world. The GDP is a monetary measure of the total market value of all the final goods and services produced within a country in one year. It is therefore useful in determining economic growth within a country. However, it is important to note that the GDP is not a good representation of the well-being of society. This is due to the fact that many goods and services as well as many of the true joys of life are ignored in the GDP of a country. First of all, the value of leisure is not accounted for in a country's GDP. This causes a problem because, for example, a man working a 50 hour week may be contributing more to the country's GDP than a man working a, say, 30 hour week. Therefore, a nation with 30-hour work weeks may have a GDP far lower than the nation with a 50-hour work week, while the inhabitants of the nation with the 30-hour work week would most probably be much happier than those working for the other nation. Secondly, because GDP is quantitative rather than qualitative, improved product quality is not taken into account in the GDP. A computer now may be the same price as a computer 10 years ago; however, the quality of the computer is most definitely much higher. Third of all, the underground economy, which includes gamblers, drug dealers, tips received by waiters, and money-less transactions ie bartering, are left out of the GDP. Fourth of all, the negative by-products of production such as pollution reduce our economic well-being but are not deducted from total output, causing GDP to overstate national well-being. Another shortcoming of GDP is the fact that it fails to show the distribution or the composition of output. For example, 90% of output may be going to only 10% of households. Also, GDP assigns equal weight to any products as long as they sell for the same price. Therefore, whether producing guns or textbooks, the GDP is equal while society's well-being most definitely is not. In using the GDP as a determinant of a nation's well-being, it is therefore necessary to be careful.

2. Because prostitution, gambling, and some types of drug use are legal in some countries and illegal in others, comparing these countries' GDP would not be accurate, for the underground market of economies account for approximately 10% of total GDP (but are not included). Therefore, the countries in which these actions are illegal, the GDP would be relatively lower than those where the actions are legal and therefore included in the country's GDP.

3. Lance Armstrong's largest contribution to the GDP was made in 1996, for he spent $60,000 dollars on surgery and chemotherapy. This, however, is the same year he had the lowest level of individual welfare (because he had cancer). This clearly shows that GDP is not accurate in measuring the well-being of society. He probably had the highest level of individual welfare the first year he won the Tour de France again, in 1999. Although higher income may lead to more happiness, higher GDP does not necessarily mean that society is better off.

4. a. Lance Armstrong's winnings in the Tour de France: in
b. the used toboggan you bought on eBay: out
c. the Whopper you bought for lunch: in
d. the massage you bought for your dad for Father's Day: in
e. the Monet painting you bought your mother for Mother's Day: in
f. the coffee beans that Starbucks roasted in December but didn't' sell until the following year: out

5. It is extremely difficult to include leisure time in a measure of social welfare, due to the fact that it is impossible to place an exact value on the happiness one receives from this leisure time. Current Social Welfare measures omit the value of leisure time because of this, and the only way for this value to be included would be to place measurable values on happiness; which...isn't really possible.