Shortcomings of GDP

GDP and the Environment

The improvement and increase in production of product and services improve the GDP of the country but without considering the environmental aspect. The dirty water, chemicals and noise coming out from factories have a negative impact on the society. The polluted environment cause health issue and reduce the average age limit of human beings. GDP ignores negative impact on environment and human life. When the money spent to clean the pollution, those expense are added in the GDP.

Composition and Distribution of Output

The composition of products are important for well-being. it show whether the products have a positive or negative impact on society.GDP lacks to address the composition of output it only measures the monetary value of output. If the price of weapon and encyclopedias are equal it is considered same in the GDP without admitting the importance of encyclopedias on well-being.

The distribution on income can make a lot of difference in people living standards. The total never tells the distribution of output among the people, it may be possible 90 percent of total output goes into 10% households. The higher value of GDP indicates the economy is doing well and people living standards are improving but if the major part of the output holds by the less percentage households then it results in higher poverty levels.

Per Capita Output

[large]For most reason per capita output is the accurate measure of economics performance. The per capita output gain importance in the measurement of economy because GDP only measure the magnitude of total output, it ignores change in the standard of living of individual and households. If GDP of country increase 3% in a year and its population rate grows at 5% percent per year, GDP consider it as improvement in economic performance of the country but actually the per capita output is decreased then before which shows downgrade in households and individual  standards of living.

Non-economic Sources of Well-being

The income of households never indicates the happiness, same for higher GDP never guarantee that individual and households are happy and satisfied. Some other factors can make the society better off without necessarily raising GDP. A reduction in crime and violence, peaceful relationship,better understanding of parents and children and a reduction in drug and alcohol abuse.