Limitation of GDP as a Measure of Economic Welfare

Limitation of GDP as a Measure of Economic Welfare Introduction There are various different indicators used by the economists to measure the development of the economy and GDP should be the one most commonly used in practice. It could reflect the quantitative changes of the economic development, but its qualities. The limitation of GDP in this area prevents it from measuring the economic welfare people get. This essay will discuss how GDP is calculated and the limitations of GDP in measuring the economic welfare. There will be also the introduction of the replacements of GDP which are developed to measure the economic welfare. The Concept of Gross Domestic Products (GDP) and Its Calculation GDP is the abbreviation of gross domestic product. It refers to the market value of all the final goods and services produced by one country or region with the production factors in one year or in certain period of time (Gutierrez et al., 2007). It was first developed by the economist Simon Kuznets in the 1930s and has been gradually used by the governments of various countries to measure the total value of the output of the economy after the Second World War. Since then, GDP has been the indicator for the measurement of development level of the economy. It is an important index of the general situation of the macroeconomics, which reflects the developments of the economy. GDP belongs to the field of the measuring of the aggregate economy. There are mainly three methods to calculate the value of GDP, namely, the production approach, the income approach and the expenditure approach. They reflect the results of the national economy from different views. The production approach calculates the economic results by summarizing the total output values of all the sectors of the economy and subtracting the value of all the intermediate goods. The approach only includes the value added in the production process, so it is also called the value added approach (Viet, 2009). The second method is the income approach. It focuses on the income generated in the production process. Various production factors are involved in the production process and they can get the income per their relevant contribution to the economic activities. The summary of all the incomes of the various production factors is the result of the economic activities. For example, labors and capitals are the main factors used in the production. So their incomes, the wages and the interest constitute the main part of the GDP calculated by theincome approach (Viet, 2012). The expenditure approach calculates the GDP from the view of the final usages of the products and services. The results of the final products and services usually include two main parts, the consumption and the investment. And consumption covers the need from the household sectors, the government and the foreign consumers. So in the expenditure approach, GDP includes the household consumption, the investment, the government spending and the net exports. In practice, the expenditure approach is most common method used by the government of countries in the world. (Viet, 2011) The Limitations of GDP The changes of GDP could reflect the trend of the economic development and most of the countries consider the increase of GDP as the targets of the economic growth. Although GDP has been used widely as the indicator to measure the development level of the world economy, there are inherent limitation and weaknesses in this method that prevents its wider use in the economic growth. And it particularly reduces the efficiency of GDP in evaluating the economic welfare. The main limitation of GDP is that it does not reflect all the contents of the economic activities, which weakens the role of GDP as the indicator of the economic welfare. GDP cannot reflect the overall situation of people’s welfare Generally speaking, the economic growth could bring the increase of people’s income, as well as their economic welfare. The per capita GDP is usually used to indicate the average level of people’s income in the countries. And it is also used to classify the counties of their economic development levels. But it cannot reflect the differences of the people’s welfare caused by the differences of income distribution. For example, for the man having no money at all, he could become a billionaire in terms of the per capita GDP when there is only he and Bill Gates in his country. But he is not likely to enjoy the same welfare as Bill. So GDP, or the per capita GDP masks the real situation of the welfare people really get (Bà ©renger and Verdier-Chouchane, 2007). Besides, there are plenty of things in people’s welfare, not just the economic one. The leisure and family pleasure are also very important part of the welfare. People would have little time to spend with families when they are busy in producing the final products and services. The increase of the GDP does not mean the increase of people’s overall welfare. The non-market economic activities Besides, what GDP does not cover is the non-market economic activities. Per the concept of GDP, it reflects the market values of the final products and services. For the products and services that are not exchanged on the market, their values are hard to evaluate. For example, the household works finished by the full-time housewives, like cooking, cleaning, and taking care of the olds and children, are not paid in by the family. So they are not included in the calculation of GDP. But if these works are done by the baby-sitters who hired and paid by the families, they will be covered by GDP, since they have the market values. In the developed countries, there is a high level of the marketization of the housework. The children will be sent to kindergartens, olds to the nursing home. People have more chance to eat outside instead of cooking home. All these works will be calculated in GDP. But in the developing countries, most of the housework is finished by the numbers of the family. An d their efforts are not recognized by the market and the GDP. The same household works will make different contributions to the calculation of GDP in different countries. But for people no matter in the developed countries or the developing ones, these works increase their welfare (Bridgman et al., 2012). In the calculation of GDP, the lack of these non-market economic activities reduces the ability of GDP to give a full reflection of the economic activities. So it could not tell the complete welfare people get from the economic activities. GDP does not reflect the quality of the economic development What people could get from GDP is just the number of the value added in the given time. It only reflects the number changes of the output of the economy or the quantitative growth of the economy. The quality of the output and the economy cannot be answered by this indicator. And the growth of GDP does not equal with the economic growth, since the economic growth also contains the improvement of the economic quality (Costanza et al., 2009). For example, the increase of GDP could not tell how the economy grows. There are usually three driven forces of the economy, the consumption, the investment and the exportation. If the increase of the GDP is caused by the consumption from the household sector, the quality of the economic growth could be considered as a good growth. But if it is mainly driven by the investment, especially the one in the real estate market or the infrastructures, the quality of the economic growth is worth to worry, since this kind of growth cannot sustain for a long time. The investment only increases the number of GDP, but not the welfare people could get. When using GDP as the main indicator to assess the economic growth, there would be some strange things in the development plans and practices of the governments. They would have the motivation to investment huge funds in the building of the infrastructures, like roads, railways and airports, since these projects would generate great increase of GDP. And they don’t have to consider whether these projects are needed or not, which could cause the waste of the social and economic resources. Besides, accidents would be welcomed by the governments, since they also can increase the GDP. When there are accidents, the new vehicles or properties will be needed to replace the ones damaged in the accidents, which means the increase of the final products and services. But people’s welfare does not see any increase in these activities (Costanza et al., 2009). What GDP provides is just the cold numbers about the amount changes of the economy. It cannot reflect the quality of the economic growth. The environment cost and pollution Except for the limitation in calculating the complete contents and quality of the economic growth, GDP also cannot reflect the hidden costs of the economic growth, particularly the environment cost of the economic activities. GDP only covers the costs that could be exchanged and valued in the market. These environment costs, like the environmental disruption and pollution, usually cannot be valued in the market and they are not calculated by GDP (Costanza et al., 2009). When developing the economy, it is needed to consume the natural resources from the environment. But the resources are limited. The excessive usage of the recourses in the current economic activities could bring the negative influence on the future development. And the economic growth is not sustainable in this model. But this cannot be reflected by GDP. Meanwhile, economic growth could cause the environmental disruption and pollution. These are also the costs of the economic growth. However, they are not included in GDP, since Mother Nature does not charge the price in humans’ economic activities. And the stupid humans will not calculate these costs until they pay for it. The Replacements of GDP The limitations of GDP mentioned above have been exposed in practice and there have been some other indicators developed to replace GDP. These replacements of GDP make up the limitation of GDP in evaluating the welfare people get in the economic activities and help people to have a better understanding of the welfare people get from the economy. In this process, there are main two directions for the measurement of the economic welfare. One direction is to measure the total level of the economic welfare. This method is easy to measure and the result could reflect the differences between different countries. The second direction is to get the per capita level of the economic welfare. These two directions could be seen as the same one, since it is easy to get the per capita results when people get the total level of the welfare. The GNI-Lorenz curve Since GDP cannot reflect the differences of the national income distribution, the Lorenz Curve is then developed to indicate the condition of the income distribution. It is developed in a coordinate system with the percentage of income and households as the axis. It reflects how the wealth of one country is distributed among the households. People could find the level of the inequality in the income distribution per the camber of the Lorenz Curve (Helene, 2010). The gross domestic income (GDI) The gross domestic income or GDI is another indicator used to reflect the condition of the economy. It calculates the income generated by the economic activities, which includes the compensation of employees, the gross operating surplus and the gross mixed income. This indicator could be seen as the version of GDP calculated in the income approach (Fixler, Greenaway-McGrevy and Grimm, 2011). Since people’s welfare is largely influenced by the income level, so the changes of GDI could reflect the situation of people’s welfare. The physical quality of life index (PQLI) The physical quality of life index is developed by David Morris in the mid-1970s. This index is consisted of three main indicators, the literacy rate, the infant morality rate and the indexed life expectancy. The average value of these three indicators is the level of the physical quality of life. This index is easy to measure and understand. But it does not reflect the complete contents of the welfare. And the excessive attention to the health indicators reduces its ability to give a full explanation of the welfare level (Bà ©renger and Verdier-Chouchane, 2007). Conclusion The gross domestic product can partly reflect the results of the economic activities. But it cannot reflect the economic welfare, the non-market economic activities, the quality of the economic growth, and the environment cost and pollution. These limitations prevent GDP from measuring the economic welfare people get from the economic activities. So that people have developed the new methods to replace GDP to measure the economic welfare. References Bà ©renger, V. and Verdier-Chouchane, A., 2007. Multidimensional Measures of Well-Being: Standard of Living and Quality of Life across Countries. World Development, 35(7), pp. 1259–276. Bridgman, B., Dugan, A., Lal, M., Osborne, M. and Villones, S., 2012. Accounting for Household Production in the National Accounts, 1965–2010. Survey of Current Business, May, pp.23-36 Costanza, R., Hart, M., Posner, S. and Talberth, J., 2009. Beyond GDP: The Need for New Measures of Progress. The Pardee Papers No. 4. Boston: Pardee Center for the Study of the Longer-Range Future. Fixler, D.J., Greenaway-McGrevy, R. and Grimm, B.T., 2011, Revisions to GDP, GDI, and Their Major Components. Survey of Current Business, July, pp.9-31. Gutierrez, C.M., Glassman, C.A., Landefeld, J.T. and Marcuss, R.D., 2007. Measuring the Economy: A Primer on GDP and the National Income and Product Accounts. Washington, D.C.:à £Ã¢â€š ¬Ã¢â€š ¬Bureau of Economic Analysis, U.S. Department of Commerce. Helene, O., 2010, Fitting Lorenz Curves. Economics Letters, 108, pp.153-55. Viet, V.Q., 2009. GDP by Production Approach: A General Introduction with Emphasis on an Integrated Economic Data Collection Framework. New York: United Nations Statistics Division. Viet, V.Q., 2011. GDP by Final Expenditure Approach an Operational Guide for Using Commodity Flow Approach. New York: United Nations Statistics Division. Viet, V.Q., 2012. Income Approach to GDP and Other Issues Relating to the Compilation of Household Income and Consumption Expenditures. International Workshop on Household Income, Consumption and Full Accounting of the Households Sector, 26-28 March, Beijing. China.

Implications of Economics and Policy for Health Professionals

Getzen, T. states, health is irreplaceable, and any change in health can strongly affect the value of many other goods. Health is more precious and time more limited than money. Managed Care is a system of health care that combines delivery and payment; and influences utilization of services, by employing management techniques designed to promote the delivery of cost-effective health care. Insurers/managed-care organizations controls health care in the United States today because nowhere are the changes in the U. S. health services system more evident and more constant than in area of managed care. The shift from fee-for-service to manage care was the need to reduce costs for care and was embraced by various payers as the solution to the unchecked rise in health services expenditures (Barton 2007). The current health care system in the United States is failing. Health Care costs are increasing at a pace which far exceeds inflation. Managed care organizations were established as a cost effective alternative to traditional fee for service. A constant and constantly changing factor that influences the delivery system is the strength of this economy (Barton 2007). When jobs are at stake in a weak economy and the housing market is also at its lowest, insurance premiums steadily increasing, individuals aren’t focused on maintaining health coverage they are more concern with maintaining their homes and trying to pay the mortgage. Health Care Administrators will be challenged with a number of different types of health decisions and choices can be distinguished from a wide range: individual decisions, health policy decisions, health action decisions, regulatory decisions regarding the health system, micro-level health decisions and decisions made outside of the health sector. PubMed suggests, with regard to health-related matters, decision-making is characterized by the level of uncertainty, the complexity of the health system and its structure, the role of urgency and the obligation to act; however, there is a significant emotional factor in these decisions and the supremacy of the individual in the decision-making process. On the policy side, health-related decision-making poses questions concerning the role of expertise and necessitates the development of public debate. As for the matter of health financing, namely through social security and insurance, it calls for a re-examination of the economic analysis of health decisions and policy and the development of a more coherent position on the right to health versus the right to universal coverage. Healthcare is changing in terms of how and where care is delivered, who is providing those services, and how that care is financed. Healthcare Administrators require trained staff to manage the changes taking place. Healthcare Administrators have an opportunity to make a significant contribution to improving the health of the communities their organizations serve. Health Care Administrators plays a key role in keeping cost at a minimum and oversee the delivery of quality care. It is a must that Administrators make effective decisions, they need to be open to different opinions and good at analyzing contradictory information. They must understand and incorporate the best business practices. Also their focus is integrating medicine through the highest quality, the most access, for the best economical method. (Linden 2010)

Soggy Sweats Famous Whiskey Speech

One of the craftiest orations in the history of American politics was the Whiskey Speech, delivered in April 1952 by a young Mississippi legislator named Noah S. Soggy Sweat, Jr. The House had been debating whether to finally pop the cork on Prohibition when Sweat (later a circuit court judge and a college professor) decided to demonstrate his prowess for talking out of both sides of his mouth. The occasion was a banquet at the old King Edward Hotel in Jackson. My friends, I had not intended to discuss this controversial subject at this particular time. However, I want you to know that I do not shun controversy. On the contrary, I will take a stand on any issue at any time, regardless of how fraught with controversy it might be. You have asked me how I feel about whiskey. All right, here is how I feel about whiskey.If when you say whiskey you mean the devils brew, the poison scourge, the bloody monster, that defiles innocence, dethrones reason, destroys the home, creates misery and poverty, yea, literally takes the bread from the mouths of little children; if you mean the evil drink that topples the Christian man and woman from the pinnacle of righteous, gracious living into the bottomless pit of degradation and despair and shame and helplessness and hopelessness, then certainly I am against it.But if when you say whiskey you mean the oil of conversation, the philosophic wine, the ale that is consumed when good fellows get together, that pu ts a song in their hearts and laughter on their lips, and the warm glow of contentment in their eyes; if you mean Christmas cheer; if you mean the stimulating drink that puts the spring in the old gentlemans step on a frosty, crispy morning; if you mean the drink which enables a man to magnify his joy, and his happiness, and to forget, if only for a little while, lifes great tragedies, and heartaches, and sorrows; if you mean that drink, the sale of which pours into our treasuries untold millions of dollars, which are used to provide tender care for our little crippled children, our blind, our deaf, our dumb, our pitiful aged and infirm, to build highways and hospitals and schools, then certainly I am for it.This is my stand. I will not retreat from it. I will not compromise. Though were tempted to call Sweats speech a lampoon, that words etymology (from the French lampons, let us drink) may betray a certain bias. In any event, the speech stands as a parody of political doublespeak and an artful exercise in employing audience-flattering connotations. The classical figure underlying the speech is distinctio: making explicit references to various meanings of a word. (Bill Clinton used the same device when he told a Grand Jury, It depends on what the meaning of the word is is.) But whereas the customary aim of distinctio is to remove ambiguities, Sweats intention was to exploit them. His initial characterization of whiskey, addressed to the teetotalers in the crowd, employs a series of dysphemisms--disagreeable and offensive impressions of the demon drink. In the next paragraph he shifts his appeal to the wets in his audience through a far more agreeable list of euphemisms. Thus he takes a firm stand--on both sides of the issue. In these days of duplicity in the land of spin, we lift our hearts and our glasses to the memory of Judge Soggy Sweat. Sources Orley Hood, On June 3, Soggys Speech Will Come to Life, The Clarion-Ledger (May 25, 2003)M. Hughes, â€Å"Judge Sweat and ‘The Original Whiskey Speech,’ The Jurist (Vol. I, No. 2, Spring 1986)If by Whiskey, The Clarion Ledger (February 24, 1996)