Thursday, July 25, 2013
We Need More Than GDP To Measure Economic Well Being
GDP is commonly used to measure the success or failure of economic policies implemented by government. This article, which focuses on the UK, explains why we need other measures to complement GDP. It suggests that median per capita GDP provides important information about the distribution of income that is important for well-being. Median income in the UK, has been stagnant for many years, as it has been in many developed countries. Economists, and many politicians, have been less interested in distributional issues than they are in the overall growth of economies. They frequently report per capita GDP but that is based upon average income. Growth in average income obscures distributional trends in income growth because average income increases even when most of the growth in income goes to those at the top of the pyramid. For example, if Bill Gates walked into a bar, the average income of those in the bar would rise enormously but that would have little impact on the rest of the patrons in the bar. The median is a better measure of central tendency because it is less affected by extremes. Perhaps that is why it is less frequently used by economists and politicians to measure growth in income.