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Alternate Measure For Economic Performance Essay

1223 words - 5 pages

Business Sustainability
Alternate measure for Economic Performance
Jayant Kumar

Preface
An indicator is something that helps one to understand inclusive position, the path and how far one is from the point they want to be. A good indicator gives the alert about the problem before it gets too bad and helps to recognize things to do in-order to fix it. Indicators of sustainable community point to areas where the links between the economy, environment and society are weak. It allows one to identify the problematic area and helps the ways to fix restore it. GDP and profit currently dominate society’s discussions of economic performance. They shape the way people think about the economy and ...view middle of the document...

Well over half a century, the most prevalent measure of a country’s economic progress has been changes in its Gross Domestic Product (GDP). GDP is an estimate of market throughput, adding together the value of all final goods and services that are produced and traded for money within a given period of time. It is typically measured by adding together a nation’s personal consumption expenditures (payments by households for goods and services), government expenditures (public spending on the provision of goods and services, infrastructure, debt payments, etc.), net exports (the value of a country’s exports minus the value of imports), and net capital formation (the increase in value of a nation’s total stock of monetized capital goods). Since its creation, economists who are familiar with GDP methodology have emphasized that GDP is a measure of economic activity, not economic well-being. In 1934, Simon Kuznets, the chief architect of the United States national accounting system, cautioned against equating GDP growth with economic or social well-being. The US Bureau of Economic Analysis’ description of GDP states the purpose of measuring GDP is to answer questions such as “how fast is the economy growing,” “what is the pattern of s pending on goods and services,” “what percent of the increase in production is due to inflation,” and “how much of the income produced is being used for consumption as opposed to investment or savings”. Since its evolution GDP continues to be misused as a scorecard for national well-being. People need to understand the exact meaning of GDP. It is also important to recognize that GDP is not inherently bad—it measures what it measures. Rather it is being misused as an indicator of something it doesn’t measure and was never intended to measure.

Critical View
Robert F. Kennedy once said that a country's gross domestic product (GDP) measures “everything except that which makes life worthwhile”. The metric was developed in the 1930s and 1940s amid the upheaval of the Great Depression and global war. Even before the United Nations began requiring countries to collect data to report national GDP, Simon Kuznets, the metric's chief architect, had warned against equating its growth with well-being. GDP measures mainly market transactions. It ignores social costs, environmental impacts and income inequality. If a business used GDP-style accounting, it would aim to maximize gross revenue — even at the expense of profitability, efficiency, sustainability or flexibility. That is hardly smart or sustainable (think Enron). Yet since the end of the Second World War, promoting GDP growth has remained the primary national policy goal in almost every country.

Alternate measure for Economic Performance

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