Is GNP a Measure of Society’s Well-Being?

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GNP is a comprehensive indicator of the economy’s output.

However, it is an imperfect measure of society’s well-being because it reveals nothing about three important factors:

(1) The growth of leisure time—that is, the substantial reduction in the work week that has taken place during the past several decades.

(2) The quality and variety of goods and services that constitute the nation’s total output.

(3) The growth and distribution of total output among the members of society.

On the basis of the first two factors, the long-run trend of one economy is better than the GNP figures indicate. As for the third, we often sec GNP quoted on a per-capita basis over the years. This reflects the share which each person would have in the nation’s total output if it were distributed equally to every man, woman and child.

If the trend of per capita GNP increases over the years, it means simply that more of goods and services are being made available to the citizens of the country than before. If it remains the same, it means stagnation in the average man’s standard of living.

What about Gross National Disproduct?

The gross national product, which is our standard index of economic output measures everything from the cost of hospital cure to the wages of stage dancers. But it is an index of rupee values, not of social benefits.

In other words, GNP makes no distinction between the useful and the frivolous, regardless of the price that has been paid. For example, GNP includes cloth costs for people as well as mink coats for dogs. Further, there is no measure of the amount of “disproduct” or social cost that results from producing the GNP.

Thus to society, the cost of air and water pollution is the disproduct of the nation’s factories. Another example is the cost of aspirin for headaches resulting from TV commercials in the dis-product of advertising. Similarly we can find some more examples of disproduct.

If this process were carried through our while product list, the sum would be gross national disproduct. And if the total were then set against the aggregate of production as measured by GNP, it would indicate our degree of progress toward social welfare. In fact, if we could discover a true “net” between disproduct and product, we would have our great “social” indicator of what the country has accomplished.

The results would probably be disillusioning. We would likely find that, while satisfying human wants from to-day’s productivity, we were simultaneously generating present and future wants to repair the damage created by current production.

Conclusion:

Because GNP measures the market value of final goods and services, it can only reflect the amount of money that society exchanges for commodities. As a result, many important activities which affect our standard of living are excluded from the calculation of GNP. For example, we include benefits received from the public sector in GNP but not the costs of providing them.

Another example is the social value of education but not the expenditures incurred to acquire it. One in therefore tempted to provide a better measure of the economic output by incorporating the negative as well as positive contributions of production. But most economists do not agree with this approach.

They hold that social welfare is a multidimensional concept with too many deep economic and psychological implications to permit precise definition, let alone measure. We should remember that GNP is a good summary measure of national output. It is not an indicator of social welfare.