Unit 3: Alternative Measures of Economic Growth and Well-Being Lesson

Question 1

There are various alternatives to GDP that have been developed over the years for measuring the economic growth and well being of a society:

Answer 1

1) Human Development Index (HDI)
2) Genuine Progress Index (GPI)
3) Feminist Approaches
4) Happiness Indicators

Question 2

Human Development Index (HDI)

Answer 2

The Human Development Index (HDI) is a metric designed to assess the social and economic development levels of countries
developed in 1990 by the United Nations
Four principal areas of examination are used to rank countries:
Average years of schooling
Expected years of schooling
Life expectancy at birth
Gross national income per capita

Question 3

Advantages and disadvantages of HDI

Answer 3

Advantages:
The HDI makes it possible to follow changes in development over time and to compare levels of development of different countries
Focuses on human development as a new understanding of well being

Disadvantages:
There could be wide divergence within a country
Reflects long-term changes, not as responsive to short-term changes
Like GDP, looking at GNI has its own issues, such as not taking into account unequal distribution of wealth

Question 4

2. Genuine Progress Index (GPI)

Answer 4

The Genuine Progress Index (GPI) is an indicator of sustainable development and wellbeing. Developed by Cliff Cobb in 1995 (inspired by Kuznet’s disclaimer about GDP) It includes 26 variables related to economic, social, and environmental progress
Economic indicators include: inequality, cost of unemployment Environmental indicators include: cost of water pollution, air pollution, climate change, wetlands depletion, forest cover change, and nonrenewable energy resources. Social indicators include: value of housework, higher education, volunteer work, cost of commuting, and crime
What do you notice about the variables listed above in relation to GDP?

Question 5

GPI vs. GDP

Answer 5

As indicated in the graph to the right, there can be drastic differences in a nation’s GDI compared to their GDP

Examine the graph to the right. What might be some characteristics of this society? Consider employment, distribution of wealth, the environment, education, et cetera

Question 6

3. Feminist Approach

Answer 6

There is also a feminist approach to measuring economic wellbring
This approach is a reaction to economics being a male dominated field until recent decades
The ideas of economist Marilyn Waring have influenced this approach

Question 7

4. Happiness Indicators

Answer 7

Read the quotation below, and explain the relationship between money and happiness:

A significant strand of economics research into quality of life seeks to understand the relationship between income and life satisfaction, and thereby to address one of life’s ultimate questions—does money make us happy? The simple question does not, always, lead to straightforward answers and we shall look at some of the relations between life satisfaction, income, age, employment, and the affluence of others that have featured in this field. A natural starting point for this work can be found in the work of Richard Easterlin who showed that throughout a decade of significant GDP growth, average levels of life satisfaction in the US population had remained relatively flat. One can argue that as income is unbounded, and life satisfaction was reasonably close to the top of the measurement scale at the start of the period, the result was not that surprising but it helps to raise questions about the reasons for pursuing income growth. If asked, most people would say they would be better off if their income were increased and yet—in terms of our experience of life—it seems it doesn’t actually push the needle over the long term.

~ Paul Anand (is an economist involved in helping governmental organizations move beyond GDP. )