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Summary of arguments for and against GDP as a measure to focus on in designing economic policies Arguments have been raised in support of, and against the use of GDP as a tool for economic policymaking. Oulton argues that GDP is a component of welfare as well as an indicator of welfare and therefore factors in welfare issues into economic policies. Examples of the welfare factors that GDP reflects are “ life expectancy,” “ infant mortality rate,” and inequality that relates GDP with objectives of economic policies (Oulton, 2012, p. 1). Gross domestic product should also be used in policy making because it is reflective of people’s outcome. Even though the relationship may not be evident among most people, this can be attributed to income inequality. GDP is also an indicator of people’s level of happiness and satisfaction and this justifies its application in informing economic policies that relate to welfare (Oulton, 2012).
Opponents of the application of GDP in informing economic decisions however downplay these augments. Stiglitz notes that statistics have failed in accuracy and this problem has been evident in economics. Differences in opinions and demands over GDP also mean that its value and meaning are not absolute among different stakeholders. Another challenge to application of GDP is its lack of basis for measuring all outputs and inability to measure government output is an example. Results of government outputs are also unreliable and GDP fails to measure such aspects as depletion of natural resources. These, according to the author, undermine validity of GDP and its potential applications in policymaking (Stiglitz, 2009).
References
Oulton, N. (2012). Hooray for GDP! GDP as a measure of wellbeing. VOX. Retrieved from: http://www. voxeu. org/article/defence-gdp-measure-wellbeing.
Stiglitz, J. (2009). The great GDP swindle: Chasing GDP growth results in lower living standards. Better indicators are needed to capture well-being and sustainability. The Guardian. Retrieved from: http://www. theguardian. com/commentisfree/2009/sep/13/economics-economic-growth-and-recession-global-economy.