Intro to Business Term Paper
November 30, 2012
Is GDP what we make it out to be?
For the longest time, it has be accepted the GDP, or gross domestic product has been the international standard of measuring the health of an economy. GDP describes how a country is financially doing in a nice and simplistic easy number that can be compared to other countries; the higher the better. Economists and even everyday people have considered GDP an accurate reading of a country’s wellbeing and economic health. But a strong economy might mean that people living in that country are better off, it doesn’t directly measure the happiness of those people. Nor does it directly correlate to better living conditions. In conclusion, GDP is an excellent way to take a quick glimpse of how a country is doing financially, but it should not be the only contributing factor to make any further assumptions due the number of various variables that cannot be directly measured.
The first problem with reading GDP numbers is simply whether or not they are accurate or not. Just like any other survey, there are always variables that might distort or skew the results. For example, right here in the United States, there is a lot of money that is paid and received “under the table”. Any money transaction that is untaxed obviously cannot be tracked and therefore cannot be recorded for the national GDP. Chinese economist Li Keqiang expresses his concern, “First of all we know that a lot of Chinese income – more than in most other major countries – is hidden, for whatever reason, and this tends to pull down reported GDP numbers. One plausible recent estimate is that roughly 10% of total income is hidden beyond the NBS surveys, and so this suggests that GDP might be really substantially higher” (Washington Blog 3). There is only so much the government can do about something like this and something like smuggling or under the table money transactions is going to be inevitably going to be around. Although some might argue that yes, every country has this problem to some extent so it evens the playing field, but consider that every country has its own severity of this issue. This is not to say that GDP is useless, rather it means that it can only provide information accurate based on what sort of information the government is provided. Countries such as China in this case has a more “less accurate” GDP compared to a country who maybe has less than 10% of their income hidden.
Another factor for inaccuracy falls under the category of “the unexpected”. There are external factors that may occur and cause a business to suffer severe losses such as international law suits. But even a more down to earth example would be crime. For example, if GDP were used to measure an automobile factor, it would measure what is provided, but ignore what types of materials and any of costs that go into creating the production. So as long as the automobile factory keeps producing cars, nothing else matters. Detroit for example is known for its production of motor vehicles, there are factories there that produce thousands of cars; while a GDP measures the amount of money made by these companies, it does not take into consideration that Detroit is also a city with the highest crime rate, things such as crime, vandalism, and unreliable workers could have a big impact on these companies. But the money lost due to these external factors gets swept under the rug according to GDP, there is simply no way to measure these numbers and provide an accurate reading of how much is lost.
Now, with whatever information is provided by the government regardless of how accurate, GDP measures how much money a country makes after paying their expenditures. It can be compared to gross income vs. net income, net income is how much money actually goes into your pocket after tax, social security, and fees are taken out of your paycheck. Now it is generally crude to look at someone’s paycheck and make…