Does a Higher GDP necessarily cause a Higher Standard Of Living?
One of the uses of GDP is to measure economic well being of a country's population through their standard of living. When using GDP, it is necessary to use Real GDP
per Capita. Personally I don't believe that a higher GDP causes a higher standard of living, although it might do for the higher echelons of society. There are many reasons why I believe this:
Firstly, national GDP figures hide the regional disparities and variations in unemployment, output and incomes. IN addition, there also exists within regions various unemployment black spots which are contrasted with areas of prosperity. This is shown in the example of the UK - GDP is on average £15,000, while in a survey from MORI in 1997 it states that 12 million people lived in poverty as they earned under £175 a week (after tax) - approximately £9000 a year, which is largely different from the average value. Also, although a period of sustained economic growth will generate higher incomes for those who work, the distribution of this extra income will rarely be even. At the time of the boom years of the 1980's and the recovery years of the 1990's, many believed that the growth would be passed down to all groups of society though this has now been discredited as incorrect. In fact the growth has been a cause for concern as since these times of growth there seems to be a widening in the differences of wealth in society - some people have been becoming more wealthy while others have been becoming poorer. There is evidence to show that during the years 1979 and 1993, the poorest decile's real income actually fell and as a result their standard of living would have decreased, while at the same time the general living standards have increased for the richest. Therefore GDP figures do not show the distribution of income and wealth - they nay be unevenly distributed among the population (e.g. in Saudi Arabia - small minority hold the whole country's wealth). Also, whilst national prosperity may be rising, relative poverty may also be rinsing.
One of the uses of GDP is to measure economic well being of a country's population through their standard of living. When using GDP, it is necessary to use Real GDP
per Capita. Personally I don't believe that a higher GDP causes a higher standard of living, although it might do for the higher echelons of society. There are many reasons why I believe this:
Firstly, national GDP figures hide the regional disparities and variations in unemployment, output and incomes. IN addition, there also exists within regions various unemployment black spots which are contrasted with areas of prosperity. This is shown in the example of the UK - GDP is on average £15,000, while in a survey from MORI in 1997 it states that 12 million people lived in poverty as they earned under £175 a week (after tax) - approximately £9000 a year, which is largely different from the average value. Also, although a period of sustained economic growth will generate higher incomes for those who work, the distribution of this extra income will rarely be even. At the time of the boom years of the 1980's and the recovery years of the 1990's, many believed that the growth would be passed down to all groups of society though this has now been discredited as incorrect. In fact the growth has been a cause for concern as since these times of growth there seems to be a widening in the differences of wealth in society - some people have been becoming more wealthy while others have been becoming poorer. There is evidence to show that during the years 1979 and 1993, the poorest decile's real income actually fell and as a result their standard of living would have decreased, while at the same time the general living standards have increased for the richest. Therefore GDP figures do not show the distribution of income and wealth - they nay be unevenly distributed among the population (e.g. in Saudi Arabia - small minority hold the whole country's wealth). Also, whilst national prosperity may be rising, relative poverty may also be rinsing.
