Markets an Increased Budget Deficit Essay

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4. One of the main issues with GDP is that it reflects economic activity rather than economic progress. Thus, Japan's efforts at rebuilding after the tsunami will appear as a boom in construction, when in fact the country has recorded a significant economic setback and the temporary boost in construction activity is simply going to get the country back to its previous level. The first thing that should be added to a new measure of GDP (or economic health) is an adjustment for negative economic activity. This can be a natural disaster, terrorist attack or other activity that detracts from a nation's economic growth but is not currently included in the GDP calculation.

The second issue is that the GDP per capita does not accurately reflect the wealth of a nation. Liechtensteiners do not live materially better than their Austrian and Swiss neighbors, but their per capita GDP says they do. Brunei has a very high per capita GDP, but almost all of that wealth goes to the Sultan -- the average Bruneian has the same standard of living as his Malaysian neighbors. Thus, there should be a means of adjusting GDP for wealth disparity (GINI Index). This would isolate wealth that goes only to the ruling class from true economic growth that benefits the entire nation.

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The third issue with GDP is that it does not accurately reflect non-economic progressive. Bhutan has the Gross National Happiness instead of GDP, reflecting a Buddhist view that well-being is more important than just economic growth. Other positive activities besides economic growth should be reflected in the GDP. Thus, acts like pollution reduction, community service, or if the Buddhist philosophy is applied something like meditation, could all be included. This would orient the people of the society to acts that are positive in some way, and not just positive in an economic way.

If these adjustments are made to GDP, the measure might be a better record of our total output, including non-economic activity, the inclusion of externalities and being a more accurate record in general by factoring out wealth that only goes to the extremely wealthy from the equation. Such an approach would yield a profound shift in the value of GDP and in the policy prescriptions that would be devised to orient people to these new measures. Nations would be better able to compare with each other -- the examples earlier of Brunei and Liechtenstein are great examples of how GDP as a measure is distorted in its ability to accurately record quality of life issues and the….....

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