Category: Economics 10e: Ch 15

The French President, Nicolas Sarkozy, has asked a panel of economists, including Joseph Stiglitz, to come up with new measures of the quality of life as an alternative to the more traditional measures of GDP and production. He believes that traditional GDP measures understate the developments that have taken place in France.

Sarkozy seeks le feel-good factor Times Online (10/1/08)
France seeks new growth measure BBC News Online (8/1/08)
Beyond GDP – odd numbers Conde Nast Portfolio.com (9/1/08)

Questions

1. Explain why traditional GDP measures may not be a good measure of the standard of living.
2. Define what is meant by an Index of Sustainable Welfare.
3. Use the ‘Make your own ISEW‘ on the Friends of the Earth web site to assess the factors that make the most difference to the standard of living.

In the 1990s UK living standards were estimated to be 4% below those of the USA, 33% less than in Germany and 26% lower than those in France. However, faster economic growth in the past two decades has, according to Oxford Economics, led to average incomes overtaking those in the USA and rising some 8% more than those of France and Germany.

UK living standards outstrip US Times Online (6/1/08)
…but at least we’ve got one up on the Yanks Guardian (6/1/08)

Questions

1. Explain the difference that the value of sterling makes to the measure of the standard of living.
2. “With an adjustment made for this “purchasing power parity”, the average American has more spending power than his UK counterpart and pays lower taxes”. Define what is meant by purchasing power parity (PPP). Why does the standard of living need to be measured at PPS rates?
3. Discuss the principal factors that have led to the increase in the standard of living in the UK.

Do you know what the current rate of economic growth is? Probably not. In the article below Larry Elliott argues that this may indicate that the link between economic growth and happiness has been broken and that alternative measures of GDP may be more helpful in analysing the performance of the economy.

Cameron should count on happiness Guardian (27/8/07)

Questions

1. Explain what is meant by the term ‘Index of sustainable economic welfare’.
2. Examine three factors that may raise economic welfare that are not included in a conventional measure of GDP.
3. Use the Friends of the Earth make your own ISEW site to analyse the factors that may contribute the most to economic welfare. Discuss the arguments for and against the introduction of an ISEW as an official government measure of economic welfare.