Economic welfare considers the real consumption of goods, income, and wealth, as well as the well-being of the people, which “includes intangible aspects that cannot be traded in a market, such as happiness, trust, and biodiversity.” As millions still go to bed empty stomach and as thousands struggle to fall asleep on the hard pavements, it has become crucial, more than ever before, for economists to find the best way to measure economic welfare, so as to find solutions quicker and aid people faster.
There are many indicators of economic welfare, like the Human Development Index, GDP per capita, and Multidimensional Poverty Index, that have been used by economists for a long time now. After thorough research, I believe that the best way to measure economic welfare is to use the Human Development Index (HDI).
HDI “is composed of four principal areas of interest: mean years of schooling, expected years of schooling, life expectancy at birth, and gross national income per capita.” This means that the HDI covers all the aspects of economic welfare and well-being.
The Gross National Income (GNI), “defined as gross domestic product, plus net receipts”, indicates that HDI considers the economic growth of the country, and can be compared with previous years. The mean years and expected years of schooling comes under well-being, as more years of schooling means better education, increasing the probability of getting a job, and hence, a factor for economic growth in the long run. The life expectancy at birth also indicates that HDI accounts for health, a crucial factor for well-being, as a healthier society would mean a more productive and able society, not only increasing the GDP, but also increasing the living standards, as more people would be able to earn and fulfil their wants and needs.
HDI does have its limitations. “Critics argue that the HDI assigns weights to certain factors that are equal trade-offs, when these measurements may not always be equally valuable.” There may be different combinations of GNI and life expectancy that give the same value, giving a false idea of true economic welfare and making it harder to differentiate. It also does not take in consideration the effect of warfare or corruption on the people.
However, HDI still stands out as a better indicator when compared to other indicators. For example, GDP per capita does not “consider levels of inequality within a country – whether it be the gap between the rich and poor or any instances of social or political discrimination.” Hence, this makes HDI a better measurement as it considers qualitative outcomes.
In conclusion, HDI is the best way to measure economic welfare of a nation, as it considers the economic growth as well as the intangible and qualitative factors, giving a more reliable idea of how prosperous and satisfied the people of a country are, allowing countries to improve and build a better society for all.