Traditional economic measures, such as gross domestic product (GDP), productivity and economic growth remain fundamentally important but they’re not the whole picture. We think economics is ultimately about improving people’s living standards but you can’t look at GDP as the indicator to focus on.
US senator Robert F Kennedy pointed out 50 years ago that GDP traditionally measures everything except those things that make life worthwhile.
The introduction of the living standards framework in New Zealand takes into account environmental resources, individual and community assets, ‘social capital’ – which includes cultural norms and how people interact – and human capital, such as people’s health, and their skills and qualifications.
By living standards, the NZ Treasury means more than income; it’s people having greater opportunities, capabilities and incentives to live a life that they value, and that they face fewer obstacles to achieving their goals.
Limitations of GDP as a measure of standard of living – see list below.
- Regional Variations in income and spending
- Inequalities of income and wealth
- Leisure and working hours
- The balance between consumption and investment
- The shadow economy and non-monetised sectors
- Changes in life expectancy
- Innovation and the development of new products
- Defensive expenditures