The Human Development Index

The search continues for a better gauge of prosperity than GDP alone

 
MEASURING THE ESSENCE OF THE GOOD LIFE

Gross domestic product (GDP), which measures the total output of goods and services in an economy, has flaws when used to gauge the well-being of a nation’s residents.

For example, to the question of whether people in the United States are better-off in 2021 than they were before the COVID-19 pandemic, the answer would be yes, slightly, if per capita GDP is the yardstick. That’s because real (inflation-adjusted) per capita GDP rose from $58,333 in the fourth quarter of 2019 to $58,454 in the second quarter of 2021.

But that affirmative answer is likely to ring hollow to many. The United States does not appear better-off. It experienced a fourth wave of COVID-19 infections in late 2021 that left thousands dead. Many businesses are still shuttered, and millions remain unemployed. The country is deeply divided socially and politically. GDP captures neither the enormous human costs of the pandemic, nor the nation’s social and emotional disruptions.

The recognition that GDP cannot encompass many dimensions of well-being has prompted efforts to develop measures that reflect a more complete account of what people care about. The idea is not to give up on GDP—nor to replace it with some other one-dimensional measure, such as self-reported life satisfaction, which, like GDP, gives only a partial and hence potentially misleading picture. Instead, a measure that captures many dimensions of national well-being and complements GDP is needed. Fleurbaey and Blanchet (2013) provide an overview of this idea as well as many other so-called Beyond GDP proposals and initiatives.

In this article, we discuss the Human Development Index (HDI), an alternate measure of well-being that has been influential in developing economies. We then turn to our proposed approach to measuring national well-being, which is based on aggregating people’s survey responses about many dimensions of their welfare.

 
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