Problem of national income accounting

While the gross domestic product (GDP) could be taken as an
adequate measure of economic performance, economists are generally agreed that
it is not a measure of the nation’s economic well-being. In particular, critics
have posited that national income accounting glorifies the materialistic
society of today, but fails to capture the welfare of its people. The reasons
for these include;
1.  
Non-Inclusion
of Non-Market Transactions:
Certain transactions which do not go through the
market are not included in the GDP. These include the productive services of a
housewife and some “do it yourself” services such as the efforts of a mechanic
who repairs his own car. Indeed, many transactions are not included in the
profit and loss statements of business firms and therefore are not included in
the GDP.

2.  
Non
–Valuation of Leisure:
Because leisure hours are not valued, and leisure
time is a part of national well-being GDP is said to understate the growth in
national well-being.
3.  
Consumer
Satisfaction is not reflected in GDP:
A million naira spent on the
production of arms makes the same addition to GDP as a million naira spent on
the production of pipe-borne water. Both expenditures however, may produce very
different amounts of consumer satisfaction.
4.  
Improvement
or Decline in the quality of Products is no reflected in the GDP:
Many
products improve or decline in their quality overtime.Such improvement or fall
in product quality leads us to either understate or overstate our material
well-being. This is so because national income accountants are interested only
in the market value of the products and not in the contents.
Illegal Activities
are not measured:
GNP does not measure illegal activities; even some of
them are ordinary business activities that produce goods and services sold in
the market for the generation of factor incomes. A typical example could be
drawn from what authorities refer to as illicit liquor (i.e. local gin) in
Nigeria and some other African countries. This type of activity is not measured
or recorded even though it could constitute a significant part of the economic
activity of a nation. Also in this category are such activities as prostitution
and the drug trade, which thought may constitute demerit goods, are nonetheless
some form of economic activities engaging some factors of production, the
question as to whether demerit goods should be included in national income
accounting or not is however, a normative issue.
GNP and undesirable
environmental pollution:
There are certain side effects, which accompany
the production and growth of GNP. Business firms pollute the air, rivers, and
lakes in their attempt to manufacture desirable commodities. Such environmental
pollution, which is referred to in economics as social cost is not deducted
from ordinary GDP calculations. Thus, in reality, GDP overstates national
economic welfare.

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