Gross Domestic Product (GDP) is not a measure of social prosperity. This is what Bas Jacobs, Professor of Public Economics at Erasmus School of Economics, states in an article that appeared in ESB (Economisch Statistische Berichten) on 26 August. According to Jacobs, this was recently emphasised in the reports of the Temporary Committee on the Concept of Welfare (2016) and Stiglitz et al. (2009).
According to Jacobs, although some policymakers and politicians still stubbornly equate GDP with prosperity, the limitations of GDP as a measure of prosperity seem to have become increasingly evident in recent years. CBS (2021) now produces a whole battery of indicators that attempt to say something about the development of prosperity in the Netherlands. In joint publications, Utrecht University and Rabobank claim to be able to make calculations of social prosperity and how it develops over time (Van Bavel et al., 2019; Stegeman et al., 2017).
According to Jacobs, however, these contributions about welfare have become detached from the important foundations of economic science. General knowledge of welfare economics has largely disappeared in thinking about welfare, he writes. ‘As a result, the concept of prosperity is slowly degenerating into a container in which anyone can simply dump his own concept of prosperity. This leads to theoretically impure welfare indicators. If these are used to determine policy, this can lead to policy errors,' says Jacobs.
According to Jacobs, a return to the classic approach of welfare economics, as applied in social cost-benefit analyses, for example, is needed. ‘Prosperity should ultimately be based on scarce goods from which people derive utility'.
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The full article from ESB (Economisch Statistische Berichten), 26 August 2021, can be found here (in Dutch).