Many argue that GDP, which counts the sum of the goods and services produced by a nation, fails to reflect a population’s well-being, because it accounts for neither distribution of income nor extractive effects such as pollution.
Wealth includes all assets, which means human capital (the value of earnings over a person’s lifetime), natural capital (energy, minerals, agricultural land), produced capital (machinery, buildings, urban land), and net foreign assets.
Assessing an economy by GDP instead of wealth is like looking exclusively at a company’s income statements without considering the assets on its balance sheet. A company can make its income look good for a short time by liquidating assets, but over the long run this will reduce the firm’s productive capacity and other means of generating income in the future.
The same applies to a country. GDP “does not reflect depreciation and depletion of assets, whether investment and accumulation of wealth are keeping pace with population growth, or whether the mix of assets is consistent with a country’s development goals,” the report states. more>