Why GDP is not a good indicator of a nation’s well-being or standard of living is a familiar topic for those who study economics. For example, GDP only counts those outputs produced and sold in legal markets—it does not discount shops, VIP discounts, etc. It does not measure pollution, impact or effects a good have on people’s life. Since most of the people use discounts shops and pollutions heavily affects our lives, GDP fails to measure people’s quality of life. I am currently writing math IA with topic: Correlation between GDP per capita and life expectancy, I had a chance of reviewing GDP. Revisiting this concept, I suddenly doubted the practicality of the theories. If GDP fails to measure the standard of living of a country, why do politicians care so much about it? Since politicians care about GDP, it affects citizen’s life to a considerable extent—such as building a new tower, re-do the road for several times within a year, etc. I thought, why should I be affected by some numbers that measure the quality of life inaccurately? Frankly speaking, rebuilding the road several times a year decreases my standard of living—but it increases GDP. ……If GDP is inaccurate, what other measure are inaccurate? To what extent do theories and models fit the actual society?

For example, there is law of demand and law of supply. Law of demand states that as price decreases, quantity demanded decreases and vice versa. Law of supply is similar to law of demand. However, in the real life, no one actually knows the standard price. Therefore, it is really hard to know whether a good is now cheaper of more expensive. This ignorance might cause consumers to purchase more goods when the price is higher. For firms, it is very hard for them to determine the maximum price consumers can accept. So to what extent do these models symbolize the real world? How much exception is enough to falsify a model or a theory? If to say model is accurate, whose perspective is this from?

From my perspective, law of demand and supply is not relevant at all. I buy what I want to buy whenever I wanted to. The price is not that relevant—I wouldn’t buy a lot of inks and pens just because they are now on sale. So law of demand and supply are not relevant to me at all. However, from a nation’s point of view, this model might be accurate (someone would buy more if the price is lower).  This is the same with supply curve.

Considering a model from multiple perspectives gave me a point of view. Any model has two sides—accurate and inaccurate. What determines its accuracy is perspective. This lead me to another question……What is the accuracy within these two categories (accurate and inaccurate)? Speaking of law of demand, the quantity demanded of inferior goods (fast food, etc.) does not follow law of demand for both categories. For most of the goods, higher the income, higher the quantity demanded. However for inferior goods, higher the income, lower the quantity demanded and vice versa. This inaccuracy exists in both categories.

Similar to models, many historical facts may have different faces. Facts are constantly reviewed and are constantly falsified or renewed. This is very similar to the nature of natural science. The difference is that history goes backwards and natural science goes forward.