# For my bachelors, would it make sense to use C+G (as Consumption + Government Expenditure) as an indicator for the prosperity of the economy?

Because G is also really just consumed by the people, wouldn´t it make sense to measure all the things that people consume to measure the prosperity of an economy?

At the end of the day, people in an economy with C = 100 and G = 80 would get more stuff done, than people in an economy with C = 120 and G = 20.

In my opinion it is even better than the GDP in the short term, because you don't really care about the amount of investment in an economy, you can´t be sure about the effectiveness of those investments, the only thing you really want is that you would be able to buy more stuff (C) and get more govt. services (G).

So if we would think about a closed economy, than people would get more goods and services in an economy with C = 100 G = 80 I = 10, GDP= 190 than in an economy with C = 120 G = 30 I = 50 GDP = 200

PS. We could also modify it and use the MEDIAN WAGE + G/NUMBER OF PEOPLE, so that we could get the real prosperity level of an average citizen, which we can´t get using the GDP or just the wage data, because it´s better to get a wage of 100.000 and 50.000 in govt. services than 120.000 and 10.000 in govt. services

• "Prosperity" is a term used in ordinary language, and not so far as I am aware a technical term of economics. So before trying to find an indicator for prosperity, it would be advisable to define what you mean by the term. For example, you might clarify: 1) Is it a total (eg for a country), or is it a per capita concept? 2) Can it be applied to a short time period (eg one year), or only to a longer time period? 3) Is it compatible with a stationary economy, or does it necessarily include growth? Commented Apr 11 at 19:45

This does not seem to be justified.

• Investment on GDP is not simply some purchase of stocks, but investment into capital goods. Purchasing homes, machines, cars used by businesses factories and in fact also inventory. Even purchasing home you want to live in counts as investment on GDP. In addition all this activity generates income for someone. Someone is better off when someone buys a car, machine, home etc. since someone got income from sale of those. So you are excluding a lot real economic activity that directly positively impact welfare and just handwaving it away by saying people don't care about investment (which you do not even support by some peer reviewed evidence: based on what data/evidence you claim people don't care about purchasing home etc?).

• median wage + $$G$$ makes no sense because $$G$$ includes spending on wages. You are double counting. Hence you cannot claim even purely financially, that for an average person, "to get a wage of 100.000 and 50.000 in govt. services than 120.000 and 10.000 in govt. services", since that spending funds some wages.

Moreover, GDP, in closed economy, is set up in such way that all wages $$w$$, profits $$\pi$$, interest $$i$$, and rent $$r$$ equals all consumption $$C$$, government spending $$G$$ and investment $$I$$. So median wages partially include also median investment spending.

Hence not only you double count but you are also not achieving your goal of excluding investment spending (although as discussed above it does not make sense to exclude it).

You would be better off just using median wages without any adjustment.

If you wan't some more broader measures of welfare you can look at HDI or better life index although they are almost perfectly correlated with GDP.

• Thanks for the response, 1. What if we would exclude purchases of homes for private use from I? The reason people, in my opinion, do not care about investment is that the only reason they invest is because they want to consume the invested amount + gains later (and this is why I am trying to measure the consumption), so if someone could have billions of dollars in investments without ever having an opportunity of using the capital for consumption, to him it would have the value of 0. I´ll continue below Commented Nov 13, 2023 at 20:47
• 2. I absolutely agree on the fact that hh income is used for investment too. Perhaps I also better had to say median "disposable and discretionary income", not "w". IMO in this case it won´t be double counting because the wages of public employees are prices for services (labour) people receive, so that if G = 100 and public worker´s wages are 20, than that means, that I as a citizen received a fraction of the work that you couldn´t buy for less than 20 Then this price of 20 (and 80 also) will be excluded from my income by taxes Do you think that would solve the problem with double counting? Commented Nov 13, 2023 at 21:11
• @MatsveiVoltau 1. its your thesis you can do whatever you want with it but you need better arguments than "i think x", especially when you are making claims that go contrary to well accepted economic principles. I think at some point your thesis advisor will demand you supply some better arguments than that. Hence you should first do some literature review on various ways of measuring whatever you want to measure. 2. Using disposable income you solve the issue of double counting with government but disposable income includes income spent on investment, which is what you wanted to exclude.
– 1muflon1
Commented Nov 13, 2023 at 21:46