Sorry, Ludwig

Pericles appears to be right about the GDP. Spending on repairs after disasters does raise GDP in the short run, but ultimately will decrease GDP below what it would have been otherwise because of resources that are diverted from increasing production of new things that we want to repairing damage so that we are no worse off. There is a better example, though. Suppose that crime has increased in Pericles' neighbourhood. To protect himself, he installs a burglar alarm system and security gates on his windows. These expenditures count as part of GDP, but they are only defensive spending and don't make Pericles any better off than he would have been without them before the crime spree. This just means that even GDP per capita is an imperfect measure of human welfare.

There's something that we can agree on, Divergence.

>>This just means that even GDP per capita is an imperfect measure of human welfare.<<

Absolutely.

GDP and per-capita GDP are just numbers. They are not intended to measure individual human welfare. A GDP per capita of $100,000, in an economy where the assets are all owned by Ludwig and the rest of us slave 80 hours a week in his factories, for peanuts, provides not one single clue as to "human welfare". Nor is it supposed to.

The role of government is to ensure that there is a modicum of fairness in the laws that govern business and companies, so that the situation where Ludwig owns everything and pays us peanuts does not arise. If it manages this in a reasonable manner, then we can all share in the increased prosperity that rising GDP numbers indicate.

All we can say with any certainty is that on the whole, when the two numbers are rising, we become better off, and when they decline, we become worse off.

And while per-capita GDP continues to rise, we can be reassured that the influx of new people is not undermining our prosperity, or threatening our comfortable existence.

But your example does puzzle me a little, Divergence.

>>Suppose that crime has increased in Pericles' neighbourhood. To protect himself, he installs a burglar alarm system and security gates on his windows. These expenditures count as part of GDP, but they are only defensive spending and don't make Pericles any better off than he would have been without them before the crime spree.<<

It doesn't matter whether I am personally better off, that's not what GDP is about. It's about the economy as a whole.

What has happened is that some of the income from my own business now provides employment for a number of other people, who become better off as a direct result of my purchases.

But don't forget that a) I had to earn that money in the first place, and b) I can't spend it twice.

<< Spending on repairs after disasters does raise GDP in the short run… >>

Yes Divergence, spending on repairs raises (or gets added to or included in) GDP. But it shouldn’t, because it is NOT taking the economy forward, it is taking us from a negative position rendered by the disaster in question back to a neutral position.

<< …but ultimately will decrease GDP below what it would have been otherwise because of resources that are diverted from increasing production of new things that we want to repairing damage so that we are no worse off.

Why do you assume that resources are diverted? Some might be while others would get drawn from stockpiles or from increased production. I don’t think you can assume that increased activity in a recovery program displaces activity elsewhere to the same extent. My feeling is that it would do to some extent, but that the increase in the recovery effort would well and truly outweigh any decrease elsewhere that has resulted from reallocated resources and labour.

We get all the economic activity that is generated by the rebuilding effort after disaster added to GDP. ALL of it. No exceptions. But we get reduced economic activity as a result of the disaster, due to the loss of damage of homes, businesses and crops and/or the loss/injury of economically productive people.

The effect of these losses of economic activity and hence GDP is much less tangible than the clear gains to GDP rendered by the recovery effort.

continued

So I wonder how these losses compare to the recovery activity that is added straight to GDP.

I strongly suspect that in the GDP calculations they don’t appear as big as the recovery effort. And the net effect would be that GDP indicates that a disaster produces a net gain for the economy... and for our quality of life and future wellbeing!!

But of course it shouldn’t be a matter of comparing the economic activity that gets added to GDP due to the recovery effort with the various reductions caused by the disaster, because the recovery effort economic activity should just totally NOT be added to GDP in the first place!!

Anyway, whichever way you look at it, GDP is fundamentally flawed, and needs to be discarded entirely as an economic indicator.

And of course with GDP being so profoundly flawed and misleading, per-capita GDP is also a very highly misleading measure.

Ah, Poirot, dear Poirot,

>You really can't see a certain disparity between the bilge they served up before the election and their rogue actions since?<

Pray tell, what particular 'rogue actions' (actually enacted) might these be?

Or are you merely hypothesizing?

(Surely you're not sucked-in by Nhoj's ranting about this entirely fictitious 7month 'doubling of the deficit'? And, if you were, wouldn't this surely mean extra expenditure incurred on some of your own pet policy interests?)

And, if the so-called 'bilge' (your assessment) served up before the election was really all that bad or indigestible, how come the thrashing the electorate served up to Labor? (And to a lesser extent to the Greens.)

I know, from your usual exhibition of integrity on other matters, that this anti-Lib attitude is not merely 'sour grapes', but must has a deeper origin, and I wonder if you may be willing to share any specific area(s) of dissatisfaction you may have with the 'conservative' political approach.
(Or can it really just come down to a case of stereotypical 'big end of town' vs 'the battler'?) (Or, shades of 'eureka'?)

The only possible conclusion, Ludwig, is that you haven't the faintest idea what you are saying any more.

>>...spending on repairs raises (or gets added to or included in) GDP. But it shouldn’t, because it is NOT taking the economy forward, it is taking us from a negative position rendered by the disaster in question back to a neutral position.<<

There is absolutely nothing in the definition of GDP that requires it to only include activity that, in your quaint phraseology, is "taking the economy forward". In fact, the definition of GDP - as you yourself have acknowledged earlier - is that it is...

"...the monetary value of all the finished goods and services produced within a country's borders in a specific time period, though GDP is usually calculated on an annual basis. It includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory."

No mention of including only that which "takes the economy forward". Or backwards, for that matter.

I notice that you only use damaged property in your example. How would you fit bushfires and lung cancer, which were two of your earlier illustrations of "bad" GDP, into this warped theory of yours?

>>We get all the economic activity that is generated by the rebuilding effort after disaster added to GDP. ALL of it. No exceptions. But we get reduced economic activity as a result of the disaster, due to the loss of damage of homes, businesses and crops and/or the loss/injury of economically productive people.<<

Poppycock. Bluster. Desperate efforts to hide the fact that you know you have talked yourself into a corner.

The only thing left is to admit it. But we all know that ain't gonna happen, don't we.