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What GDP Misses

David Roberts gives a good example of the problems with letting gross domestic product serve as the sole measure of national progress:

GDP is a poor proxy for national welfare (see: Bobby Kennedy). It represents economic churn, but that can obscure as much as it reveals. If I give up my car and grow my own food in a community garden, I’ve improved my quality of life, strengthened my community, reduced my energy use, lowered my greenhouse gas emissions ... and reduced GDP. Meanwhile, if I drive my car through the supermarket window, I increase GDP — think of all the money spent repairing the building.

By Ezra Klein  |  October 12, 2009; 11:55 AM ET
 
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Comments

That's called the broken window fallacy. It's a real economic fallacy unlike your ridiculous claim that cost shifting is an economic fallacy. You should google it and attempt to gain a basic economic education.

Posted by: fallsmeadjc | October 12, 2009 12:05 PM | Report abuse

Bastiat's broken window fallacy. Same mistake you made last week, Klein. The money to repair the supermarket is money that won't be spent somewhere else. Even if you assume that the money wasn't budgeted to be spent somewhere else, it was in a bank somewhere, and banks use that money to make loans. No money, no loan.

Posted by: msoja | October 12, 2009 12:18 PM | Report abuse

I am pretty dubious that Roberts would actually improve his quality of life by doing that. His consumer preferences maybe idiosyncratic, but general economic trends show that specialization increases as societies become richer. A wide spread move to subsistence farming is hardly indicative of a prosperous, growing economy. Assuming Roberts is doing his gardening as a hobby, I hardly think that the failure of a statistical measure to capture the relative psychological benefits of our hobbies is much of an indictment.

Posted by: sfmandrew | October 12, 2009 12:32 PM | Report abuse

As someone who grows about 1/3-1/2 of our vegetable intake, he isn't really talking about subsistence agriculture. He's talking about gardening as a hobby or a way to spend one's non-working time. It definitely uses less greenhouse gases than flying to play at fancy golf courses, for example. And volunteering doesn't add to GDP but it does add to social capital, something economists and libertarians seem not to appreciate.

The broken window example may be a fallacy, but it sure helps explain how the banks actually saved us instead of vice versa by driving into each others' windows last year.

Posted by: Mimikatz | October 12, 2009 12:40 PM | Report abuse

My favorite example is this: a factory job open up. In scenario (a), a woman takes the job. In scenario (b), the woman next door takes the job but hires the first woman to watch her kids while she's there. The second scenario has a much bigger impact on GDP but doesn't really improve anyone's standard of living (arguably the kids are worse off). It's just money changing hands more often. "Economic churn" is a good description of this.

Posted by: member5 | October 12, 2009 1:19 PM | Report abuse

Hey there fallsmeadjc and msoja! I'm glad that you folks are familiar with the Broken Window Fallacy. It's a good one.

You might want to do a little more reading on it, though, because if you take the extraordinary step of checking the Wikipedia page, you'll see that:

"Bastiat is not addressing production - he is addressing the stock of wealth, and therefore should not be applied to people who point out that destruction increases subsequent GDP growth."

So ... yeah.

Ezra's example was actually exactly right.

---Talespinner

Posted by: Talespinner | October 12, 2009 2:34 PM | Report abuse

Talespinner -- Wikipedia is a wonderful place -- I use it daily -- but it isn't an ultimate authority on anything.

I contend that there is no such thing as idle wealth, unless it is socked away in the mattress. Almost all other money is working money, i.e., it's being spent somewhere, alá the example I gave earlier.

Posted by: msoja | October 12, 2009 7:28 PM | Report abuse

Talespinner -- Further, as it's quite likely that the grocer with the busted store front would indeed have to defer other planned purchases of wholesale goods in order to fix things (grocers have notoriously thin margins), which would translate into lower sales, GDP would suffer under the given scenario, after considering the lost gains by the wholesaler and the grocer.

Posted by: msoja | October 12, 2009 7:58 PM | Report abuse

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