Guy on the AP Economics list sent this link to a NYT Op-ed: GDP RIP.
I started the article and thought, “Hey, this sounds like Henry Hazlitt’s ‘Economics in One Lesson’.” Got the fallacy of the broken window right up at the front of the article. I’m right there with him in saying GDP is not going to give a complete picture and that it’s often misleading.
But I have to ask how putting prices on everything will work out…
In theory, it’s wonderful. Say we price a wetland staying a wetland as $100 million in value. A developer comes along with a project that will drain the wetland and provide maybe $75 million in value. Sorry, Mr. Developer, but that project won’t fly.
Now in practice… The developer fudges his numbers so that he projects $175 million in value and possibly gets in good with the county commissioner to revalue the swamp at $50 million in value and then gets his buddy, the local newspaper editor, to write a scathing criticism of the mosquito problem coming from that dadgum $50 million swamp. Wouldn’t everyone benefit from a nice new development there? Swamp is drained, development goes up, development doesn’t deliver as promised, but all the big dogs got their money, so who’s to say it was a bad idea? Also, thanks to cooked numbers, that National Happiness Product or whatever just went up.
So say in the case of wetlands we avoid such shenanigans by setting a straight-up dollar value per acre. Valuation’s fixed, right? No, it’s not. That developer can still fudge the boundaries of the wetland and get his reduction. Or, going the other extreme, an area could be designated as wetland but, due to changing climate, dries out and becomes hardscrabble prairie. Developer tries to build on that but is told it’s technically still a $100 million wetland because the federal government won’t redesignate it as a $2 million hardscrabble prairie.
Then there’s the good side of GDP ignoring all that activity: do we really want a set value on, say, the value of having my kids mow the lawn? Put a number on that, and it won’t take long for some genius to figure out a way to tax it. Imagine if the value of my tutoring my own kids were calculated and then I had to start taking them to a private tutor with less qualifications for a tax break… Or simply go underground and teach ’em on the sly, bootlegging education to avoid the revenuers…
I agree that GDP is a pretty poor end-all measure. But the same way we cook books to boost GDP, we’ll find a way to cook books to boost whatever we switch to. Politicians and bureaucrats are not going to suddenly change stripes. Who gets to say what’s better? If we all lived in a high-rise stacked on top of each other, within walking distance of a metro line, we’d use up a lot less gas… But we’d need a king-size sewage and water system to handle the population density. Also, if we switched from “bad” single-family homes to “good” new urban dense residential town centers, we lose a lot more greenspace per person. We also have to put up with noisy neighbors… And tinier living space. What cost, those things? Or do they get ignored by the beancounters that decided they need to weight the calculations in favor of “greener” options?
And how do we calculate “green”? The author of the article seems to push for that change… So would we all drive a Prius? By one calculation, yes we would. By Top Gear’s calculation at Google Video and YouTube, the Prius isn’t all that green. So, again, who’s to say? If we tossed GDP, what’s the guarantee that we would be getting a slightly smaller load of rubbish with the new system?
OK, so why is this also in the “Reason to Live” category? Because of Top Gear, mate! I love that show. Jeremy Clarkson is genius. Seriously, if anyone wants to buy me Top Gear on DVD, email me and we’ll work out the details. If I could teach my class with Top Gear, the world would be a better place. I don’t know what I’d call that class, but everyone would want to take it.
Here’s another Top Gear link, just for the heck of it: Listen for when Clarkson’s car makes a bad noise…