Disasters Are Good For The GDP

In General Interest by Jonathan Tasini0 Comments

  The tragedy in Japan is real and the loss of life truly sad. But, there is one other piece of knowledge to glean today that is a long-term keeper: how disasters are GOOD for the Gross Domestic Product, and what that tells us about how we think about "recovery" and "economic growth".


  Right now, at The Wall Street Journal, you can read this observation:

U.S. stocks rose slightly despite the strongest earthquake to hit Japan in at least 300 years, as energy, materials and industrials companies climbed on expectations that they would receive increased demand from rebuilding efforts.

   In other words, no matter how bad this might be for the people of Japan, the disaster is good for business–the disaster will generate more business for a bunch of companies. So, stocks go up–and the new business, thanks to the disaster, will help the Gross Domestic Product.

   For several years, I (and many others) have tried to argue that the GDP is not a good measure for how people are doing–real people. All GDP really tells you is that stuff is being made.

    It does not tell us much about where incomes are going, and whether 413 billionaires are now worth $1.5 trillion.

   Louis Uchitelle pointed out almost three years ago:

And over the last 15 years there has been just such a shift. While the G.D.P. has continued to rise, wages have stagnated, pensions have shrunk or disappeared and income inequality has increased. Other shortcomings have become apparent. The boom in prison construction, for example, has added greatly to the G.D.P., but the damage from the crimes that made the prisons necessary is not subtracted. Neither is environmental damage nor depleted forests, although lumbering shows up in government statistics as value added. So does health care, which is measured by the money spent, not by improvements in people’s health. Obesity is on the rise in America, undermining health, but that is not subtracted.[emphasis added]

   And that is precisely the problem you see right now. One month you’ll read about the "recovery" and, then, oppppssss…three months later, you’ll read that it’s not coming. Part of that, I would argue, is that the number crunchers are looking at dry numbers of stuff being made–largely, numbers that make up GDP–but they are not able to draw on what people are really feeling: that their incomes are still squeezed, that they are still deeply in debt and that they are afraid of the future.

   My overall point, then, is that the standards by which most political and economic leaders judge "economic health" are often not connected with what real people are feeling and the real impact of life in society is like.

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