Irene is good news for GDP

As the clean up after Hurricane Irene commences, not too many people will realise that this is actually ‘good for the economy’ — at least in terms of GDP growth. The problem is that all expenditure on goods and services — even if it is cleaning up after a ‘natural’ disaster (sic) — ends up on the plus side of the ledger. Continuing with this logic, it actually makes sense to urge BP to have more oil spills, and to encourage crime because we spend more on burglar alarms. Robert F. Kennedy was making this same point more than four decades ago and yet GDP remains the primary macroeconomic variable shaping government policies around the world (with the notable exception of Bhutan!)

The biggest irony of all, is that even Simon Kuznets, (the man who invented GDP) in his very first report to the US Congress in 1934 went on record as saying: “… the welfare of a nation can, therefore, scarcely be inferred from a measure of national income”, and then again in 1962: “Distinctions must be kept in mind between quantity and quality of growth, between costs and returns, and between the short and long run. Goals for more growth should specify more growth of what and for what.”

I don’t think Professor Kuznets would have argued in favour of extreme weather events as a means of growing GDP somehow.

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