Monday, October 29, 2012

Wolfers has it (almost) right on hurricanes and GDP

"Asking what a hurricane does to GDP is about as pointless as asking what a war does. Tells you more about problems with GDP than anything."

"Almost" because I think that second sentence should say "tells you more about problems with how people think about GDP than anything". GDP is just fine as a measure. It just doesn't measure what people sometimes act like it measures.

I just think it's an interesting question - what a hurricane will do to GDP - not a terribly important one. The question ignores virtually everything we don't like about hurricanes, after all!


  1. OK I think I've got it Daniel:

    1) When we're talking about debt, the important thing to focus on is GDP, not human welfare. That's the only way to keep Krugman making sense.

    2) When we're talking about hurricanes, the important thing to focus on is human welfare, not GDP. That's the only way to keep Keynesian analysts making sense.

    Do I have it?

    1. No, welfare is very important. GDP is never the only thing. That's just what Krugman was referring to, as far as I could tell.

      On the second one, I'd only think human welfare is a lot more important because the human welfare costs are so significant and any GDP effects will probably be negligible. There's no choice with hurricanes and even if there was you wouldn't choose a hurricane for its GDP boost. There is a real choice with debt. We may actually want to incur debt.

      So, no, I'm not sure you have it.

  2. Why are we talking about GDP versus welfare? I think the point about natural disasters can be made more easily with GDP vs NDP (Net Domestic Product). The main reason GDP is inappropriate is because the damage to the capital stock isn't taken into account. It is (at least conceptually) in the depreciation component of NDP.

    Most of GDP's weaknesses in measuring human welfare are shared with NDP and all other income measures of course.

    1. I think that's totally legit. I wouldn't think of these as alternatives. We talk about welfare, I think, because it's welfare that suffers when people have to sit without power and clean up their yards, etc.

    2. That depends on whether we're going to think of income as only market income (which is normal to do). Anyway, I see your point, the mess and the worry and so on is all outside the market. My point is that we don't necessarily have to tackle the many-headed hydra of the GDP-welfare relationship to talk about this.


All anonymous comments will be deleted. Consistent pseudonyms are fine.