Via Jay Jardine comes a few posts from Mises Blog, Cafe Hayek and Bastiat’s Window on whether or not Katrina actually benefits the economy in Louisiana. These blogs, Jay claims, are watching out for ‘economic ignorance’. Of course, it is to be expected that a small subset of the discipline of economics (Austrians) would point out that any other doctrine is false. Just like churches. After all, Austrians have an economic incentive to present the prevailing theories as wrong and theirs as true. Just sayin’.
Jay writes:
laying waste to a major metropolitan area and killing / injuring hundreds of people is no way to “boost your regional economy”
In all politeness, and morals aside, it actually is a good way. In the short term, capital stocks and infrastructure fall below their steady-state levels. The steady-state level of capital corresponds tot he steady-state level of economic growth. When capital falls below this level, the marginal product of capital increases, which increases yields on new investment. Growth rates below this level are higher, so Katrina will lead to a higher growth rate down the road.
But as Bastiat’s Window points out: “this might simply give more credence to argument that GDP doesn’t measure true wealth very well.”. I agree.
Wealth is defined generally as the conditions of well-being. Even though Katrina will call forward higher regional growth rates as capital is replaced, and even though this will translate into a higher level of GDP, people will not be better off for having lost their jobs, assets and even lives. It will be interesting to see how Katrina spikes the GDP in coming years, and hopefully this will illustrate the futility of measuring economic well-being with GDP.
It’s not the journalists’ fault for being economically ignorant; the very tool used (GDP) to measure wealth has a faulty assumption: that increases in GDP correlate directly with increases in human welfare.
Sphere: Related Content
{ 0 comments… add one now }