Freeman

ARTICLE

Burn Your House, Boost the Economy

Why GDP is a Flawed Measurement

MARCH 01, 1998 by LAWRENCE M. PARKS

Lawrence Parks is executive director of the Foundation for the Advancement of Monetary Education. Adapted from The Money Review, November 1997. An earlier version of this article appeared in The Free Market.

As recently as 50 years ago, classical economists regarded the vitality of the economy as its ability to produce things that people wanted (and presumably would pay for). Today, the economy has been redefined into something called Gross Domestic Product, or GDP. Some are beginning to question the efficacy of the GDP measurement, considering how important it has become for fiscal and social policy. What better way to highlight its failures than to suggest some outlandish ways that help increase the GDP?

Things Kids Can Do: Have kids themselves. Sickly ones who require constant medical attention would be best. Medical expenditures have become almost 14 percent of GDP; we need to stay on the growth curve. And when those kids become teenagers, encourage them to become juvenile delinquents. If they get arrested for some really heinous crime and go to jail for a long time, the economy gets a jolt.

Things You Can Do By Yourself: Get a divorce. Legal costs, two houses, and all the things that go with houses: furniture, kitchen supplies, appliances, are all important components of GDP. Divorces stimulate consumer demand.

Break something around the house, e.g., a window, a dish, the television. Replacing these things helps increase the GDP and creates jobs.

Smash up the car. It will have to be fixed or replaced. The automobile industry employs directly and indirectly one out of every seven workers in the United States and they need the overtime. But, for really great results, burn down the house! Don’t worry, insurance will pay for it, and the rebuilding will keep a lot of people busy for at least a while.

Quit your job as a scientist and become a taxicab driver. Research and development is not included in the GDP, but money spent on taxicabs is.

Don’t exercise, don’t brush your teeth. Overeat, do drugs, smoke, drink, and make yourself terribly sick. See if you can get your family members to do the same. The more you spend on medical care, the higher the GDP.

Hire help to take care of the kids and force your wife to get a job. This gives the economy a double boost because: (1) if your wife takes care of kids and does housework, it is not counted in the GDP because she’s not paid, but help hired to do that work is counted in the GDP; and (2) if your wife goes to work outside the home, that counts toward the GDP, too!

Hire a lawyer and sue somebody. (Lawyers’ fees are directly added to GDP.)

Things You Can Do with Your Neighbors: Riot and burn the neighborhood. Rebuilding puts people to work and is very beneficial to the GDP.

Form a gang. Commit crimes with a view to getting caught. The more people in jail, especially folks who would not otherwise have jobs, the better off the economy. Today, building and managing jails has become one of the hot “growth” industries, to say nothing of the security business.

Things Businesses Can Do: Pollute the environment—a giant oil spill would be great! Superfund sites are very desirable for expanding the GDP. Leverage up and build excess real estate, e.g., see-through buildings. They add to the GDP when they go up, but the waste is not subtracted when they are demolished or stand vacant. Similarly, companies can build excess plant capacity (as IBM did in the mid-to-late 1980s to the tune of $30 billion). All of this counts toward GDP. Again, when companies are “downsized,” nothing is subtracted from the GDP. It’s similar in concept to the “roach motel”: GDP counts these things going up, but not going down.

For Best Results, Organize and Get the Government Involved: Lobby your elected representatives to raise taxes and spend more money. Government spending on goods and services adds to the GDP and “creates” jobs.

Start a war. Preferably one far away where no Americans get killed. B-2 bombers, tanks, bullets . . . all count in the GDP. Also, send Stinger missiles to liberation armies in countries around the world, such as Afghanistan. Maybe some of those missiles will be used to knock down airliners. Replacing them helps the economy, and if lawyers get involved, there’s a GDP bonus.

Target savers! People who save actually hurt the economy because they don’t spend. (Economists call this “The Paradox of Thrift,” as if they never heard that contradictions don’t exist.) If people spend their savings, then those purchases are added to the GDP. When they don’t spend, the economy suffers. What can be done to discourage saving? First, tax the return on savings: a higher capital gains tax would be very helpful. Second, and best, debase the currency! By printing up more and more money, we can dilute the value of people’s savings (especially their long-term savings, such as their pension funds) surreptitiously stealing their money for politicians to spend and thereby increase the GDP.

Get Mother Nature on Your Side: Hope for a natural disaster: a hurricane, an earthquake, a big fire, a flood. Disasters give the GDP a tremendous lift because of all the rebuilding that must take place.

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March 1998

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