GDP sometimes tells us the wrong thing

The earthquake,tsunami and subsequent Fukushima nuclear power station problem that hit Japan just over a year ago is a case in point, which I raised at the time. The destruction of the event was not recorded by GDP statistics but any reconstruction efforts will be. So Japan as a nation is worse off but GDP numbers will show an improvement over time.

Another example is the problem of issues such as crime. An increase in crime will make everyone worse off but a response involving more police will increase GDP. If we move onto consider the legal profession we have a deeper problem. What do they produce? As we struggle to cope with that we realise that we are in an era where their significance has increased but also at a time where many would argue that their influence is often far from beneficial. Their influence on our political class may well be an example of institutional capture.

Resource use is another problem. If we look at the UK we have used up a lot of the gain from the natural resource that was/is North Sea Oil. This will have boosted UK GDP over time but there is no deduction anywhere for using up a finite resource. If we think of say deforestation it is easy to argue that economic activity here boosts GDP but is usually a bad move. Another example of this was the (in)famous Exxon Valdez oil spill in Alaska where the highly expensive clean-up effort provided a boost to US GDP because there is no measure used for damage to the environment.