Some people also seem to have problems with what BNP growth really is. I’ll try and show this with an example.
You are a restaurant owner and you are unlucky that your restaurant burns down one day and you also forgot to pay the insurance. You as an owner are ofcourse devestated because of this and everyone that witnesses this tradgedy also feel your losses. You had been thinking about building another restaurant that would net you more profits. The rebuilding process begins after he pays a builder the money and it will take a year to complete it. Let’s simplify it.
1. You as an owner haven’t gained a single thing 500 000 dollars “many years of profit” you are back at square one..
2. The builder have gotten a good job which will net him 500 000 dollars in turnover.
Had the fire not occured it would have looked like this.
1. Restaurant owner builds another restaurant for 500 000 dollars
2. Builder gets the job that nets him 500 000 dollars in turnover
From a growth in BNP perspective both of these happenings was equally good because it only meassures economic activity and totally forgets to take into account savings and other if real value has been added into society as a whole.
Have the wealth in society really gotten any better by this? No ofcourse not. Had the fire never occured the restaurant owner would have been able to make profits in his first restaurant and also had a new restaurant up and running after a year preassuring the competition in an area so people could get equally as good food for a lesser price. The personel lost their job for a year and the potential of new hiring was removed. What if that during that period the builder had to turn down other work because he had no time to do it? What if the other restaurant owners couldn’t handle the rise in customers or chose to raise prices because of lessen competition? What if restaurant customers that would have donated more money to cancer research would have donated less when the price went up and in turn caused a cure for some cancer not to be found.
The problem in todays society is that we have a hard time looking at the indirect effect of certain actions. Sure the production for the builder was the same and the economist was happy that the saved money was injected into society showed up but when looking at society as a whole it was something really bad.
The point I’m trying to make is that things like wars, accidents, natural catastrophies, goverment involvement, bureacreacy, subsidies, crime etc have horrible side effects in the long run for everyone. At a first glance it may be positive for a certain someone.
For to long economists that have thought that these two happenings are almost equally as good been the experts that have advised politicians of what to do. Austrian economics VS mainstream economics. http://www.youtube.com/watch?v=6e_8H7E3cTo