Discussing GDP as measure of welfare, Dave Breuer cites Marilyn Waring as arguing that on that measure the Exxon Valdez oil spill increases GDP:
“What most environmentalists consider to be an environmental disaster of enormous proportions is actually deemed to contribute to the economy using the GDP measurement system.” That’s because the spill was positive contributor to the GDP in terms of job creation and spending. The tanker was replaced and the clean-up became an economic boon to disaster response industries.
“So on the basis of GDP it would be good to have couple of incidents like this every year or more – it’s good for the economy,” says Waring. Simple commonsense indicates this is economic nonsense. If an environmental disaster is good for the economy, comprehensive devastation by war would be even better, according to Waring’s economics. In elementary economics courses, this is known as the broken window fallacy. If someone throws brick through window, resources have to be used to repair it, and the value of the repair services is counted in GDP. But GDP is not increased as result: the resources used in repairing the window would otherwise have been used in doing something more productive. There are many limitations of GDP as measure of welfare – it is simply measure of the monetary value of the goods and services produced in the economy. But Waring’s particular criticism is not one of them.
Roger Kerr
Executive director
NZ Business Roundtable
