Hurricane Irene: A Great Example of Why GDP Fails as a Measurement of Wellbeing

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If you need a great example of how GDP isn't really a great way of measuring the actual state of an economy, in its ability to actually meet the needs of people, then a new piece from Center for the Advancement of the Steady State Economy does a great job. Here's a bit of Eric Zencey's piece, using the aftermath of hurricanes Irene in Vermont and Katrina in New Orleans as examples:

I interviewed this particular economist by phone in 2009, when I was putting together an op-ed piece on the shortcomings of GDP for the New York Times. When I asked the professor about the perverse way GDP tallied the results of Hurricane Katrina ($82 billion in property damage, so an $82 billion boost to GDP if all the damage were to be repaired), he defended GDP. "That figure is going to include a lot of improvements," he said. "Those people are getting new cars, new carpets, new refrigerators." Notice that this way of thinking gives a disciplinary seal of approval ("100% rational behavior") to a very uneconomic, irrational exchange: you'd be crazy to pay the cost of complete destruction of your household in order to get incremental upgrades of some of the things it contains.

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