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The Phony GDP and Unwanted Goods

A healthy society would spend less on government, not more.

by James Leroy Wilson
April 28, 2005

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The Phony GDP and Unwanted Goods

Edward J. Dodson of the School of Cooperative Individualism recently pointed out the myth of the Gross Domestic Product." The GDP

is generally defined as "the measure of the USA's output of goods and services." The U.S. Department of Commerce gathers data from various sources on personal consumption, government expenditures, private investment, inventory growth and the nation's trade balance to come up with a GDP figure.

Additionally, the component elements in the GDP calculation are given various weights based on the relative prices of goods and services and their importance in the economy. This figure is then further adjusted to take into account the effects of inflation, yielding what economists refer to as the "inflation-corrected GDP."

But, as Dodson points out, this dollar-measured economic growth does not measure real growth: "All spending -- whether on the construction of prisons, the development of military weaponry, the dumping of untreated and toxic chemicals into the ground, waterways or air -- all add to GDP." Which means that

Since the GDP records every monetary transaction as positive, the costs of social decay and natural disasters are tallied as economic advance. Crime adds billions of dollars to the GDP due to the need for locks and other security measures, increased police protection, property damage, and medical costs. Divorce adds billions of dollars more through lawyer's fees, the need to establish second households and so forth. Hurricane Andrew was a disaster for Southern Florida. But the GDP recorded it as a boon to the economy of well over $15 billion.

John Lalor of Ireland's Freedom Institute calls expenditures such as locks unwanted goods." He writes,

More useful goods may be considered "wanted goods," as opposed to "unwanted." These are differentiated from one another by that which is bought by choice and that which is forced upon us.

An "unwanted good" is therefore a product that the consumer is effectively forced to purchase due to the obstruction of their rights — e.g. alarming one's house due to increased break-ins. "Wanted goods," on the other hand, are those purchased voluntarily, and simply serve as the consequence of their rights being upheld.

Money and time spent on prevention and reparation is money that could have been spent on improvements. This is not to say that such trade-offs aren't necessary. But what they do not do is add to any meaningful economic growth. They do not enhance our material comfort and quality of life. This goes back to Frederic Bastiat's Broken Window theory. What was spent repairing the window could have been spent on a new pair of shoes. What the GDP misses is that, as Bastiat puts it, "Society loses the value of things that are uselessly destroyed... destruction is not profit."

Of course, cars will get stolen, tornadoes will destroy homes, and people will die. We do not live in a utopia. Milk that is spilled has to be cleaned up, and those whose careers are spent maintaining security, safety, and good health are doing necessary and good work. But they are like punters on the football team. The perfect team would not need his services, and he is necessary only because of failure on the part of the rest of the team. Points are not scored, and therefore games are not won, by the punter. Likewise, the police officer is preserving society, but not adding to it the way he would if he was designing a computer programmer, even if he was paid the same and thus adding to the GDP.

Let's consider not a political utopia, but actual paradise, a Garden of Eden. Although acquiring food and shelter would not involve struggle or effort, that is not the same as saying there would be no architects or chefs. Rather, its just that the architect wouldn't have to worry about earthquakes and arson, and the chef wouldn't have to worry about food poisoning. Just as the musician wouldn't have to worry about copyright piracy. Our creative and productive energies would concentrate only on creative arts and intellectual improvement, and would not be exhausted by various security measures and legal hassles.

Lalor maintains that "[t]he more 'unwanted' goods purchased correlates with a worse-run economy." Or an ill-run society. A truly progressive society is one in which less and less energy, time, and money is consumed on security, safety, and health, and more is consumed in production of "wanted" goods. Medical care would, like computers, become both better AND less expensive over time. Likewise for law enforcement, defense, and private security. It's a question of efficiency, of continually getting more and better at less cost.

The justification for government's existence is precisely that is designed to make life more efficient. It provides the "unwanted goods" that maintain our personal and economic security. It is to provide services which, it is said, private initiative is not able to provide fairly or efficiently. We are forced to pay for government's services, whether or not we agree with them or use them. What the government takes for what it wants, the less we have to spend on what we want.

We must therefore insist that government services be delivered efficiently, economically. Government has no business growing faster than the growth of the population or economy, and a well-run government will actually improve its services at less cost over time. Every time we say, "We must spend more on Education" or "We must spend more on Defense," we are admitting that government is doing a bad job, that it is not creative and economical in its solutions.

The problem is that there are no means, and no incentives, for government bureaucrats to innovate, to provide better service at less expense. Government is a monopoly; its "customers" do not have the option to do business with another government across the street; its "customer satisfaction ratings" are measured only by the occasional election of a few of legislators and executives, none of whom will fire the rude incompetents down at the DMV. This is the great paradox: we expect government to help make our lives better, specifically by reducing the costs of certain necessary but "unwanted" goods, yet it has no means or incentive to actually reduce cost or in any way do things efficiently. Unlike businesses in a free market, it has no reason to cut bureaucracy or stretch dollars.

The more we spend on government, the more we are committing social suicide. For it means we are spending more and more on unwanted goods inefficiently provided, leaving less and less for actual innovation and improvement. This is the recipe for economic stagnation and social decline. While we may need government to protect our rights, the moment it spends more than it needs, it begins to violate our rights.

In contrast, a society headed in the right direction will happily see the burden of "unwanted goods" decrease and find ever-greater resources to improve our comfort and lifestyles. Like Dodson, Lalor, and Bastiat, we must look beyond dollar measures of economic growth and look at the "unseen," the costs of government and unwanted goods.

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James Leroy Wilson writes:
April 28, 2005
For the record, the first version of this article had some formatting problems. This first passage quoting Edward Dodson is two paragraphs long, but the second paragraph was not indented so it looks like I wrote it. The same problem applied to the passage by John Lalor - the second paragraph was not indented. These were fixed by by 3:30 pm EST. My apologies to Dodson and Lalor. I take full responsibility because of my poor instructions to the editor.

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