About That +6.8% GDP Forecast: Remember That GDP = Waste

Authored by Charles Hugh Smith via OfTwoMinds blog,

Any economy stupid enough to rely on the insane distortions of GDP "growth" as its primary measure will richly deserve a Darwin Award when it inevitably collapses in a putrid heap of squandered resources and capital.

We’re told the gross domestic product (GDP) measures growth, but what it really measures is waste: capital, labor and resources that are squandered and then mislabeled "growth" for PR purposes. If we only manage what we measure, then we’re mismanaging our economy by promoting waste as the only metric we measure and incentivize.

Forecasts now predict a rousing 6.8% "growth" in 2021 GDP. In other words, the amount of resources and capital being squandered is going parabolic and we love it!

50 million autos and trucks stuck in traffic, burning millions of gallons of fuel while going nowhere? Growth! All that wasted fuel adds to GDP. Everyone who works from home detracts from "growth" since they didn’t waste fuel sitting in traffic jams. That’s bad! Wasting millions of gallons of gasoline is "growth"!

Repaving a little-used road: growth! Never mind the money could have been invested in repairing a heavily traveled road, or adding safe bikeways, etc.–in the current neo-Keynesian system, building bridges to nowhere is "infrastructure growth."

GDP has no mechanism to measure the opportunity costs of squandering capital, labor and resources on investments with marginal or even negative returns.

Buying a new refrigerator to replace a broken one that could have been fixed by replacing a $10 sensor: growth! GDP has no mechanism for calculating the utility still remaining in roads, vehicles, buildings, etc. that are replaced–throwing away all the fixed-investment’s remaining utility to buy a new replacement is strongly encouraged because it adds to "growth."

Planned obsolescence that sends everything on a conveyor belt to the landfill is "growth"– we love the Landfill Economy because all that incredibly needless waste is "growth"!

Building and maintaining extraordinarily costly weapons systems that are already obsolete: growth! The gargantuan future costs of interest paid by taxpayers on the debt borrowed to pay for failed weapons systems like the trillion-dollar rathole known as the F-35 aircraft program is not calculated by GDP. The staggering costs of indebting future taxpayers is ignored by GDP– the only thing that counts in GDP is "growth" in spending, no matter how useless.

Tearing out a functioning kitchen to install granite countertops and new appliances: growth! GDP has no mechanism to measure the decline of quality in new appliances, or the marginal utility of granite countertops over the existing surfaces.

Writing complex derivatives designed to defraud the buyers: growth! The immense profits booked by investment banks and the bloated salaries of the financiers who wrote and sold the guaranteed-to-default derivatives add greatly to GDP.

Creating another huge bureaucracy to oversee the financiers: growth! Squandering taxpayers’ money on more layers of bureaucracy adds to "growth" and GDP–never mind that the labor is all wasted, since a 16-page law could have achieved the same results at near-zero cost.

GDP has no mechanism to measure the value of alternatives that use less capital, labor and resources to get the same results.

Tossing out an item of clothing that was worn once or twice in favor of the latest fashion: growth! GDP has no mechanism to measure what else could have been done with the oil burned to ship the new item of clothing across the Pacific and truck it to the retailer; if a consumer spends money on the new clothing, GDP registers that as "growth" without calculating what else could have been done with the non-renewable resources squandered on frippery.

An extremely costly medication that has essentially zero positive effect on the patients’ underlying conditions: growth! And if the useless med causes horrible side-effects that need another couple meds to knock down the side-effects, fantastic, that’s even more growth!

Borrowing and blowing $50,000 on a university diploma with a market value of $0: "growth"! The way we measure GDP does not account for the burdens of debt crushing debt-serfs for a worthless degree. GDP only measures spending, no matter how useless, destructive or insane.

GDP is another insane, irrational distortion of the Keynesian Cargo Cult that worships "growth" as the only goal. The Keynesian Cargo Cultists believe that paying people to dig holes and refill them is an excellent strategy for "growth:" ordering bureaucrats to bury wads of cash in abandoned mines and then turning the unemployed hordes loose to find the cash is Keynes’ own example of worthy ways to generate "growth."

This disconnected-from-reality understanding of the world completely ignores the non-renewable nature of hydrocarbons and the critical concept of maximizing the utility of capital, labor and resources.

Any system that has no way to measure, much less prioritize opportunity costs (i.e. what else could have been done the capital, labor and resources) and maximization of utility is not just flawed–it’s terribly misguided and destructive.

No wonder the Keynesian Cargo Cult’s method of encouraging "animal spirits" is dancing the humba-humba around the campfire waving recently strangled chickens. (Hey, is that Paul Krugman in the shaman outfit? No, it’s Ben Bernanke!)

Any economy stupid enough to rely on the insane distortions of GDP "growth" as its primary measure will richly deserve a Darwin Award when it inevitably collapses in a putrid heap of squandered resources and capital. Don’t think it won’t happen just because it hasn’t happened yet.

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