Tuesday, October 31, 2017

Good for the Economy, Bad for People

A recent article in the New York Times about rapid economic growth in the third quarter provides a perfect example of the upside-down way that we think about the economy:
"After the shock dissipates, the recovery from an extreme weather event can help the economy by creating new reasons for consumer spending, which represents roughly 70 percent of national output. After the damage is done, people must often rebuild their homes or replace their cars, an effect that began to show up in the third quarter and will most likely continue through the end of the year."
Destruction is supposedly a good thing, because people have to spend more to rebuild and that spending is good for the economy. Of course, the people are not better off after their old house is destroyed and they spend much of their money to build a new house - after hardship and displacement, they end up with a house that is no better than the one they always had - but the economy is better off because of the increased consumer spending. 
Rather than thinking about what is good for the economy, we should think about what the economy is good for.  The goal of the economy is to provide people with products that they need or want, so people are comfortable and well off. Rebuilding after a hurricane leaves people no better off than they were before.  Even if it is good for the economy, it is not good for the people whose well-being is supposedly the goal of the economy. 
The Times quotation is here.


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