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When a company produces 1000 cars and pollutes a river in process, this counts as economic growth. When another company spends time, money and resources to clea

by b0rsuk 9y ago

When a company produces 1000 cars and pollutes a river in process, this counts as economic growth. When another company spends time, money and resources to clean that river, that also counts as economic growth, even if was just to get natural environment back to its original health. Some food for thought.

valuearb 9y ago
This is a great example of how we don't weigh externalities in GDP, why we should, and why we need market based solutions to those externalities. For example, a cap on river pollutants so low the river and wildlife can't be poisoned and each company has to buy rights from the limited pool, or if too expensive, find ways to limit their pollutants. I once read (from Milton Friedman IIRC) that some european countries passed a law to limit river pollution by requiring companies to have their river water intakes downstream of their outflows. Supposedly this made a huge difference in the amount of pollutants they dumped in the river. That is a simple but limited way of imposing the externality costs on the persons who inflict the damage.
defterGoose 9y ago
What? You're making a serious stretch there. The profit from the cars contributes directly to GDP, but even if individual people get paid to help clean up the river, where is that money coming from? It's a DRAIN on resources to get the river back to normal, there's no profit. Therefore it's not growth.
- ansible 9y ago
  I think the point is that the cleanup effort is "on the books" and calculated as part of the gross domestic product. The issue that people are trying to make is that there are many activities that do contribute to the overall wealth of a country, which don't get counted in the GDP. And there are things that are counted by the GDP which don't contribute to wealth. GDP is a poor measure of the overall wealth and health of a country.
  - defterGoose 9y ago
    Right, I agree with you. From the tone of the post, it seemed like the author was justifying the GDP calculation as it's made. Perhaps there was some sarcasm there I didn't detect. But yeah, if we want to count the cost of services produced for, say, digging a giant hole and then subsequently filling in said hole, we may want to rethink our logic. I'm becoming disillusioned with the idea of economics being a valid human science when it can't seem to deal properly with the concept of externalities.

by b0rsuk 9y ago

valuearb 9y ago

This is a great example of how we don't weigh externalities in GDP, why we should, and why we need market based solutions to those externalities. For example, a cap on river pollutants so low the river and wildlife can't be poisoned and each company has to buy rights from the limited pool, or if too expensive, find ways to limit their pollutants. I once read (from Milton Friedman IIRC) that some european countries passed a law to limit river pollution by requiring companies to have their river water intakes downstream of their outflows. Supposedly this made a huge difference in the amount of pollutants they dumped in the river. That is a simple but limited way of imposing the externality costs on the persons who inflict the damage.

defterGoose 9y ago

What? You're making a serious stretch there. The profit from the cars contributes directly to GDP, but even if individual people get paid to help clean up the river, where is that money coming from? It's a DRAIN on resources to get the river back to normal, there's no profit. Therefore it's not growth.

ansible 9y ago
I think the point is that the cleanup effort is "on the books" and calculated as part of the gross domestic product. The issue that people are trying to make is that there are many activities that do contribute to the overall wealth of a country, which don't get counted in the GDP. And there are things that are counted by the GDP which don't contribute to wealth. GDP is a poor measure of the overall wealth and health of a country.
- defterGoose 9y ago
  Right, I agree with you. From the tone of the post, it seemed like the author was justifying the GDP calculation as it's made. Perhaps there was some sarcasm there I didn't detect. But yeah, if we want to count the cost of services produced for, say, digging a giant hole and then subsequently filling in said hole, we may want to rethink our logic. I'm becoming disillusioned with the idea of economics being a valid human science when it can't seem to deal properly with the concept of externalities.