An Interesting Economic Proposition

Russ Roberts at Cafe Hayek presents an interesting argument. Let me see if I can present it reasonably.

1. There have been a group of classic left leaning economists who view the disaster in Japan through rose colored glasses. Namely they see it as a boost to the GDP.

2. Roberts states that GDP is a change in something. Specifically he states:

As some commentators pointed out, GDP is a flow and wealth is a stock. That is, GDP compares the change in output over time while wealth is a snapshot. So it is possible to lose wealth (destroy buildings) while GDP goes up.

3. Now if one looks at GDP as consumption, investment and government spending, with imports and exports thrown in  then to create consumption one must have a base of underlying assets. Thus C is dependent on the related asset base of the country, I would think. Destroy the asset base and unless you just print money, well like we are doing, then you actually destroy consumption and thus reduce GDP.

4. There can be an argument made that there is more than a subtle point here and one not reflected in the thinking of most left wing economists.

5. Then there is the issue related to peoples' attitudes, when they get depressed things change, those constants that are all too easily thrown about change, and thus does the economy.

Bottom line, it is any one's guess, yes guess, what will happen next. The Middle East is unstable, Japan has massive economic problems, China may very well have based its plans on an incremental world model in which they have a controlling position, and one can argue that the assumption has feet of sand, and well, Europe, good question. The complexity of the situation may move all this into terra incognita.