Surefire fixes for “the economy”

There is so much talk these days about “the economy” that I think we should all be asking ourselves what we’re talking about .  Specifically I would like to point out that the thing we measure when we measure the health of the economy is typically gross domestic product.  When politicians and economists talk about improving the economy what they mean is increasing GDP.  This is meant to measure the “value” of all the goods and services produced in a country.  However, it estimates the value of a good as it’s price.  The first problem with this is illustrated by the diamond-water paradox (specifically note the marginalism section) .  Does the price of water really represent your value of it?  The second problem is that production is not the same as welfare.  If you could work 20 hours a week and take a 10% decrease in pay (production) would you consider it?

There are only two ways the government can increase GDP.  It can make you sped more now and save less, or it can make you work harder.  In both cases, there is a cost which is totally ignored if you only measure GDP.  In the first case you give up future consumption and in the second you give up liesure.  By manipulating your allocation of consumption over time and labor vs. liesure, it is only making you choose some situation which is actually less valuable to you in order to increase the measurement of economic health.  The only reason for the spending multiplier we hear so much about today is that by taking your money and spending it, the government prevents you from saving as much as you would if you got to spend it yourself.  It’s not a magical formula for creating wealth.  It’s a magical formula for increasnig GDP.

In light of this I have made a short list of actions which the government could take to “fix the economy:”

1.  Make saving money illegal:  Why not cut out the middleman? At least this way you could spend it on what you want.

2.  Force every American to work 60 hours/week with no vacations:  Think of how much we could produce!

3.  Raise taxes and use it to buy a lot of agricultural goods and then destroy it (wait, we’re already doing this one)

4.  Borrow a bunch of money and spend it on agricultural goods and then destroy it…..

5.  Dump toxic waste into 90% of our drinking water: The “value” of the remaining water “produced” would be far greater.

6.  Start a war.

7.  Make the legal system more complicated so we have to “produce” more lawyer services.

8.  Make the tax code more complicated so we have to “produce” more accounting services.

9.  Infect everyone with AIDS so we can “produce” more medical services.

I have many more if anyone in Washington is looking to hire an economic advisor.

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