A Slave to Figures

They say that if you remain silent then people will think that you’re in idiot, but that if you open your mouth then you remove all doubt. Larry Kudlow has removed all doubt a long time ago. In a recent column http://tinyurl.com/3cax6um Kudlow gives us a glimpse into the depth of his ignorance. This might be failing to see the forest through the trees.

Sometimes economists make the argument that damage caused by natural disasters stimulates economic activity thereby contributing to economic growth. Some argue that the money spent on expenditures to repair said damage would have otherwise been spent on other expenditures thereby resulting in a wash. What both sides of this argument are missing is the very heart of our economy.

What do we want from our economy? Answer: stuff. Why do you get up and go to work? Do you get up and go to work so that the numbers on your bank statement get bigger? No. You do it so that you can have more stuff. You can have a car or a nicer car or a house or buy an x-box or a diamond ring for your sweetheart or take a vacation. The reason we want our GDP figure to be bigger is because a bigger GDP figure represents more stuff we can have. A number on a government report doesn’t do any good for anybody except for a politician who is trying to get re-elected based on the performance of the economy.

So for that reason people think that a bigger GDP figure means a better economy and therefore more prosperity. One thing the GDP figure does not measure is the loss. The expenditures to rebuild the damaged road are included in the GDP figure, but the damage is not included in the GDP figure. Kudlow’s failure to realize that this damage is not included in the GDP figure is his most grievous error.

Kudlow makes the mistake of being a slave to figures. One might consider it failing to see the forest through the trees.