Ka Ching Ka Ching La Fires Turn Gdp Into Gross Disaster Product

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GDP refers to gross domestic product. It’s not to be confused with God the ultimate creator, even if in some societies the GDP is venerated and worshipped with the same fervour.
But it’s a funny thing, this GDP.
Anyone would think that the terrible destruction caused by the massive fires still ravaging the Los Angeles area – some estimates put the cost at US$250 billion dollars and counting – would have had a massive impact on the GDP of the United States..
It will, but not as you, or perhaps just I, imagined. It’s likely that tens of billions of dollars, maybe even hundreds of billions, have been added to America’s GDP because of the disaster.
How so? GDP doesn’t measure wealth or health or happiness of its citizens, only the dollars and cents generated by people from economic activities.
The hundreds of billions of dollars of destruction won’t appear in the GDP numbers. What will appear, though, is the value of economic activities generated in the aftermath of the fires.
More activity, higher GDP
The frenzy of reconstruction – the billions in materials and labour etc – will be captured as incremental economic activities. They will make the GDP numbers go ka-ching! Maybe even ka-ching! ka-ching!
Insurance premiums are likely to be higher for everybody, whether victims of the fires or not. That’ll add to the GDP.
So will other costs such as emergency travel, accommodation and sustenance of the victims. Emergency aid, whether from the government or elsewhere, will result in more economic activities, which’ll add further to the GDP.
Drug dealers would’ve probably taken a massive revenue loss – but the GDP numbers don’t account for such hidden economies directly anyway. However, the dealers’ cash stash – unless it, too, got burned – can quickly be turned into new mansions or Bentleys or Rolls-Royces or whatever, and these will go to the GDP numbers too.
The tourism economy won’t be impacted much. The city of Los Angeles is basically intact, and people will still come to gawk at the Hollywood sign and the studios and theme parks.
Some may even come to partake in disaster tourism, a macabre new economic activity California is well-equipped and happy to handle, fire or no fire.
America being America, there’s a new business activity that’s booming – private fire protection. Just as many rich people pay for private security, some are beginning to pay for private firefighters to protect their homes and wealth.
That’ll certainly add to the GDP numbers, and so will the inevitable increase in the public budgets for fire departments.
Ka-ching! Ka-ching! Ka-ching! Onwards and upwards with the GDP! A banner year is predicted, even if the banner itself may not survive the next conflagration.
Counting the real cost
We know that the principal outcome of such a massive disaster is the huge amount of human misery that won’t show up in any GDP accounting.
There’s no mechanism, no AI bots to dive deep into the huge well of despair among the survivors and displaced (estimated at around 100,000), and the fears of those who escaped.
Months, even years from now, the initial sympathy and aid will run out, while for many the misery will remain. While some will get back on their feet, for others this’ll just be the beginning of unrecoverable downward spirals.
That’s the nature of human existence. For any number of phoenixes rising from the flames there’ll be many more stories of tragedies that most of us will conveniently tune out.
But nature isn’t going anywhere. It’s not tired, or in need of a pause for a breather, or feeling guilty about the havoc it wreaked. It can turn any human carelessness and act of arson, or lightning strikes or pure dumb luck into monstrous fires of unimaginable proportions,
The next few years may see some dips in GDP as a result of continuing unemployment and destroyed means of production and failing insurance companies and banks.
Effects of climate change
But there won’t be any dips in the warming climate. Fires, tornadoes, blizzards, droughts and floods will worsen regardless of whatever smart-alecky politicians and climate deniers say about climate change.
While global politics is roiling and becoming more unpredictable, the economy may paint a false narrative of health and hope.
The GDP may rise, partly for reasons I’ve mentioned earlier. But much of the wealth created will go to fewer and fewer people. Some of the creators of this new wealth (derived from unrestricted mineral extraction and unrestrained use of technology and AI) – will also be the causes of the world becoming less liveable.
Recently a bunch of British actuaries – basically accountants who’re also maths geeks (sorry actuaries!) – predicted that the world could lose 50% of our GDP due to climate calamities by the end of this century.
Now actuaries aren’t exactly tree-hugging environmentalists. What they do is to dispassionately assess future risks to life and property and turn that into financial decisions.
A warning sign
Which means even if you think they’re wrong, their predictions will be reflected in future insurance coverage – or lack of – and premiums and interest rates that we’ll have to pay.
If the actuaries say climate disasters are increasing, you can bet the financial markets will price that in, until at some point life will be unaffordable for many of us.
They’re literally the bookmakers of future economics events.
The US lost 30% of its GDP in the Great Depression of the 1930s. Add in the unrelenting climate disasters and the wars and conflicts that’ll result, it isn’t that implausible that the global GDP will shrink by half.
It won’t serve us any good at all to continue taking a simplistic view of the GDP – that growth will always happen and that any growth is good regardless of its causes.
The odds being offered by these bookmaking actuaries are becoming increasingly unfavourable to us humans. But I wouldn’t dare to bet against them. Would you? - FMT
The views expressed are those of the writer and do not necessarily reflect those of MMKtT.

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