GDP refers to gross domestic product. Its 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 its 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. Its likely that tens of billions of dollars, maybe even hundreds of billions, have been added to Americas GDP because of the disaster.
How so? GDP doesnt 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 wont 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. Thatll 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, whichll add further to the GDP.
Drug dealers wouldve probably taken a massive revenue loss but the GDP numbers dont 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 wont 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, theres a new business activity thats 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.
Thatll 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 wont show up in any GDP accounting.
Theres 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 thisll just be the beginning of unrecoverable downward spirals.
Thats the nature of human existence. For any number of phoenixes rising from the flames therell be many more stories of tragedies that most of us will conveniently tune out.
But nature isnt going anywhere. Its 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 wont 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 Ive 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 whore 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 arent 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 theyre wrong, their predictions will be reflected in future insurance coverage or lack of and premiums and interest rates that well 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.
Theyre 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 thatll result, it isnt that implausible that the global GDP will shrink by half.
It wont 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 wouldnt dare to bet against them. Would you?
The views expressed are those of the writer and do not necessarily reflect those of FMT.