Even your example doesn’t seem that pathological if you assume that the individuals are actually pursuing their preferences rather than deliberately trying to inflate their group GDP.
Which is why a more exaggerated comparison would be this: a person who walks home after finishing work to cook dinner with the family using vegetables grown in the backyard vs a person who eats out in a bar, drives home drunk, gets into an accident, ends up in hospital, and creates a huge increase in GDP.
The example downplays the positive impact of the increase in GDP (eg the drunk driver creates jobs for car manufacturers, police officers, and doctors) but it shows how our narrow focus on GDP rewards behavior that may not be desirable.
That evening, sure. In the long run, their productivity is likely diminished. You see a similar binge-and-reckoning cycle in macroéconomies, the difference being practically nobody is rewarded for higher GDP. Governments are rewarded for having larger tax bases.
I hope you'll forgive me for the bluntness, but I'm trying to be brief.
First a question: how come 'productivity' has gone up by 2% annually for nearly a century (if you know compounding you know how massive this is), yet we all have to 'work hared' and 'longer' for less, while our social security is being eroded?
'productivity' in a 'Red Queen's Race'[1] economy has 0 value. We're not doing work to ensure 'survival' or 'progress' anymore. 10% of People could carry that. We long ago stopped having a production problem, we have a(n artificially sustained) distribution problem.
At the 'economic ground floor' level we're in a self accelerating 'service economy' which at the systems level is both driven and preyed upon by a 'rent-seeking' economy that in socio-economic power far outplays the former. Transactions are the key, not what actually goes around.
You could see real productivity increase by some measure (entropic, say, or total available free energy), with the "work harder and longer" dynamic, by other mechanisms.
Failure to equitably distribute gains, a capricious allocation such that individuals might make mint one year, be skint the next. No viable pensions or annuity system. Etc.
Value extraction from labour is the age-old economics problem. It faced feudal peasants, it faces the modern urban/suburban knowledge wage slave paying it all out in rent or mortgage interest. David Ricardo's two bugbears were the laws of rent and wages, in opposition to one another.
GDP's distortions are legion, but you still have the rent/wage dilemma without that.
... Though some measures of gross happiness or support might address that. Hrm. We mearsure GDP. But Smith says:
POLITICAL œconomy, considered as a branch of the science of aThe first object of political economy is to provide subsistence for the people statesman or legislator, proposes two distinct objects: first, to provide a plentiful revenue or subsistence for the people, or more properly to enable them to provide such a revenue or subsistence for themselves; and secondly, to supply the state or commonwealth with a revenue sufficient for the public services. It proposes to enrich both the people and the sovereign.
That is, his standard for economic performance is support of the population, generally, and financing the state. Elsewhere and earlier he calls explicitly for improving the lot of the poorest especially.
GDP does none of this.
I've beeen meaning to read Kuznts's notes specifically for some time.
That example would make sense if anyone was thinking or arguing that every individual transaction that increases GDP is inherently good simply because it increases GDP. But I don't think anyone has that narrow of a focus on GDP. Obviously no one enjoys needing to spend money for medical issues.
If you are part of the 'financial' economy (not looking profit through production but rather from arbitrage or intermediation, the old using money to make money), then that narrow focus on GDP serves you very well as it correlates directly with your opportunity.
The example downplays the positive impact of the increase in GDP (eg the drunk driver creates jobs for car manufacturers, police officers, and doctors) but it shows how our narrow focus on GDP rewards behavior that may not be desirable.