GNP and Contra-Bads

Dilip D’Souza has written an interesting piece about electric stabilizers: a device to prevent electric gadgets from India’s unstable electric grid. This is an example of a particular category of good which I will call a “contra-bad” to coin a term. A contra-bad is a good that simply exists to counter a public "bad". He argues that such goods should not be counted in GNP because they would have no value if other parts of the economy were not so inefficient.

Many of the goods and services we buy and much of the government sector is devoted to producing contra-bads. Security systems, guns, police, most lawyer services, and national defense all fall into the category of contra-bads. These are things that we would simply not need in a perfect world. It is reasonable to worry if too much of the economy is devoted to contra-bads instead of producing genuine goods like automobiles and homes and MP-3 players.

However, I would not agree that the existence of contra-bads means that the metric of GNP is flawed. GNP is not a measure of happiness. This essay by Atanu Dey might be relevant here. Or read this follow-up essay here. GNP measures what an economy is capable of producing. GNP is national income, (more or less). It measures what an economy is capable of buying. It is pretty clear that if you have a small GNP you probably would want to have some more of it. But a large per-capita GNP does not mean that you are actually buying things that make you happy, it just means that you have the income necessary to buy nice things. But you might end up wasting it on other junk. The Egyptian pyramids come to mind or this bridge.

It is a good question to ask whether too much of the economy is devoted to producing contra-bads instead of genuine goods. In the long run, your economy won’t grow if it is producing contra-bads or other intrinsically useless goods, (I am guessing that this was Ravikiran’s point).

However, it is wrong to say that contra-bads are bogus GNP. What a nation is capable of producing is largely independent of the types of goods that it produces. The Indian economy could easily switch from producing stablizers to MP-3 players or many other goods. If it isn’t producing a lot of goods, it isn’t the mixture of goods that it produces that is the problem; it is the regulatory environment and it is the types of skills that the workers lack that is the problem.

Contra-bads would seem to be wasted national income. Ironically, the U.S. probably spends more on contra-bads than anyone. But if Dilip is arguing that India really cannot afford to spend its limited income on contra-bads, I couldn't agree more.