Day: September 7, 2005

The New Orleans tragedy highlights the need for some better measures of national well-being.  If our Gross Domestic Product (GDP) is rising we tend to think that the national well being is rising.  Some of the problems with assuming this direct correlation are subtle.  Mexicans are happy even though economically poorer, perhaps partly due to their strong family ties.  An American who moves from his pleasant home town in the Midwest to the sprawling wasteland of Southern California is probably earning more and generating more economic output but perhaps his enjoyment of life has been reduced.  It would be tough to adjust for these subjective factors.  Calamities such as New Orleans or 9/11 might be worth adjusting for.

Consider a less emotionally charged example.  In Case 1 you decide that your Jeep Grand Cherokee isn’t big enough to carry pretzels and walnut oil back from the Trader Joe’s.  You give the SUV away to your sister and buy a Chevrolet Suburban.  In Case 2 you get distracted listening to NPR complain about the cruelty we are inflicting on our Afghani guests in balmy Guantanamo Bay, skid on the ice in the subfreezing depths of a Massachusetts February, and crash that Grand Cherokee into a tree.  You buy a Suburban as a replacement and the local tree company is hired to remove what remains of the tree.  In Case 2 the GDP will be reported as higher.  In addition to a new SUV being bought a tree company was paid.  Never mind that in Case 2 your sister is still walking everywhere and people who had enjoyed shade from that tree are getting skin cancer (their treatments will further inflate GDP).

In New Orleans a tremendous amount of money will be expended on getting us back to where we were before.  The same people will be living in substantially the same housing and working in substantially the same office buildings and yet $billions will have been spent to pump out water and shore up foundations.  In New York at least $10 billion will be spent on rebuilding the World Trade Center site.  It might be a little nicer than what was there on September 10, 2001 but functionally will be similar in terms of office space square footage.  This $10 billion will be recorded as an addition to GDP but it won’t have the same positive impact the World Trade Center remaining standing and $10 billion of entirely new office space constructed in growing regions of the U.S.

What’s the point of this analysis?  When you look at decades of GDP growth and can’t figure out why there are still so many poor people ask yourself what percentage of that GDP was spent on replacing stolen car stereos, reglazing broken windows, hiring extra security personnel after terrorist attacks, and other similar “get back to where we were” projects.

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A friend of mine is a singer/songwriter who gives concerts that attract mostly between 100 and 300 people.  He has a new CD that he has made himself and can sell at any price that he wishes.  So the question becomes what would be perceived as a fair price for this product and induce people to buy it?  The record companies seem to think “whatever we charged in 1980, adjusted for inflation, is good” but their declining sales seem to indicate otherwise.  The younger folks whom I’ve talked to mostly report that (a) they have no money because it is all going to mobile phone and cable TV/Internet, (b) they have no space to store CDs because they are paying $750/month for one room in a cramped Somerville apartment, and (c) they don’t think of CDs as representing a good value compared to alternatives (I just signed up to Rhapsody as part of my Sonos whole-house music system experience and for $10 per month it is pretty impressive how much stuff one has access to).  The old folks report that (1) they already have XM or Sirius satellite radio in their fancy new cars, and (2) they already have CDs of the music that they like best (will there ever be another band as great as ABBA?).

The question I asked was “You go to a concert with about 150 other people and enjoy the music.  The moderately successful artist is selling CDs after the show.  You don’t think that any of your friends already have the disk and therefore you won’t be able to borrow and rip it easily.  How much would the CD have to cost before you would definitely buy it?”

Answers so far:  27-year-old female: $5; 40-year-old male medical doctor: $5; another 27-year-old female: $5; 29-year-old female: $5; 41-year-old multimillionaire male $4-8; 30-year-old male: $9; 36-year-old multi-millionaire male: $9;  32-year-old male $10;  35-year-old female medical doctor: $10; 39-year-old male: $10; 42-year-old male $10 [if no data on wealth provided, assume comfortable middle class or above]

What do the readers say?  Please comment and include your age and sex.  If your income level is unusual please indicate with “student”, “multi-millionaire”, “medical doctor” or similar.  If your occupation is somehow related to the entertainment business, please indicate.

Thanks!

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