GDP vs Economic Growth – Building The Death Star Was An Economic Catastrophe by Janet Neilson, Foundation For Economic Education
Expensive machines that destroy planets have negative economic value
To the editor of the National Post:
Last week’s column, “Blowing up the Death Star in Star Wars would have cost more than $500 quintillion — and crippled the galaxy,” is an amusing article, but it makes a disturbing error by neglecting the nature of Death Stars as killing machines. Musing about the cost of their destruction is like musing about the cost to the economy of dismantling a death camp.
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Three major errors in economic reasoning lead to this oversight:
The first is to mistake the cost of the inputs of a Death Star for its economic value. The steel, labor, and other inputs that go into a Death Star are valuable because the Empire is willing to pay for the power to destroy its enemies and intimidate its citizens into compliance. The cost of building a Death Star tells us what the Empire believes its value is — it doesn’t determine that value. And the Rebel Alliance, at least, seems willing to pay a great deal to eliminate Death Stars, an indication of their cost to at least some in the galaxy. Considering only what the Empire is willing to pay to build a Death Star and not what others are willing to pay to destroy it seems like single-entry bookkeeping.
The column also confuses GDP with economic growth when it is merely a measure of activity. When we create things and services that other people want, it creates new value, or economic growth. It’s also activity, which is why we can use GDP as a proxy for growth and wealth. But we can easily generate economic activity without economic growth. I could, for instance, pay a row of people $1 billion to dig holes, and another row $1 billion to fill them in. This would generate $2 billion in GDP by shuffling money around, but no one would claim the economy grew.
That is why the final error is so important: the column fails to consider the Death Star’s outputs: death and compliance, and ignores completely the cost of operation and maintenance for the battle stations. Wiping potentially valuable people and their possessions out of existence is tremendously costly, though that cost is impossible to estimate. And that’s before we start talking about operation and maintenance. A Death Star should be considered an ongoing and substantial cost to the galactic economy.
So if you cheered for the destruction of the Death Stars, it’s okay. And if you understand why, we’ll all be better off.