Friday, April 22, 2011

GDP Growth through Economic Waste

Last December I blogged about malinvestment in China manifesting itself in ghost towns. Now, thanks to Isreal Curtis, I've been made aware of a stunning and revealing news report documenting the same phenomenon.

You may have already seen this, but in case you haven't, this fascinating report is definitely worth watching. SBS Dateline, an Australian news program went to China and explained how the Chinese state, in an effort to continually expand GDP, continues to build building complex after building complex, even though several are virtually uninhabited.

In the report, real estate analyst Gillem Tulloch is interviewed and reports that there are 64 million empty apartments in China and they are still building!

Important takeaways from this story:
  • GDP is merely a measure of net income and spending flows, not wealth.
  • Productive investment is investment on goods people actually want, not wasteful government spending on whatever boosts GDP.
  • Central planners can waste a tremendous amount of scarce factors of production (I know this is not exactly news, but it something to see it so starkly portrayed).

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