So, given the huge market for knick-knacks you want to protect with stabilizers, making stabilizers is a profitable enterprise. Sure enough, there are several brands out there. In fact, it's safe to say that the stabilizer business makes a steady contribution to the economy.
But think some more: why do we need stabilizers in the first place? Because the voltage of the electricity that's supplied to us fluctuates wildly. That happens because of inefficiencies in the generation and transmission of electricity. In India, we are so used to these fluctuations that we don't even think they are abnormal: we simply buy stabilizers and use them like any other consumer product. Hell, they are just another consumer product.
We likely also don't think, as we buy stabilizers, that we are pumping up the GDP of the country, which we are. But if we did think of that, we might find a small perversity here. Since we tolerate inefficiency in one part of our economy -- the generation of electricity -- we need devices whose production and purchase shore up another part of our economy.
Too simple-minded a view for you economists out there? But this is essentially what is happening. A whole industry, for a wholly unnecessary product, has grown out of inefficiency. What's more, if our electricity supply ever did become stable -- a goal worth striving for, certainly -- that whole industry will become redundant.
Put another way, inefficiencies boost the economy. Correct those inefficiencies, which we should, and we damage the economy.
Look at your voltage stabilizer in that odd light. (But before the voltage dies down and snuffs it out).
Now all of us are infatuated with the GDP. Asking for votes, political parties will promise "rapid" or "double-digit" yearly increases in the GDP, as if that is an unquestionably desirable thing. Yet GDP is really only a measure of market activity: money changing hands. Every single money transaction adds to the GDP. This has become the barometer of the health of a nation. The greater the GDP, and especially the faster it grows -- the more transactions happen that pump it up -- the better a country is said to be doing.
No wonder political parties promise to raise it.
But all the infatuation leaves the stabilizer questions unanswered: how is it that we must consider inefficiency as a positive influence on the economy? Should we not account for the kind of transactions made? Should there not be some totting up of the costs to the country of certain sorts of market activities?
Look at it like this. You buy a computer. Doing so, you add to the GDP. Days later, the unstable electricity supply in Sheikh Sarai fries your sleek machine (which once happened to me here in Bombay). You either repair it or buy a new one. Whichever you do, you add to the GDP. This time, you are wiser: you buy yourself a stabilizer as well. With that purchase, you add to the GDP again.
Instead of just one purchase, you have made three, all of which feed the maw of the Indian GDP. You have contributed, three times over, to making India's economy a booming, vibrant one; to making India itself prosperous.
Why, you may wonder, are you also three times as annoyed?
Postscript: Meant to say, I will follow this up with some more exploration of the GDP and possible alternatives.
25 comments:
Dilip,
I enjoyed reading this article. You are absolutely right that buying stabilizers, repairing the computer, or buying a new computer raises the GDP.
On a different note, if India considered the black market in the GDP equation, then the GDP would be MUCH bigger.
But what I find silly is this obsession with the GDP: "Our GDP is now 3 trillion dollars... we have arrived."
There are a lot of problems with using the GDP for international comparison. On a broad level, it is fine. In other ways, it is kind of meaningless, as it does not measure inequality (e.g. Latin American nations with big GDPs and lots of inequality), quality of goods produced (the stabilizer could be a dud), and cost of living (in India, for example, almost everything is cheap compared to the US).
I know wikipedia is problematic, but this is worth checking out.
There was a time, when we used to use voltage stabilizers and what were called step-up transformers to build up the voltage to the required ~220V. I remember we had around eight of them.
Once we hooked all of them together to watch something on TV, we got the desired voltage but the amperage was below the required ~5A.
Things were that bad with our DESU (now DVB) supply.
Plus these transformers burnt up regularly and nearly set our house on fire - TWICE!!
I wish they'd be able to do something about this power situation (especially in Delhi, which I believe is far worse off than Bombay, Chennai and the other metros).
A thriving stabilizer industry can only mean one thing, we still need to work on our basic infrastructure.
Thanks for the article Dilip. I am sure you must have already, but if you haven't read it then this Jug Suraiya piece is a related treasure:
http://timesofindia.indiatimes.com/articleshow/1146310.cms
Regards.
Dilip, the argument that buying stabilizers helps the economy is not valid. It's the same argument that having a glass window broken causes employment to the glazier, who then spends it on something else, and thus contributes to the circulation of money. But had the glass window not been broken, the homeowner would have used it on something else of his choice, which he now has to spend on the window. The net loss to the society is the cost of one glass window. Likewise, the net loss to society due to voltage fluctuations is the cost of all the stabilizers purchased.
Here's a relevant link for the glass window story: Broken Window. -- (same anon as before).
Check writing on "broken window" fallacy by the French economist Frederic Bastiat
TTG:
I cannot believe it, have been hearing of this privatisation business, since 1994, in fact it was Madan Lal Khurana's idea if I am correct, and people were really pissed off when it did not happen.
That is good news indeed, I am surprised I didn't know, and also that nobody from Delhi ever mentioned this to me, Thanks.
Man TTG, there's a rant if I ever saw one. You do that often?
OK, what did my article say? A whole industry, for a wholly unnecessary product, has grown out of inefficiency. What's more, if our electricity supply ever did become stable -- a goal worth striving for, certainly -- that whole industry will become redundant.
Put another way, inefficiencies boost the economy. Correct those inefficiencies, which we should, and we damage the economy.
That is, if we correct the inefficiencies, we destroy the stabilizer industry and (to that extent) damage the economy.
Do I say stable electricity will devastate us? No, I even say it would be a "goal worth striving for".
I guess I need to be clearer in what I write. Lesson for the future.
As for In our area, there are no voltage fluctuations... In South Ex II ten days ago, the electricity tripped a couple times. But yes, it was in general stable, and much more so than I remember Delhi being.
TTG, It is a dangerous, and incorrect statement to make - that even inefficiencies help prop up an economy.
Of course it is. So where did I make it?
Once again: I said, the inefficiencies in our electric supply give rise to the need for stabilizers. To the extent that stabilizers are a flourishing product for which there is a flourishing demand, they add to our GDP. If we ever manage to tackle those inefficiencies in the supply, we won't need the stabilizers any more. The little bit they contribute to the GDP will vanish, and in that sense and to that extent, the GDP will be affected. (Analogy: suppose the steel industry shut down tomorrow. Would we not say the GDP takes a hit?)
Of course other aspects of the economy will work better with a better electricity supply, there's no argument there. This is just an example. I'm sure you can think of others if this one doesn't go down well.
I also realize that I should be more careful about where I use "GDP" and where I use "economy". The whole point of this article, and of the one or two followups I hope to post when I get the chance, is to question whether the GDP accurately measures the health of the economy. So I apologize if I've confused anyone by carelessly using the two terms equivalently here.
And hey, if we're totting things up, I'm up on you. I've been laid off twice, voluntarily quit jobs twice, company folded once. Been unemployed correspondingly often, arguably am unemployed right now; even once collected unemployment benefits for some time.
So there!
true.good point.
"Once again: I said, the inefficiencies in our electric supply give rise to the need for stabilizers. To the extent that stabilizers are a flourishing product for which there is a flourishing demand, they add to our GDP. If we ever manage to tackle those inefficiencies in the supply, we won't need the stabilizers any more. The little bit they contribute to the GDP will vanish, and in that sense and to that extent, the GDP will be affected."
I think Manish and Anon already made the point countering this in their comments. The assumption in your argument is that people who have no more need for a voltage stabilizer, thanks to more efficient power delivery, will simply hoard the money. That's not true.
And, how's the steel industry shutting down an analogy for anything you have said, unless the existence of the steel industry is an outcome of some inefficiency?
Hey Dilip,
Well I had a similar thought.
http://toiletseatideas.blogspot.com/2005/10/inefficiency-boost.html
I tend to believe that our lousy infrastructure is actually growth engine.
Waiting for you follow up post
Santhosh
TTG, you said it. Flog away. But wait a sec, is the dead horse laid or laid off...?
But what's it, you and Ashok don't feel like arguing the central point this piece makes, that GDP is a flawed measure of the health of the economy?
Ashok, the steel industry analogy was to underline the point that shutting down the stabilizer industry will have an effect on the GDP, almost by definition. I thought mentioning something as large and visible as the steel industry makes the point better, is all.
Tanuj/TTG/others, I'm seriously amazed by now. Have I really implied to you guys in this piece that I'd prefer to have unstable power? I seem to have, and if so I need to go back and learn to write more clearly than this. (Purvi, are you watching?)
Hey, I would love to see the stabilizer business go bust too. My point is exactly that it has no business being in business. It is a thriving business purely because we have great inefficiencies in our power supplies. That conundrum is just what this piece was trying to get at. (Unsuccessfully, I see).
Yes, I do have more on this score. (Maybe even up my sleeve). But it will have to wait for a while -- I'm off travelling in a few hours (TTG, you never sent me a number). Don't know when I'll next have time to get to this. But watch this space. I think there is a better measure of a country's economy.
Thanks for the back and forth, guys, it's been enlightening.
Really liked the post Dilip. GDP is certainly a flawed measure of an economy. GDP is a measure of cash flows rather than a measure of assets and liabilities - which is how companies are financially related.
I am not sure there can be a good measure of the economy - in real practical terms.
Rahul
Hi Dilip!
Hhave been reading your blog regularly and find it a great place! Your idea about GDP being a wrong measure for judging the true economic progress of a country is very correct. Good governance must be emphasised upon and not mere increase in GDP of the nation.
Hey, by the way I had emailed a poem of mine on the tsunami disaster to you. It is called "The Giant Wave". Since you have done written a lot on the tsunami disaster, I thought it would be a nice thing to share the poem with you. Did you see it? Pls do let me know.I have actually put up that poem in poemhunter.com also.
Hope to hear frm ur end soon.
ciao.
Dilip,
There's a logical inconsistency in your argument, especially the para below.
Look at it like this. You buy a computer. Doing so, you add to the GDP. Days later, the unstable electricity supply in Sheikh Sarai fries your sleek machine (which once happened to me here in Bombay). You either repair it or buy a new one. Whichever you do, you add to the GDP. This time, you are wiser: you buy yourself a stabilizer as well. With that purchase, you add to the GDP again.
Note what I've marked in bold. There's a third choice you've missed out -- "do nothing." I may not have the money. Or I may want to use the money for something else -- buying a sofa. Now what's the difference between spending Rs. 5,000 to repair a computer and spending Rs. 5,000 to buy a sofa? Why should an economist calculating GDP care what you purchase with your money?
Yes, I agree there are inefficiencies and GDP may not be a good calculator of “national income.” I currently don’t know of anything better. So I’m waiting to hear from you on a better measure of a country's economy. And of course GDP per se does not matter as much as per capita income (GDP / population)
Yazad, here in Jaipur your comment shows deleted in one screen and up there on the next. Some blogger hassles no doubt?
Anyway. I don't see the logical inconsistency. Of course the economist calculating GDP doesn't care what you're buying, and nor should he.
But if you follow this pattern of purchases -- which a lot of people do, and as I said I have -- you have contributed three times over to the GDP as a direct consequence of an unstable power supply. The GDP will reflect three purchases where there need only have been one. That's the point.
It's a governance issue? Well, that's one aspect of people's objections to the GDP -- that it doesn't take into effect such things as the effect of poor governance, which have a bearing on the satisfaction people have with their lives and the economy.
Dilip,
Seriously, I suggest GDP 101.
Econ 101, Logic 101, how many courses you missed in college, eh, Dilip?
To clarify something (and to come to Dilips rescue) here is a post.
http://free-blog-site.com/navin/archive/2005/10/25/84954.aspx
Awaiting your responses.
TTG, sorry, Please excuse.
I love the empty drums whose only contribution to a debate is "Hey, go read GDP/Econ/CS/BasketWeaving 101!" They say to me that they themselves know nothing about GDP/Econ/CS/BasketWeaving. Never fails.
Hiren, good point. Of course that's true. Yeah, what about striving for drinking water from our taps: I feel about the packaged water industry much as I feel about the voltage stabilizer industry -- both are best consigned to oblivion. Cynicism? Where's the cynicism?
Dilip,
How is it that you somehow delude yourself into thinking this is some sacred forum for debate and you are worthy of one? Has it ever occurred that some stop with quips because they think that is "enough".
I think you have missed the point on how "purchasing power" goes down because of the added cost to a basic consumer product. But I also think I am better off not "debating" you. I honestly believe that it really is futile - but that is immaterial here.
Long story short - some times, you either laugh a retort off or ignore it (depending on the status you accord it). Else the joke is on you.
Dilip, I agree that the GDP is a flawed metric, but the examples you come up with are not convincing.
You say: "inefficiencies boost the economy. Correct those inefficiencies, which we should, and we damage the economy."
Both sentences are flawed.
First, what boost the economy are not the inefficiencies themselves (unstable electricity), but products and services that reduce these inefficiencies (the stabilizer). This is a crucial difference, one that you fail to make in your entire post.
When I buy a stabilizer, I add to the GDP of the country and this is how it should be. Because, contrary to what you say, the stabilizer is not a "wholly unnecessary" product. It is unnecessary only in a hypothetical India of excellent electricity distribution. In the real India, it is very much a necessary product, one that provides me value (otherwise I wouldn't buy it). Most importantly, my life has improved because of the stabilizer -- my computer will not get fried, I won't waste my time repairing it, and I won't waste money replacing it (more on this in time).
[Aside: It will be easier to imagine the increased quality of life if you replace the stabilizer with another product that has resulted from our inefficient electricity sytem: the inverter. I cannot count the number of slog overs I would have missed if it had not been for this device.]
So, quality of life with stabilizers is better than life without them. The increase in GDP caused by stabilizer purchases reflects this. Nothing perverse about it.
Second, you say that when we correct these inefficiences, the economy is damaged to the extent that the stabilizer industry is destroyed. Once again, this is how it should be. The stabilizer is simply one alternative to reduce the inefficiencies in our electricity system. A second alternative is to clean up the system itself, correct the inefficiency. When we replace one alternative with a superior one, our net gain is the gain from the new alternative minus the gain from the old one. This last minus part simply shows up as a reduction in GDP, as it should, because the gains from cleaning up the system are tempered by the losses from the destruction of the stabilizer industry. The old giving way to the new and all that.
In all these scenarios, the GDP behaves exactly like it should, and I don't see how you can use these examples to prove that poor jeed is a flawed metric.
There is one scenario you describe where it can be argued that the jeed doesn't work very well. This is when my computer is fried and I replace it. The second purchase has no additional utility to me as an individual, but its contribution to the GDP is the same as my first purchase. A couple of things to note here.
One, this has nothing to do with inefficiencies. The situation remains the same if there were a wilful child in my household who destroys every single computer I buy. The key here is destruction of existing property and its consequent restoration. This is something that is well-known as a limitation of the GDP (commonly cited examples are earthquakes and hurricanes). But...
Two, the second computer purchase does add value to the person who is selling the computer. He is certainly better off, so raising the GDP is after all okay from his viewpoint.
Does it make sense to have an increase in GDP if you take the entire economy's viewpoint? I'm not an economist and I'm not competent to comment on this, but what from what I've read, this is a matter of continuing debate between the two groups of people who claim to intellectually descend from a dead white Brit and a dead white Austrian.
[ Broken window fallacy, as someone pointed out.]
Sure, the GDP doesn't take into account "human development" factors, but it's interesting to note that the increasingly used UN human development index takes GDP into account. You must give the guys at the UN some credit -- they opposed the war in Iraq after all ;)
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