Dilip D’Souza makes a plausible sounding point here. At first I thought that he was committing the good old Broken Window fallacy. Many others in his comments section thought so too. But a closer reading will make it clearer that he is in fact pointing out the Broken Window fallacy. To be precise, he is pointing out that the GDP calculation fails to correct for the broken window problem.

If you haven’t clicked on either link, here is the problem in short. If you break my window glass, I need to replace it. When I pay for the new window, it contributes to the GDP. If you had not broken my window glass, I would have done something else with my money and the country’s GDP would still have gone up – and that is Dilip’s point. According to him, the calculation fails to distinguish between the contribution to GDP from such inefficiencies and the contributions from things that will actually make people happy.

Is Dilip right?

No. But but which part is wrong and why?