Is Productivity Growth Becoming Irrelevant?(ineteconomics.org)
ineteconomics.org
Is Productivity Growth Becoming Irrelevant?
https://www.ineteconomics.org/perspectives/blog/is-productivity-growth-becoming-irrelevant
72 comments
> What's interesting is that it's the UK's former top financial regulator saying this. It's not a new idea, but it used to be the sort of thing you saw in Mother Jones, and occasionally heard from Warren Buffett.
I believe the canonical exploration of this idea belongs to he-who-shall-not-be-named. Rich people playing zero-sum games while the poor starve is the natural outcome of building an economy off of the notion that value creation is about doing what wealth-weighted-people want as opposed to what uniformly-weighted people want.
Obviously the best answer lies between the extremes and is a function of an economic sector's structure, growth rate, etc, rather than a single universal solution. The real tragedy is that the school of thought which pursues this angle has been so thoroughly demonized and shunned that its principles have to be rediscovered and rebranded before they can enter the arena of public discourse. On an absolute scale the ideas are simple and fundamental enough that they really ought to be a starting point for discussion rather than a conclusion.
I believe the canonical exploration of this idea belongs to he-who-shall-not-be-named. Rich people playing zero-sum games while the poor starve is the natural outcome of building an economy off of the notion that value creation is about doing what wealth-weighted-people want as opposed to what uniformly-weighted people want.
Obviously the best answer lies between the extremes and is a function of an economic sector's structure, growth rate, etc, rather than a single universal solution. The real tragedy is that the school of thought which pursues this angle has been so thoroughly demonized and shunned that its principles have to be rediscovered and rebranded before they can enter the arena of public discourse. On an absolute scale the ideas are simple and fundamental enough that they really ought to be a starting point for discussion rather than a conclusion.
> Rich people playing zero-sum games while the poor starve is the natural outcome of building an economy off of the notion that value creation is about doing what wealth-weighted-people want as opposed to what uniformly-weighted people want.
If so, the problem must go away with a sane wealth redistribution program. (What might be much more realistic than taxing marketing.)
If so, the problem must go away with a sane wealth redistribution program. (What might be much more realistic than taxing marketing.)
Agreed, but even modest fungibility of wealth and power (which happens almost by definition) makes any such solution fragile.
The technological approach is more interesting to me. If you can make distributed manufacturing efficient enough that a single person or group of people can own the capital needed to sustain themselves, you place a lower limit on the extent to which market-based social contract regression can harm a population. Alternatively, from the capitalist angle: companies that directly trade goods for labor are in a unique position to profit from a glut of labor that is not competitive on the global market.
This isn't a new idea. We call them communes. They have a well deserved reputation for being a shitshow. Probably because what they're trying to do -- boil a globe-spanning sprawl of infrastructure and trade down to an acceptable MVP -- is really, really hard. Unlike the world economy, though, that difficulty is a function of technology, rather than politics. Technology improves over time. Politics does not. Which means there's probably going to be a crossing point. I haven't the faintest clue when. I do my (tiny) part by contributing to "industrial" open source projects (mechanical and electrical modeling and simulation), which sorely need any attention they can get, regardless the underlying philosophy.
The technological approach is more interesting to me. If you can make distributed manufacturing efficient enough that a single person or group of people can own the capital needed to sustain themselves, you place a lower limit on the extent to which market-based social contract regression can harm a population. Alternatively, from the capitalist angle: companies that directly trade goods for labor are in a unique position to profit from a glut of labor that is not competitive on the global market.
This isn't a new idea. We call them communes. They have a well deserved reputation for being a shitshow. Probably because what they're trying to do -- boil a globe-spanning sprawl of infrastructure and trade down to an acceptable MVP -- is really, really hard. Unlike the world economy, though, that difficulty is a function of technology, rather than politics. Technology improves over time. Politics does not. Which means there's probably going to be a crossing point. I haven't the faintest clue when. I do my (tiny) part by contributing to "industrial" open source projects (mechanical and electrical modeling and simulation), which sorely need any attention they can get, regardless the underlying philosophy.
I've been thinking about this a bit. I think we need to get better intelligence augmentation. We are limited in what we can produce, because we are limited in what we can manage. So we need to improve how much we can manage.
I'm thinking about it in terms of improving autonomy
http://effective-altruism.com/ea/1cm/autonomy_a_search_for_a...
I've been trying to find a community. But it seems pretty diffuse.
I'm thinking about it in terms of improving autonomy
http://effective-altruism.com/ea/1cm/autonomy_a_search_for_a...
I've been trying to find a community. But it seems pretty diffuse.
How have I never heard of this before? (EDIT: oh, it's a really recent post.)
That list of bullet points hits hard. Bookmarked.
The name is excellent. It focuses on the work to be done, ties it to a traditional virtue, and jettisons the baggage that would otherwise come with references to earlier iterations on the theme.
Ditto that about the community being diffuse, although my failure to find similarly minded company may in part be due to the fact that I haven't figured out how to boil this all down to an elevator pitch. The "Autonomy" post helps.
That list of bullet points hits hard. Bookmarked.
The name is excellent. It focuses on the work to be done, ties it to a traditional virtue, and jettisons the baggage that would otherwise come with references to earlier iterations on the theme.
Ditto that about the community being diffuse, although my failure to find similarly minded company may in part be due to the fact that I haven't figured out how to boil this all down to an elevator pitch. The "Autonomy" post helps.
I decided to put more effort into making a community, got a wordpress https://improvingautonomy.wordpress.com/ and a subreddit so far. https://www.reddit.com/r/improvingautonomy/
Feedback and/or participation would be great
Feedback and/or participation would be great
Cool. Glad you liked it. It was great to read your comments about similar ideas.
I think my next step is to see if it'll take on HN, so I've just submitted it. If not try and repackage it and get it on an interesting blog/website. Where would you expect to see something like that?
I think my next step is to see if it'll take on HN, so I've just submitted it. If not try and repackage it and get it on an interesting blog/website. Where would you expect to see something like that?
Communes need not be focused on producing anything.
Suppose you take a group of 20 people making minimum wage, and rather than buying the cheapest internet possible 1Mbps x 20, they buy a 100Mbps connection and share them. Well there is added HW requirements, but for the cost of 1Mbps everyone is getting 5+Mbps except everyone is not using at the same time so it's closer to 20+Mbps.
There is a lot of things you can buy in bulk and see similar savings. The most obvious being housing. The classic 15 collage students in a house can be a lot cheaper than a dorm room. But, it also applies say vacations with carpooling / car rentals and a beach house, or stables like bulk rice.
Suppose you take a group of 20 people making minimum wage, and rather than buying the cheapest internet possible 1Mbps x 20, they buy a 100Mbps connection and share them. Well there is added HW requirements, but for the cost of 1Mbps everyone is getting 5+Mbps except everyone is not using at the same time so it's closer to 20+Mbps.
There is a lot of things you can buy in bulk and see similar savings. The most obvious being housing. The classic 15 collage students in a house can be a lot cheaper than a dorm room. But, it also applies say vacations with carpooling / car rentals and a beach house, or stables like bulk rice.
Forgot to factor in management and maintenance. Typically such projects fail because a key manager or maintainer disappears and there are not enough funds to hire a replacement or get good enough training for someone to replace them.
Alternatively key people become overloaded and burn out.
Hardware is the cheap part, people are not. (Until infrastructure becomes really big such as roads, mass transit and big ISPs. Because these utilise economies of scale in workforce.)
Hardware is the cheap part, people are not. (Until infrastructure becomes really big such as roads, mass transit and big ISPs. Because these utilise economies of scale in workforce.)
Well yea, these things are unstable. But when the break even point is only 3 months or so you don't have to stick with it very long to see a net gain. What seems like a reasonable effort to save money when your a minimum wage collage collage student may not when your making six figures.
My point was most communes are closer to having roommates to collage fraternity side vs soviet worker camp.
My point was most communes are closer to having roommates to collage fraternity side vs soviet worker camp.
The fundamental problem with this is that, as technology becomes more advanced, the facilities required to make it have become more complex and dependent on centralized manufacturing. For example, the cost of a fab capable of building even reasonably modern ICs is in the billions and there are a handful of companies that have the ability to run them, and they rely on equipment from a number of equally specialised suppliers.
I dunno, quant is taking over short term trading and reducing volatility. Computers are automating fintech and rote legal work. It took awhile, but the free market is working things out. No need for government interference.
If government wants to get involved, they should replace wealth generating income taxes with taxes on planet destroying consumption.
If government wants to get involved, they should replace wealth generating income taxes with taxes on planet destroying consumption.
The government created the internet, GPS, and funds much of the innovative research going on.
I totally agree with reforming our tax system away from income taxes and towards a land value tax, carbon taxes, and other Pigovian taxes. Or at least we can start taxing capital gains at the same or a higher rate than income taxes.
I totally agree with reforming our tax system away from income taxes and towards a land value tax, carbon taxes, and other Pigovian taxes. Or at least we can start taxing capital gains at the same or a higher rate than income taxes.
Gradually moving from income taxation to resource taxes would certainly counter balance some of this...
In fact most countries already do this through taxes on fossil fuel, etc. The US has a bit of catch up to do there.
In fact most countries already do this through taxes on fossil fuel, etc. The US has a bit of catch up to do there.
Those things aren't zero sum. When a business gets hacked and shuts down, a bunch of people spend time sitting around trying to get a new job, and then learning that new job. If going outside is scary, police can make it not scary and value will be generated out of thin air. And so on.
I think the point is that hackers and cybersecurity researchers, or lawyers and other lawyers, cancel each other out. To take yet another example, countries pay lots of money to maintain nuclear arsenals that will never be used because their adversaries also have nuclear arsenals. If all nuclear arsenals disappeared, the only real difference to any country would be that they would be spending less money.
So yes, your statement about the police is correct. But if there were neither criminals nor police, the situation would be the same as with criminals and police, only less expensive. I believe this is why they call it zero-sum.
I don't see how taxation will solve the criminals/police problem, but it's fairly clear for legal services.
So yes, your statement about the police is correct. But if there were neither criminals nor police, the situation would be the same as with criminals and police, only less expensive. I believe this is why they call it zero-sum.
I don't see how taxation will solve the criminals/police problem, but it's fairly clear for legal services.
Nuclear arsenals bring peace. Lybia's dictator was immediately assasinated as soon as he agreed to disarm. North Korea is constantly showing off their nukes because they've seen what happens to small resource-rich countries with no nuclear weapons. The U.S., China EU and Russia are all commited to peaceful economic competition because there is an understanding that the first war fought between nuclear powers will be the end of the human race. Removing nukes from the equation would drastically alter the state of the world.
Nuclear buildup may look similar to the cat and mouse game of law enforcement but in fact they're two different games; the former cannot be used to reason about the latter.
Nuclear buildup may look similar to the cat and mouse game of law enforcement but in fact they're two different games; the former cannot be used to reason about the latter.
Legal services and policing are not zero-sum. Policing ensures stability, which facilitates essentially all the productivity that we enjoy. Similarly, legal services provide foundations for cooperation and trust, which are also substantially relevant for nearly all large scale forms of productivity.
>> Look around the economy, and it’s striking how much high-talent manpower is devoted to activities that cannot possibly increase human welfare, but entail competition for the available economic pie. Such activities have become ubiquitous: [...] [such as] real-estate services that facilitate the exchange of already-existing assets
It would be nice if top financial regulators didn't believe that trade was a zero-sum activity. The belief is many thousands of years old, but it's never been, you know, true. The vast majority of all value is created through the exchange of already-existing assets.
It would be nice if top financial regulators didn't believe that trade was a zero-sum activity. The belief is many thousands of years old, but it's never been, you know, true. The vast majority of all value is created through the exchange of already-existing assets.
>The vast majority of all value is created through the exchange of already-existing assets.
Could you explain that? Not having studied much economics, I would defined "value" the net sum of assets across society. From there, I would say that no value is created through exchange, only through production. The purpose of financial markets would then be to optimize production, not in an end in themselves.
Could you explain that? Not having studied much economics, I would defined "value" the net sum of assets across society. From there, I would say that no value is created through exchange, only through production. The purpose of financial markets would then be to optimize production, not in an end in themselves.
The theory of comparative advantage ( https://en.wikipedia.org/wiki/Comparative_advantage ) tells us that optimal production requires exchange. If you prohibited the exchange of existing assets, it would not be possible to achieve the same total production regardless of who you assigned to produce what. (You could of course have everyone keep producing what they were producing for the trade-is-possible world, but if you did that, nearly 100% of all production would be thrown away as waste. Coal is valuable in small quantities as a heat source, but it's valuable to power plants only because they can sell electricity, and it's valuable to mine owners only because they can sell it to power plants.)
That is value directly created by exchange.
That is value directly created by exchange.
Roughly -- The value of an asset depends on who can use it.
When two parties agree to an exchange, it suggests that they both valued what they ended up with more than what they started with.
When two parties agree to an exchange, it suggests that they both valued what they ended up with more than what they started with.
This assumption breaks down for most financial assets. Both parties still think that they are gaining value, but one of them has to be wrong.
This is completely wrong. I sell stocks because I need cash. I make a loan because someone else needs cash. Liquidity preferences matter, volatility preferences matter, both parties can gain value.
> much financial trading
It looks useless, but it is not. It provides liquidity to the market, and smooths out pricing inefficiencies which results in more accurate pricing.
It looks useless, but it is not. It provides liquidity to the market, and smooths out pricing inefficiencies which results in more accurate pricing.
I hate advertising, but I could see an argument for it not being zero sum if you believe that it is truly useful in disseminating information that people otherwise wouldn't get and promoting education of the consumer. Our modern advertising, which are essentially just movie shorts, probably wouldn't qualify for this.
The idea of "zero-sum" economic activity sounds sort of plausible. And it feels like there's a lot of truth to it, but when I think about it harder I find it really difficult to nail down what that actually means.
Most of the examples given in the article are of things that you could argue provide a sort of "infrastructure" service: Legal services allow businesses to have confidence in their contracts, financial trading serves to allocate resources efficiently, advertising solves the problem of discovering new goods and services.
Yes, I know that sounds like a crazy optimistic view of these industries, but how do you know which parts are useful and which aren't? Do we know it's even possible to remove the useless parts and keep the important ones?
It seems to me that one interesting definition of "value of this activity" would be: How many other activities depend on it? By that particular definition, any activity that provides some sort of "infrastructure" would be particularly valuable.
Most of the examples given in the article are of things that you could argue provide a sort of "infrastructure" service: Legal services allow businesses to have confidence in their contracts, financial trading serves to allocate resources efficiently, advertising solves the problem of discovering new goods and services.
Yes, I know that sounds like a crazy optimistic view of these industries, but how do you know which parts are useful and which aren't? Do we know it's even possible to remove the useless parts and keep the important ones?
It seems to me that one interesting definition of "value of this activity" would be: How many other activities depend on it? By that particular definition, any activity that provides some sort of "infrastructure" would be particularly valuable.
While there is definitely some need for tweaking government/tax incentives on some of these, to direct money flows to better purposes, I think (hope) free markets will drive down the prices of some of these "infrastructure" services like legal and financial services as ML automation starts kicking in
Legal services aren't infrastructure. They're legal services. We know what that means. It doesn't need metaphors to be comprehendible, especially not completely wrong ones.
"We know what that means."
I don't. I found the parent's post a bit thought provoking.
If you'd expand your thoughts, it might be interesting.
I don't. I found the parent's post a bit thought provoking.
If you'd expand your thoughts, it might be interesting.
Put simply, the things economists tried to measure when they created the GDP measurement system are no longer a proxy for what they want to measure, which is welfare.
It makes sense that this should happen. Economic growth was still a relatively new thing when economics was in its infancy. Back then it was obvious that you wanted more food. Nowadays more food is bad for you, amazingly. But we still have the baggage of the old apparatus.
What you can know is that when you look at a system that is outside of its observed parameters, there's a fair chance that it will behave differently to what you've observed. You may observe something completely new, who knows? Interpolation vs extrapolation.
The problem is a lot harder now, for the reasons he writes. Certain activities are clearly zero sum, but are measured as positive. Other things are positive, but are not measured.
There's going to need to be a lot of thinking about what we really mean by welfare in the future. There are already everyday situations where you're not better off, but the numbers think you are:
- You go into a shop, and there's 50 kinds of toothpaste. You spend time researching on the internet, coming to no conclusion about the dozens of variables. If there was just one kind left, you'd have bought it.
- You invent something, so now you need a patent lawyer, in case the other guy hires one first. That's money you can't spend on R&D. And one of you will lose his stake.
It makes sense that this should happen. Economic growth was still a relatively new thing when economics was in its infancy. Back then it was obvious that you wanted more food. Nowadays more food is bad for you, amazingly. But we still have the baggage of the old apparatus.
What you can know is that when you look at a system that is outside of its observed parameters, there's a fair chance that it will behave differently to what you've observed. You may observe something completely new, who knows? Interpolation vs extrapolation.
The problem is a lot harder now, for the reasons he writes. Certain activities are clearly zero sum, but are measured as positive. Other things are positive, but are not measured.
There's going to need to be a lot of thinking about what we really mean by welfare in the future. There are already everyday situations where you're not better off, but the numbers think you are:
- You go into a shop, and there's 50 kinds of toothpaste. You spend time researching on the internet, coming to no conclusion about the dozens of variables. If there was just one kind left, you'd have bought it.
- You invent something, so now you need a patent lawyer, in case the other guy hires one first. That's money you can't spend on R&D. And one of you will lose his stake.
The first bullet point you wrote about the 50 kinds of toothpaste becoming debilitating is a good example of the "Paradox of Choice". A good TED talk is given [0], or a shorter animated one: [1].
Essentially, too many options leads to paralysis and second-guessing yourself. Good videos if you have the time to watch them.
[0] https://www.youtube.com/watch?v=VO6XEQIsCoM [1] https://www.youtube.com/watch?v=F4QzhSlqmqg
Essentially, too many options leads to paralysis and second-guessing yourself. Good videos if you have the time to watch them.
[0] https://www.youtube.com/watch?v=VO6XEQIsCoM [1] https://www.youtube.com/watch?v=F4QzhSlqmqg
I kind of buy random average costing toothpaste and never suffered for it. Neither mentally nor physically.
Human's are adaptable and most of us adapted to toothpaste choices just fine. The suffering from having to do irrelevant choices is a bit overstated imom
Human's are adaptable and most of us adapted to toothpaste choices just fine. The suffering from having to do irrelevant choices is a bit overstated imom
One aspect is the quantity vs quality issue.
If the farming industry finds a way to make e.g. twice as much food (or electronics industry twice as many smartphones) with the same land/people/resources, then we see it as a productivity growth - either you double the consumption (more GDP) or you do it with half the people/resources, and whatever else these people/resources produce will increase GDP.
However, if the farming industry finds a way to make the same food twice as tasty (or the smartphones twice better) with the same amount of labor and resources, then that won't necessarily increase the prices (everyone's product gets the new feature, supply is the same, and demand is mostly the same if other industries advance as well) - so there's no observable growth; the economy produces the same number of widgets, trade happens for the same total amount of dollars, even though people's needs/wants are satisfied better.
If the farming industry finds a way to make e.g. twice as much food (or electronics industry twice as many smartphones) with the same land/people/resources, then we see it as a productivity growth - either you double the consumption (more GDP) or you do it with half the people/resources, and whatever else these people/resources produce will increase GDP.
However, if the farming industry finds a way to make the same food twice as tasty (or the smartphones twice better) with the same amount of labor and resources, then that won't necessarily increase the prices (everyone's product gets the new feature, supply is the same, and demand is mostly the same if other industries advance as well) - so there's no observable growth; the economy produces the same number of widgets, trade happens for the same total amount of dollars, even though people's needs/wants are satisfied better.
>> The growth of “zero-sum” activities may, however, be even more
important. Look around the economy, and it’s striking how much high-talent
manpower is devoted to activities that cannot possibly increase human
welfare, but entail competition for the available economic pie. Such
activities have become ubiquitous: legal services, policing, and prisons;
cybercrime and the army of experts defending organizations against it;
financial regulators trying to stop mis-selling and the growing ranks of
compliance officers employed in response; the huge resources devoted to US
election campaigns; real-estate services that facilitate the exchange of
already-existing assets; and much financial trading.
>> Much design, branding, and advertising activity is also essentially zero-sum.
That's a remarkably short-sighted view of economic activity.
A functioning legal system is critical for the operation of an economy. Without one, markets don't work and neither do various sophisticated financial services we enjoy (insurance, loans, mortgages, etc).
Financial fraud, regulation & policing are the cost of having a dynamic and sophisticated financial system. It's had a tremendously positive impact on our societies and individual lives, which we're almost completely oblivious of.
Ditto every other item in his list.
If you think that some popular, ubiquitous sort of human activity creates no genuine value to individuals or the society, you probably haven't thought about it long enough.
>> Much design, branding, and advertising activity is also essentially zero-sum.
That's a remarkably short-sighted view of economic activity.
A functioning legal system is critical for the operation of an economy. Without one, markets don't work and neither do various sophisticated financial services we enjoy (insurance, loans, mortgages, etc).
Financial fraud, regulation & policing are the cost of having a dynamic and sophisticated financial system. It's had a tremendously positive impact on our societies and individual lives, which we're almost completely oblivious of.
Ditto every other item in his list.
If you think that some popular, ubiquitous sort of human activity creates no genuine value to individuals or the society, you probably haven't thought about it long enough.
Bang on. New instruments of finance/investment (public companies, bonds and shares) and the legal institutions that arose at that time to protect investors were one of the most important catalysts of the industrial revolution, possibly the most important driver of productivity growth in the history of mankind.
You could argue that eventually the finance industry becomes so large that it reaches equilibrium within the markets it operates (Mervyn king has suggested the same about the City of London), thus becoming zero-sum, but this nuance is completely absent.
You could argue that eventually the finance industry becomes so large that it reaches equilibrium within the markets it operates (Mervyn king has suggested the same about the City of London), thus becoming zero-sum, but this nuance is completely absent.
The article doesn't require _all_ financial services, legal services, advertisement etc. to be zero-sum. It only needs some aspect, of some of these activities, to be zero-sum.
It sure claims that they're all mostly useless though.
Yes, clearly Adair Turner hasn't thought about this much. /s
Or perhaps you should consider that in a zero-sum game individual agents can produce great value, while the system as a whole does not.
This is a macroeconomics article, after all.
Or perhaps you should consider that in a zero-sum game individual agents can produce great value, while the system as a whole does not.
This is a macroeconomics article, after all.
> Yes, clearly Adair Turner hasn't thought about this much.
The staggering assertion that "facilitat[ing] the exchange of already-existing assets" is an activity "that cannot possibly increase human welfare" suggests that you're right about this, however much you may have thought you were being sarcastic.
The staggering assertion that "facilitat[ing] the exchange of already-existing assets" is an activity "that cannot possibly increase human welfare" suggests that you're right about this, however much you may have thought you were being sarcastic.
Solely moving assets within the system does not create growth of the entire system. No new assets have been created in the exchange.
One group digs the holes and the other fills them, and it can appear that productivity for both is good while the system doesn't particularly make any headway.
One group digs the holes and the other fills them, and it can appear that productivity for both is good while the system doesn't particularly make any headway.
Suppose I have peanuts and you have shellfish.
I don't care for peanuts (in fact, I'm allergic to them). The subjective value that I assign to them is zero (or negative)
Same thing, you don't care for shellfish (religious reasons).
Suppose we move around existing assets -- trade peanuts for shellfish.
All of a sudden both of us have something we can use, of non-zero subjective value (the only kind of value that exists, btw).
To say that no value has been created in the transaction is quite simply to ignore the basic universal motivation for trade.
Every voluntary transaction happens only because both parties believe that they're getting the better part of the deal (I'd rather have shellfish than peanuts).
I don't care for peanuts (in fact, I'm allergic to them). The subjective value that I assign to them is zero (or negative)
Same thing, you don't care for shellfish (religious reasons).
Suppose we move around existing assets -- trade peanuts for shellfish.
All of a sudden both of us have something we can use, of non-zero subjective value (the only kind of value that exists, btw).
To say that no value has been created in the transaction is quite simply to ignore the basic universal motivation for trade.
Every voluntary transaction happens only because both parties believe that they're getting the better part of the deal (I'd rather have shellfish than peanuts).
That's not the sort of activity the article was taking aim at; the author's example of regulators and compliance officers was appropriate, I think. The agents may have come to act in a manner where much of the labour that each engages in is justified by the actions of the other, and so the bulk of their combined labour cancels itself out and we have little increased utility on the whole. Whereas your trade of shellfish and peanuts don't behave in this manner.
The quote I pulled was the guy complaining about real estate agents who do nothing but facilitate ownership transfers. The peanuts/shellfish trade is precisely analogous.
> Solely moving assets within the system does not create growth of the entire system.
This is completely false. As I've pointed out elsewhere, the possibility of trading existing assets means that one entity (say, a farm) can produce more of a good (say, rice) than it can directly consume. Without exchanging goods, this would make no sense, specialization of labor would be lost, and the production of all types of goods would crater.
This is completely false. As I've pointed out elsewhere, the possibility of trading existing assets means that one entity (say, a farm) can produce more of a good (say, rice) than it can directly consume. Without exchanging goods, this would make no sense, specialization of labor would be lost, and the production of all types of goods would crater.
That's still a micro perspective; and besides, the farm is creating goods, rather than operating in a zero-sum manner, it is adding product to the system. Whereas the labour of individuals does not operate in this manner, and it is possible for a system of individuals to be working feverishly without meaningful change occurring. The author used the example of regulators and compliance officers as a sort of off-hand way of expressing the kind of relationship where the bulk of the labour within the system cancels itself out because it arises from agents having to respond to the actions of one another, and doesn't necessarily increase overall utility.
The article is saying that productivity growth has become disconnected from increasing human welfare. I think part of the problem is that when economic science was getting founded, economic growth did translate it welfare increases, at least to a considerable extent, and so economists never worked out good measures of human well being, much less how it relates to productivity growth.
I've been thinking about this a lot lately. How is it that so many people work so hard and are still struggling to pay rent? This is definitely one of the factors I have come to. While I certainly wouldn't make the same arguments as the article, I feel like so many people devote so much time to work that doesn't really improve people's quality of life.
The amount of time and energy spent on advertising, clickbait garbage, video games, sports (specifically broadcasting, discussing, writing, etc.), drugs, gambling, cosmetics, television, and other pointless time wasting technologies is truly staggering. Sure, people enjoy many of the things I've listed, but we have certainly reached the point of diminishing returns on investment in these things. The sheer amount of infrastructure these things have created to essentially take money away from people while providing nearly no social benefit is mind boggling. People can enjoy baseball or football without billion dollar industries being built around them and the same is true with video games or television/theater/movies (just think what could be done with the average budget of a blockbuster film).
The amount of time and energy spent on advertising, clickbait garbage, video games, sports (specifically broadcasting, discussing, writing, etc.), drugs, gambling, cosmetics, television, and other pointless time wasting technologies is truly staggering. Sure, people enjoy many of the things I've listed, but we have certainly reached the point of diminishing returns on investment in these things. The sheer amount of infrastructure these things have created to essentially take money away from people while providing nearly no social benefit is mind boggling. People can enjoy baseball or football without billion dollar industries being built around them and the same is true with video games or television/theater/movies (just think what could be done with the average budget of a blockbuster film).
Maybe this is a better way of measuring progress instead of GDP and productivity?
TED: Which country does the most good for the world? Simon Arnholt
https://www.youtube.com/watch?v=1X7fZoDs9KU
And maybe instead of re-distribution of wealth (which is zero-sum) it should be a redistribution basic food, housing, entertainment and access to education (which is non-zero sum and can be optimized for).
TED: Which country does the most good for the world? Simon Arnholt
https://www.youtube.com/watch?v=1X7fZoDs9KU
And maybe instead of re-distribution of wealth (which is zero-sum) it should be a redistribution basic food, housing, entertainment and access to education (which is non-zero sum and can be optimized for).
Very interesting article. Would this mean that it would be a good idea to develop a better metric than measured GDP. Is there anything existing that could be a better metric?
It's irrelevant for creative work for sure. But for anything that can be automated, yes.
Of course, there will be new kinds of work that will use all the new tools we are creating. But I don't have a lot of faith that government can understand and measure these changes fast enough to provide any meaningful insight.
Of course, there will be new kinds of work that will use all the new tools we are creating. But I don't have a lot of faith that government can understand and measure these changes fast enough to provide any meaningful insight.
Not sure if the author of this link is responsible for this page, but it does not work in Firefox :(
I'm not convinced all the activities enumerated as "zero sum" are really zero sum. Justice is worth something, crimes would happen even if there weren't any polices so policing is also worth something.
However, looking past this weaker aspect of the argument, there is a lot that is worth talking about here. There can indeed be competing processes that are so optimized and near maximally productive that doing one process depletes the small amount of resources that would make the second process possible. The limit that technological progress pushes us towards is not that of people all going to manual one-to-one, face-to-face labor but of getting near the physical constraints of energy, space and matter. Pushing towards these limits means that everything starts competing for natural resources and energy.
We are starting to see very high competition for space in technologically advanced urban areas. Energy and raw materials have always been subject to competition. This is where the true "zero sum" game lies (until we colonize other planets I suppose).
To illustrate, imagine we lived in a world where labor was unimportant because machines did most things better than humans could. These machines would still required time and natural resources (space, energy and matter) to produce goods and services.
For most people, "working" in this world would consist of going online, buying or trading an amount of energy, buying raw materials or spent matter that is ready to be recycled and pressing a "Start" button. Machines would produce some new goods or services.
Some people may also work on designing new better machines that produce finer goods. This would be mostly creative work as the technical part would mostly be automated. The machines could be specialized for maximum efficiency and quality.
People wouldn't have to go out to work. Machine owners could watch webcam feeds of their machines working in an industrial park somewhere. The finished goods, spent matter (trash) and the machines themselves, would be picked up and delivered by self driving delivery robots.
To get some variety, people would trade the production of different machines and they would trade excess spent matter. They would also trade the machine designs and the land or space to host the machines. The machines would sometimes have to be replaced when worn out or obsolete.
Total energy production might be constrained globally to a more or less fixed rate based on what could reasonably be captured from the sun. Total production would be limited by this. People might own and trade shares of energy production capacity.
There could be a level of inequality in this society. This depends on how much governments would allow ownership of things to be concentrated, especially ownership of energy production. The key thing to combat inequality would be to not allow too concentrated ownership of energy, matter and land and also make sure everyone owns or have access to the robots that turn the raw materials into goods and services.
It is true that as we get closer to maximum efficiency, it becomes more and more difficult to raise productivity. We should start to think about how a society can run under these types of limitations.
However, looking past this weaker aspect of the argument, there is a lot that is worth talking about here. There can indeed be competing processes that are so optimized and near maximally productive that doing one process depletes the small amount of resources that would make the second process possible. The limit that technological progress pushes us towards is not that of people all going to manual one-to-one, face-to-face labor but of getting near the physical constraints of energy, space and matter. Pushing towards these limits means that everything starts competing for natural resources and energy.
We are starting to see very high competition for space in technologically advanced urban areas. Energy and raw materials have always been subject to competition. This is where the true "zero sum" game lies (until we colonize other planets I suppose).
To illustrate, imagine we lived in a world where labor was unimportant because machines did most things better than humans could. These machines would still required time and natural resources (space, energy and matter) to produce goods and services.
For most people, "working" in this world would consist of going online, buying or trading an amount of energy, buying raw materials or spent matter that is ready to be recycled and pressing a "Start" button. Machines would produce some new goods or services.
Some people may also work on designing new better machines that produce finer goods. This would be mostly creative work as the technical part would mostly be automated. The machines could be specialized for maximum efficiency and quality.
People wouldn't have to go out to work. Machine owners could watch webcam feeds of their machines working in an industrial park somewhere. The finished goods, spent matter (trash) and the machines themselves, would be picked up and delivered by self driving delivery robots.
To get some variety, people would trade the production of different machines and they would trade excess spent matter. They would also trade the machine designs and the land or space to host the machines. The machines would sometimes have to be replaced when worn out or obsolete.
Total energy production might be constrained globally to a more or less fixed rate based on what could reasonably be captured from the sun. Total production would be limited by this. People might own and trade shares of energy production capacity.
There could be a level of inequality in this society. This depends on how much governments would allow ownership of things to be concentrated, especially ownership of energy production. The key thing to combat inequality would be to not allow too concentrated ownership of energy, matter and land and also make sure everyone owns or have access to the robots that turn the raw materials into goods and services.
It is true that as we get closer to maximum efficiency, it becomes more and more difficult to raise productivity. We should start to think about how a society can run under these types of limitations.
No, productivity growth _as measured by economists_ is becoming irrelevant.
No sure why you are being downvoted, as this is a main point of the article. "But the essential insight is still important: much that delivers human welfare benefits is not reflected in GDP." GDP is not that useful of a measure for the wide variety of things that used to be expensive but are now free. It also includes a lot of things that are not exactly products, depending on which calculation is being used.
In a broader sense, these national level calculations ignore the global economy except to add exports and subtract imports. Countries that import a lot thus have worse looking GDP, while still consuming large amounts of others' production.
We used to use GNP (until 1991 or so) as the official measure, but it made the increasing amount of the budget spent on government debt obligations look bad so they switched. No doubt we'll find another gross measure to use.
In a broader sense, these national level calculations ignore the global economy except to add exports and subtract imports. Countries that import a lot thus have worse looking GDP, while still consuming large amounts of others' production.
We used to use GNP (until 1991 or so) as the official measure, but it made the increasing amount of the budget spent on government debt obligations look bad so they switched. No doubt we'll find another gross measure to use.
How should we measure it?
It's not really measurable.
Whatever it is, GDP / hours worked isn't it.
Whatever it is, GDP / hours worked isn't it.
All business is aimed at "human welfare". Even if the people in the business are not fully aware of it.
You are absolutely correct. So for instance, corporations never attempt to make money doing something they know would be bad for society.
Someone's welfare, sure. Human welfare in the greater sense, not so much. Arguments about the invisible hand fall apart in the face of regulatory capture
The military is another largely "zero-sum" activity. If all militaries were disbanded immediately, no change in economic value would occur. In fact, the economic value of "winning a war" is questionable, let alone losing one. I'd extend this argument to the "war on drugs" as well. And the "war on terror" (as currently fought).
If all militaries were disbanded immediately, no change in economic value would occur.
Not sure I agree. If you define economic value to include future value generation, I would argue that getting rid of a countries military might turn their future value from $XXXB to $0B pretty quickly. South Korea is a good example.
Not sure I agree. If you define economic value to include future value generation, I would argue that getting rid of a countries military might turn their future value from $XXXB to $0B pretty quickly. South Korea is a good example.
How is South Korea a good example? They have a sizeable military (huge for their population), and have a high gdp.
Yes, exactly. And if the did away with that military, the whole country would become a giant gulag within a few years.
Only works if all militaries and military activity were disbanded simultaneously. War is one of those weird economic activities specifically designed to be negative-sum. No matter the outcome of a war, society on average ends up worse off.
I wonder if without war, or at least the fear of it, we'd have created the interstate highway system, or satellites, nuclear power, jet-liners, etc. No doubt we'd have probably invented something. It's not entirely clear we would've invented the same things. The threat of eminent death tends to allow governments to "rationalize" insane spending on R&D on projects that they'd otherwise not have the stomach to wait on.
I think the main problem now is the trade deficit. Many countries invest the FX reserves in things like bonds, driving the yields down and encouraging investment in things like stocks. This is part of why higher profit margins are good for the US economy.
More directly, methods of GDP calculation add exports and subtract imports, so the trade deficit is part of the GDP value presented. It's really not an effective measure.
The growth of “zero-sum” activities may, however, be even more important. Look around the economy, and it’s striking how much high-talent manpower is devoted to activities that cannot possibly increase human welfare, but entail competition for the available economic pie. Such activities have become ubiquitous: legal services, policing, and prisons; cybercrime and the army of experts defending organizations against it; financial regulators trying to stop mis-selling and the growing ranks of compliance officers employed in response; the huge resources devoted to US election campaigns; real-estate services that facilitate the exchange of already-existing assets; and much financial trading.
Much design, branding, and advertising activity is also essentially zero-sum. ...
Such zero-sum activities have always been significant. But they grow in importance as we approach satiation in many basic goods and services. In the US, “financial and business services” now account for 18% of employment, up from 13.2% in 1992.
What's interesting is that it's the UK's former top financial regulator saying this. It's not a new idea, but it used to be the sort of thing you saw in Mother Jones, and occasionally heard from Warren Buffett. This is a concept that needs to become mainstream and start influencing tax policy.
There's a lot that could be done through tax policy to push capital in more productive directions. The elephant in the room is zero-sum financial activity. Buffett used to say that short-term capital gains should be taxed at 100%. Taxing them at top-bracket personal income tax rates might not be a bad idea. It's a start.
Hedge funds get a completely unnecessary tax break which has a small but powerful lobby.
All the ways that businesses pay for capital should be taxed at the same rate. This includes dividends, interest paid, and stock buybacks. There's a bias towards borrowing rather than dividends, which generates unnecessary banking activity. It's the relative tax rates that matter, not the absolute ones, because they drive business decisions.
Maybe advertising should not be a tax-deductible business expense. US consumer advertising just moves demand around. It doesn't add demand because US consumers are spent out, as the CEO of WalMart says.
Politically, the key to doing this is to do it all at once, with the overall corporate tax rate adjusted to make it revenue-neutral. There will be losers, and they will have lobbyists lined up halfway down the Mall to get into the Capitol. But there will be winners, too, mostly in industries that actually do something. It's politically possible.