Looking Backward: Economics and the Cult of Yesterday

GDP and productivity don’t measure what’s really going on in the economy—or in people’s lives. Jonathan Rowe on measuring what matters.



December 1, 2009
Yes! Magazine

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One reason that the nation has not made more progress toward an economic “recovery” is that the people in charge really don’t know what one would look like. The top economists in Washington don’t appear to have asked the obvious question, “Recovery of what—and for what?” Instead they have followed the old drill, tried to rekindle the old flame, and remained wedded to the old guideposts that leave them looking at yesterday and trying to see tomorrow.

Just recently, the president of France realized the stupidity. He has decided that his nation’s measures of economic health need to change to account for today’s challenges instead of yesterday’s. As Washington gears up to spend billions in more “stimulus,” it would help to ask exactly what it is trying to stimulate—and most importantly, exactly what would constitute success.

Economic indicators are our national psyche’s main gauges, the mirror into which we look to see how things are going. In a market culture—which is to say, a money culture—the prospects for money become the prospects for ourselves. Such metrics as the Gross Domestic Product (GDP) have an oracular status; reporters watch them obsessively, policy experts steer by them, and politicians march to their command.

Yet for the most part the indicators are a crock and testimony to the grip of yesterday upon the expert economic mind. The prime example is the GDP, the anachronism of which is a secret, it seems, only within the media and policy establishments that invoke it constantly. Any measure that portrays an increase in car crashes, cancer, marital breakdown, kinky mortgages, oil use, and gambling as evidence of advance—as the GDP does—simply because they occasion the expenditure of money has a tenuous claim to being reality-based discourse.

Yet whenever a policy expert or news analyst intones about the need for “growth,” more GDP is what they mean. The two are the same. Is it really surprising that most of these experts didn’t see the crash coming, when they were steering largely by a compass that portrays rising debt payments as additions to the GDP—and therefore as beneficial growth?

Another example is “productivity,” which, if anything, is even more totemic. An increase in output per hour worked—which is the reigning definition—is deemed the stairway to economic heaven, and the goal most devoutly to be sought, no further questions asked. Thus the excitement recently when the Commerce Department reported that productivity had increased at an annual rate of 9.5 percent during the third quarter of 2009.

But exactly why is this such good news? “Generally, when U.S. workers are more productive that’s a really good thing for the economy,” observed a writer on the Atlantic’s website. “It means a higher GDP will result.” The statement is standard issue, and remarkable only in its circularity (and that the ratio of fallacy to sentence is one to one).

Take first the part about the “higher GDP” that rising productivity betokens. To say it’s a good thing for “the economy” is redundant. The GDP is the economy, as economists define it. It is the part of life that operates through the transaction of money. The question is whether a rising GDP is necessarily a good thing for the people who comprise the economy, and for whom it is supposed to exist.

The Atlantic ought to know the answer. Back in the 90s, I co-authored an article for that magazine called “If the GDP Is Up, Why Is America Down?” which laid out the fallacies of that indicator in all their perverse splendor. We showed in detail why, increasingly, a rising GDP suggests that lives are getting worse, not better. If interest on your credit card debt doubles this year, it’s a boost for the GDP. Is it a boost for you? Likewise, sickness and the consequent medical treatment is good for the GDP. Health is not. (Another take is here.)

Yet now that same magazine was repeating the very fallacy that it itself had debunked. This is common. No matter how many articles appear on the imbecility of the GDP as a gauge of well-being—the New York Times alone has run at least a couple over the past year or so—those same publications are back to reciting the GDP mantra the very next day. (Sometimes it’s the same day.)

It is as though in economics, evidence doesn’t matter where underlying assumptions are concerned. Belief trumps actuality. As Gunnar Myrdal, the Swedish economist, once put it, in economics, “all doctrines persist.” In real sciences, theories change constantly to accommodate new information. In economics, the basic model hasn’t changed in more than 200 years. Which suggests that economics isn’t really science, but rather religion in mathematical disguise.

But back to productivity. The Atlantic post also asserts that rising productivity figures mean that “workers are being more productive.” This, too, is rote formulation: We Americans are working harder and smarter and therefore are turning out more stuff per hour. The thought appeals to our sense of virtue, but is it really what is going on?

Let’s leave aside technical issues, such as the way the data attributes parts made cheaply abroad to the productivity of American workers who assemble those parts into finished products here in the U.S. Leave aside too the obvious conundrum—doesn’t the quest to eliminate work eventually lead to less work to go around? (Economists say it bestirs more work, not less. We’ll see.)

Let’s leave aside as well the way the benefits of increased productivity have been going to executives and shareholders in recent years, rather than to workers in the form of higher wages or more time off.

The question here is more specific—namely, is productivity really what the term suggests? Or is it another case of language that sounds technical and scientific, but that is disconnected from reality? Consider the computer, which was hyped as the ultimate productivity machine. Alan Greenspan, the former Federal Reserve Board chairman, was practically rhapsodic on the subject. Yet the impact of computers in the workplace has been somewhat ambiguous. Increases in output have been canceled to varying degrees by the overhead the things entail: burgeoning IT departments, crashes and lost data, constant security measures, and a fortune in software updates and printer cartridges.

But in another way computers have been an unambiguous success, because they have enabled corporations to shift a substantial portion of their workload onto their customers. If you ever have made an airline reservation online, or tried to get your credit score, or filled out an application for insurance, you have spent many minutes and even hours doing data entry that company employees used to do. If you have sought help with a computer problem, you likely have been directed to an online forum in which you must rely on other customers, rather than company employees. (I rarely get a good answer; usually I can’t even find my question. Plus it can take hours—on my clock, not theirs.)

Seen through the euphemistic lens of the productivity metrics, this is a minor miracle. The corporation is spending less on labor than it was before, but is making more money. But that’s not because its employees are working harder or smarter. It is because they’ve been laid off and we customers are doing the work they once did. The cause of corporate production has been boosted by an unpaid labor force—namely ourselves. The same thing happens offline at self-service gas pumps and big box stores where few employees walk the floor so that we have to search the aisles on our own.

Yet the metrics portray the resulting hours of unpaid labor as an advance in productivity. And that’s just one disconnect between the word and the reality. Take the tricky question of services and the productivity of those that provide them. How exactly to determine the productivity of a mortgage banker—by the dollar value of the subprime mortgages he or she churns out? Or how about a teacher? A while back, a prominent economist at Harvard proposed that the productivity of education be determined by the incomes of those who receive it. (The money fixation of the economic mind can lead it to strange shifts.)

By that standard, Bernard Madoff’s teachers were many times more productive than yours or mine. Look at how much more money he made, at least while the game lasted. But then, much of what is called productivity has little to do with work effort to begin with. As oil wells and mines get tapped out, for example, it takes more effort to pull out what remains. “Productivity” declines, but not from a lack of industry among the workers. Rather, the extractive machinery has run up against a geological fact.

As with the GDP, however, the basic problem is the underlying premise. Where the GDP assumes that more expenditure of money equals a better quality of life, so the productivity dogma assumes that more output is always better than less—that work is always bad and stuff always good. That assumption might have seemed valid centuries ago, when stuff was scarce, toil grueling, and human needs could seem as infinite as the resources available to meet them were presumed to be.

But yesterday is not forever. Can we really say in 2009 that it is necessarily better to produce, say, more cigarettes with less labor? Or violent video games? Or subprime mortgages? Or gas-gorging Hummers? Might we not be better off with less such stuff and more of the work that goes into it—or even better, into something else? At the very least, don’t we have to say, “It depends?” If that’s the case, the iron syllogisms that underlie the GDP and “productivity” go out the window.

Then there’s the question of work itself. The syllogism assumes that work is a “disutility,” a nasty and distasteful thing, engaged in only for the consumption it makes possible. Yet today, many people get more satisfaction from their work than they would from the next item that they might buy with the remuneration from that work. Work can provide meaning, dignity, and self-respect. (It is odd that our friends on the free-market right preach the importance of work, and then embrace an economic theology that applauds the continual elimination of that work.)

Some people are actually paying to work—on archeological digs, for example. They pay hefty fees at “health clubs” to make the kind of physical exertion that productivity-enhancing machinery has rid from daily life. People burn gas to drive to the club and then burn electricity to exert on an elliptical trainer or treadmill. Through the alchemy of the corporate market, production has become consumption, and something that was free has become something that we have to pay for. The market creates a scarcity of physical exertion, and then sells us commoditized substitutes for money.

If metrics are to guide us to solutions, then they have to start from an awareness of the problems. Today, for most Americans, the problem is not a lack of stuff, but rather a lack of well-being. It is not an excess of reliance upon human work—if it were, unemployment would not be over 10 percent. Rather, the problem is an excess of reliance upon fossil fuels, land, and other finite resources, along with the waste of capital in arcane financial schemes.

So, why do we still obsess over the productivity of labor, and let energy resources, raw materials, capital, and land loaf on the job? Should we not track—and then prod—the productivity of those, especially when the result could be more of the human employment that we need? Conserving energy provides more work than does wasting it; intensive use of urban land provides more work than does the sprawling wasteful use of it; and so on down the line.

Imagine what would happen if next week, the major news outlets relegated the GDP figures to a News In Brief box, and focused instead on the health and well being that this expenditure betokened—or didn’t. What if the policy establishment worried less about the productivity of labor, which is abundant, and more about the productivity of resources that are scarce? (It would be good, too, if workers got a fair share of the return from increases in their own productivity, in the form of higher pay or more time off.)

The effect would be galvanic. Metrics are silent rulers, in both senses of the word. In defining the task, they also define the steps we must take to carry it out. If we Americans heard about the nation’s lagging energy productivity every day, public pressure would grow to do something about it. As with the gas mileage gauge on a Prius, feedback prompts concern and action.

So again, why don’t we hear about it? Entrenched interest is part of the answer. It is not accidental that a corporate economy would embrace metrics that assume that more stuff is always better, and that workers are to be flogged continually while land and resources can be wasted. That script is tailored for those who do the selling, flogging, and wasting.

There is not much reason, within the existing framework of economic belief, that economists could not shift emphasis from the productivity of labor to that of energy and land. The GDP is a tougher nut. The crude quantitative thinking it embodies is the basis of the profession’s claim to science. Once you acknowledge the need to make distinctions—that is, once you realize that not all “goods” are good and not all “services” actually serve, and that price and value are not always the same—you are beyond the focal plane of the profession’s cognitive capacities, and of its ability to turn experience into forbidding math.

Instead, you are in the realm of what economists typically dismiss as “value judgment”. That’s as though there is any other kind of judgment, and as though the assumption on which the GDP is based—that more expenditure of money always betokens an advance—is not an egregious “value judgment” in itself.

Not for the first time, those who claim the mantle of science are hung up on an outdated version of it. I do feel for these folks. They have large amounts of intellectual capital sunk in the old faith, and prestige tied up in high positions and awards. But then, they’ve been scolding the rest of us for decades on the need to adjust to new realities. If steel workers have to be retrained as computer technicians, then why shouldn’t the economics establishment take a dose of its own medicine?

At least a few could see it coming. In the past, the likes of Thorsten Veblen, Kenneth Boulding, and John Kenneth Galbraith have challenged the assumptions of their field. (Galbraith’s name still can evoke sneers at meetings of the American Economics Association.) Just recently, a couple of American Nobel winners—Joseph Stiglitz and Amartya Sen—advised the French government to update its national metrics to take more account of economic reality, as opposed to the hoary model embedded in the GDP. French President Nicolas Sarkozy has embraced their report.

The wheels have started to turn. If Old Europe can get out of the rut, then shouldn’t the U.S. be able to do it too? There is no reason to wait for the experts. We can create new measures that include dimensions of life that the conventional ones leave out. We can track well-being instead of just monetary transactions, and the efficiency of our use of land and energy—rather than just that of work.

It doesn’t take a PhD to do this, just clear eyes. The experts will catch up eventually.

Jonathan Rowe wrote this article for YES! Magazine, a national, nonprofit media organization that fuses powerful ideas with practical actions. Jonathan is a contributing editor for YES! Magazine, a fellow for On The Commons and founding co-director of the West Marin Commons.


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