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The New Economy
Our Measures of the Economy Don’t Work
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  • qet

    This has more than an air of unreality about it. Maybe WRM at one time wanted to be a professor of economics, where one’s status is directly proportional to one’s remove from reality. Frequently WRM’s musings on the 21st century economy seem to me to boil down to “the more you spend, the more you save.” That consumer on the couch isn’t saving anything. She (I postulate WRM’s couchsitter must be female by virtue of the “orders clothes from dozens of different brands” factoid; but also WRM uses the feminine pronoun later in the paragraph) not only is spending on other things the money she isn’t spending on gas, she is spending more beyond that. Consumer debt in the US has been rising. Making “shopping” easier has had the predictable result. It’s more than just a Freudian slip when WRM says at the end of the paragraph that our mouseclicking couchsitter is “getting her business done.”

    That travel agent I have avoided is a subtraction from productivity–he isn’t producing at all anymore, is he? But he’s probably spending money he doesn’t have on clothes and entertainment. And apparently free books are still not cheap enough, as our national literacy rate continues to go down. Just as with bank interest, where we have had to move beyond zero interest to negative interest, so will we have to make books more than free, we will have to pay people to read them.
    WRM is right in his conclusion, that our economic concepts and categories are diverging from the facts. Productivity is no longer a usable concept because people no longer produce. Making consumption easier and more convenient is not production. Even if you believe it is valuable, just because something is valuable does not mean it is produced. Pig iron was produced, it was measurable according to the Kantian a prior conditions of experience: space and time. Greater ease and convenience are not measurable at all. They can be represented by numbers but those numbers will have no relation to reality; they will be more like the cascade of numbers Joe Pantoliano would stare at in The Matrix; they will reflect only a virtual reality of countless couchsitters plugged into the Amazon matrix whose business is, as WRM implies, to consume rather than to produce.

    • Youngtrummy

      The benefits of productivity he fantasizes are inaccessible to a jobless slum dweller, who isn’t going to be arranging trips or renting a room. I work in a public library, where we get middle aged people who have never handled a mouse, and who have resumes refused at big box stores that insist on having all applications filled out and sent in on line.

  • Andrew Allison

    It’s clearly the case that our current measures of the economy are misleading, but productivity (which as the post elucidates is at best stagnating) is only one metric. In the real world, workforce participation and real wages have fallen to levels last seen in the 1970s. The problem with our measures is that they disguise the fact that, for the vast majority of the population, our so-called “economic recovery” is illusory.

    • Boritz

      Right. While there are economic measures that are problematic by their nature as the article explains the greater problem is the deliberate manipulation of metrics and their definitions for political reason.

  • FriendlyGoat

    I’m glad to see an article suggesting that “we, the people” do not know as much about real economics as we should. There is certainly some merit to the idea that communication via the web has enhanced people’s lives, for instance. (But entertainment services such as netflix, if anything, are the silly or unimportant side of that, of course.)

    HOWEVER, we should not fall into excusing the diminishing share of wealth and opportunity now accruing to middle and lower classes by saying, “but look, you can read or buy things on the Web, or you can drive for Uber”. We need to be clear-eyed about the preponderance of world wealth gravitating upward and adjust our economic policies accordingly to counter that natural trend. So, for my regular gripe, that means NOT conducting tax-cut competitions between states or countries. The tax cuts DO NOT “create jobs” here or anywhere.

    • Anthony

      You make notable point regarding inequality and concentration (capital/labor split in 21st century).

      • FriendlyGoat

        Thanks. Because I rail on this all the time, I really do wonder why most people don’t think, as I do, that wealth gravitating upward (worldwide) is actually a to-be-expected trend of economic nature—-and one that needs to be countered by modern societies.

        As you know, I am NOT a Marxist, but I have come to believe that the income tax was one of the things that made America great in the 20th Century. We are living through some unfortunate politics where too many people are being led to believe otherwise.

        • Nick M.

          Actually, while I am unsure if “most” applies or does not, I think many actually do see it gravitating upward. But it is what is cause of it is where the differences arise. You have one side saying lack of governmental influence is causing the corporate/private fat cats to use their power to gather an increasing percentage of the pie, while another side believes it is through either sincere or corrupt government practices that either directly or indirectly sanction, enable and assist the corporate/private fat cats. And because of that divide, we often end up talking past each others, because it is not just the different end points we arrive when we debate, but the journey and even the starting point.

          It does matter that we articulate what we actually mean by the term “countered by the modern societies” both in the concept of what is countering and what is a modern society. Unfortunately, the mere disagreement over the conceptualization of such terms seems to leave both sides thinking the other “Doesn’t really care about the problem.”

          • FriendlyGoat

            “Countered by modern societies” is my own phrase, so I guess I’ll have to make my own definition. In a nutshell, it would be tax cooperation so that we have steep progressive taxation in all countries. As I mentioned to Anthony, I’m not a Marxist. I believe in the transforming magic of free enterprise. But I don’t believe that the shrewdest traders should out-trade most other people and be permitted to just keep the gains—–and trading of financial instruments is the 21st century name of the game and the REASON why we must “expect” wealth to gravitate upward worldwide unless we stop it from doing so. We are not benefited by countries racing each other to the bottom on taxation to attract capital to “go where it is well-treated” as George Will likes to say. We need for citizens to be “well-treated”, not just money.

            That said, we know governments are sometimes inefficient in how they approach social/economic problems, but government spending DOES hire people in America and everywhere else where governments are spending. We can’t rely on free enterprise to address everything, because we know it doesn’t. Having government sponsoring a lot of jobs in America and elsewhere, even with inefficiencies, is not a terrible outcome.

          • Nick M.

            I know your exact phrase is your own, but I am pointing out the broader notion of it.

            “In a nutshell, it would be tax cooperation so that we have steep
            progressive taxation in all countries. As I mentioned to Anthony, I’m
            not a Marxist. I believe in the transforming magic of free enterprise.”

            That’s actually basically the definition of “third way socialism.” FYI. Not saying its good or bad, morally or functionally. Just pointing out your belief has been categorized 😉 And It is not the general concept that people aren’t behind, but the detailed definition is where you depart from others (or others depart from you; which ever term you prefer.) When they say countered by modern society, they may believe that “countered” is the restraint on the government part of society. By “modern” they may rather mean democratic, and free from restraints. And by society, them mean the “People” part and not the government. So if you asked people if they support the concept of “gravitating upward… trend of
            economic nature—-and one that needs to be countered by modern
            societies” Many who don’t ask for prior clarification would most likely agree. But the devil is in the details…

            ” But I don’t believe that the shrewdest traders should out-trade most other people and be permitted to just keep the gains-”

            Then why try to trade well in the first place? Why not just trade as the most mediocre trader, leaving the shrewd trader extra skill unused and wasted, which defeats the purpose of the free market where those who take the risks reap the rewards – if any.

            “sometimes inefficient in how they approach social/economic problems..” Has there actually been a quantifiable instance of doing it efficiently?

          • FriendlyGoat

            Most people actually do trade as mediocre traders. They would prefer a stock market where they are not the intended patsies of the fellows described in Michael Lewis’s books, Liar’s Poker and Flash Boys. They would prefer not enduring a decade of their bank deposits earning nothing (while the banks make a bucket-load) BECAUSE someone else took too much risk and crashed the world. They would prefer a world where the hearsay of the top 25 hedge fund managers making more than all the kindergarten teachers in America would not be possible. They would prefer NOT having their index funds’ daily purchases or sales of stocks (to rebalance the fund to the index) subject to legal front-running that now skims billions of dollars out of the real market. They would prefer not having to compete with traders who hold stocks for a few seconds or less. It we cannot ever keep up with preventing these ever-changing practices, most people would like the comfort of knowing that those eating their lunch are subject to a LOT of tax.

            As far as quantifiable instance of government approaching a social problem efficiently, sure, I’d suggest that the workers’ compensation arrangements in most states are much preferable to employees’ injuries going without care or compensation until plaintiff attorneys sue the employers for unlimited amounts in civil courts. Governments’ laws and supervision make this work.

        • Anthony

          You’re welcome! And not to be redundant but Thomas Piketty (whether one agrees or not)lays out your point on the dynamics of capital/income ratio trend historically.

  • Anthony

    “…but our economic discussion seems to be getting farther and farther away from the facts.” May depend on whom and where discussants are gathered. Still, what are implications of WRM’s thoughts? Countries where living standards (for all citizens) improve over sustained periods of time are more likely to seek and preserve an open, tolerant society (as well as broaden and strengthen democratic institutions perhaps). Yes, externalities create a misweighting of the market system but such reckoning as piece implies falls to public policy (bringing economic discussion in line with relevant data/facts); public policy does matter for economic growth and I think that’s signal point of piece.

  • Arkeygeezer

    The internet has empowered the individual more than anything has in human history. The individual can now sit at home in front of a computer, can earn a living, express him/her self to the world, and manage wealth in complete privacy. No government can measure this activity with any real validity. WRM’s observations are right on!

  • http://radical-moderation.blogspot.com/ TheRadicalModerate

    “In fact, since she doesn’t have to gas up her car and spend hours of her life driving from mall to mall to do the same amount of shopping, perhaps spending less money because she is getting better deals, GDP figures might very well go down even as someone is getting more of her business done faster and better.”

    This got me thinking: The usual measures of economic efficiency are usually formulated as something like output per input–i.e., as some variant on productivity. Productivity is a fine supply-side definition of efficiency, but the above seems to imply a different, demand-side metric. It looks to me like you might make progress with something like a measure of information flux per unit consumption. If you’re driving around attempting to do price discovery, and that discovery is imperfect, you’re spending more time and money (which is really another way of say that you’re spending more money) to compensate for your lack of information. Conversely, if you’re shopping online, the high information flux allows you to spend less (time and) money.

    I did a quick googling of the the term “information flux” and didn’t find a lot, outside of a noise-rock band from the 90’s and some computer science references. This concept keeps cropping up as I noodle on various economic and social things, so allow me to inflict my half-baked theories on the the TAI commentariat:

    First, note that the internet generates a lot of new information, but what it’s really good at is taking lots of existing information, aggregating it, and flinging it at high speed at a consumer. Just as important, the existence of search technology improves the quality of the information being flung. So a (still hand-wavy) definition of information flux might be something like the amount of quality received by a consumer per unit time. This could lead you to a definition for consumption efficiency that was something like (information flux) / (consumption dollar).

    We care a lot about GDP and productivity for two reasons: First, we can measure them, but second, GDP has always been used as a proxy for consumption, on the assumption that everything produced is consumed in short order. Therefore, we’ve never really come up with a metric like “gross domestic consumption”, because we always assume (correctly) that GDP = GDC, and why bother?

    But consumption efficiency is something completely different. Higher consumption efficiency does indeed reduce GDP, but what it’s really doing is burning the fat out of the GDP number. In effect, it’s a multiplier on the utilization of goods and services.

    To get a real handle on the state of an economy, you need to bias GDP (I don’t know how) by consumption efficiency. For example, a stagnant or even falling GDP in the face of rising consumption efficiency could imply a completely healthy economy. On the other hand, higher GDP and lower consumption efficiency might imply a lot of wasted effort. Notice that there may even be a perverse political incentive to reduce consumption efficiency in the hopes of padding GDP numbers, which are the metric of policy success.

    The sticking point here is whether you can quantify information flux in a reasonable fashion. It’s the useful part that’s at issue here. You might get some idea if you looked at average query-to-purchase times (no privacy issues there, nope, nope), or customer satisfaction ratings, but it’s all horribly fuzzy.

    Still, I suspect that this is going to keep coming up in a number of different contexts. The other one I keep wondering about is the role information flux plays in stupid political discourse, shiny-object chasing by the media, and general incivility. If you’re got a measure of information flux, then you can probably come up with a similar measurement for information viscosity, which can give you a metric for something like the “turbulence” of an information flow. Coming up with something like a Reynolds number for a news service or political issue would be interesting.

  • Jacksonian_Libertarian

    The economy is 7 years into “Great Depression 2.0”, all of the economic indicators say this is so, but above all is the FACT that bankers wouldn’t let mortgage rates remain at historic lows, while foreclosure rates are so high if there was any Inflation on the horizon. It is silly to think that technological improvements to efficiency aren’t reflected in the productivity of the economy. The problem with the economy isn’t that it is being improperly measured, it’s the lack of the proper treatment for the destructive deflation that bankrupts businesses, driving unemployment up, and causing foreclosures.

    It is unfortunate that so many people are traumatized by the inflation of the 70’s and 80’s, that they can’t even recognize that inflation is merely annoying, while deflation is Destructive. And that is exactly what is needed now, a serious inflation that will get the economy rolling again.

    It’s important to understand how a deflationary depression occurs. It naturally occurs when the debt levels become unmanageable. Capital stops being borrowed to take advantage of profitable opportunities, or for the purchase of desired products because so much debt is already being carried. This process feeds on itself causing the economy to fall back on milking previous capital investments, and for consumers to make do with what they have. And this is exactly what has occurred. The M3 money supply is stagnate, which means that there is no new borrowing going on despite the approximately $1 Trillion in new money that the Fed is making every year.

    I believe that the solution is for America to payoff all foreign holders of US Treasuries, some $6+ Trillion. This would accomplish all the goals needed to get us out of “Great Depression 2.0”, and would seriously damage all those nations like China and Japan that have used the purchase of US Treasuries to manipulate their currency and give their exporters an unjust price advantage. In an instant they would have ship loads of much less valuable Dollars, and their exporters would see America grabbing up world market share. Dollars would come pouring into the US as a result of exports and investors seeing that America with it’s low cost energy due to fracking, its hard working workforce, and fully mature infrastructure is the very best place to be. The US economy is often called the World economy’s engine. And of course as the US economy gets rolling the engine will pull all the other economies up out of the deflationary ditch.

    And the $6+ Trillion now sitting at the Fed could be used to fix the disgusting Ponzi Scheme called Social Security. Individual inheritable retirement accounts could be opened for every American of about $20,000. Social Security withholdings could be restructured to send money into these accounts, decreasing the amount that goes out to the retired over time as the elderly die off, and the newly retired begin using their private accounts.

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