36 Comments

Articles like this make me glad I subscribed to this substack.

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Amen. Even an economic bumpkin like me learns something every week.

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Jul 20Liked by Arnold Kling

Since the wide dispersion of internet technology and the apparent but unmeasured increase in productivity that has resulted, a number of alternate measures of productivity have appeared. (BTW, in 1974 we also could not have communicated and debated with each other via Substack or "In My Tribe.") One measure is the profit reported by, say, the S&P 500 portfolio of stocks divided by the number of employees of those 500 companies. That number has grown tremendously in the last 25-30 years. The biggest companies nowadays - Alphabet, Meta, Nvidia, etc. - have far fewer employees absolutely and per dollar of profits than companies with lower revenues or profits, companies such as General Motors, Ford Motor, DuPont, etc.

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I wonder what you think about that measurement, since for it me it doesn't say much aside from companies with fairly low CAPEX can produce lots of money.

Another measure which the Eurostat used to published was wage-adjusted productivity. Basically calculate productivity (value added/employees), then deflate by the average salary in terms of the purchase power parity.

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"People try to analyze the difference between 2.05 and 2.03, when measurement uncertainty means that the true number could be anywhere between -1 and +5."

Excellent point.

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That's an important observation -- but it's equally important to notice that how much joy/benefit we get out of stuff is often not a function of absolute functionality.

Yes, up until relatively recently in human history there was a much closer relationship between absolute wealth/capability and quality of life. But the problem is that we derive joy both from absolute benefits and relative ones and as we get richer relative benefits -- do we have something more than our parents or more than our neighbor -- tend to become relatively more important in consumption.

To put it differently, I fear that the richer we get the more our consumption essentially becomes consumption of Veblen goods.

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I want to push back a little on the idea of later generations being less materialistic, wanting less *stuff*. Of course, you are right that they want neither your china, nor your crystal, nor your silver.

But look up what storage facilities are being used for. The old unwanted crystal isn’t taking up that much space. The proud purchaser of those crystal goblets would have been baffled that people spent hundreds of millions of dollars a year on *holiday decorations*.

As an occasional estate-sale-goer, there is one very striking fact in the houses of very old people, even those that were well enough off back in the day: they furnished and decorated their houses - for the most part, once - and then pretty much left them alone. Lived there.

Contrast that with now, when the consumer is urged to change things all the time, change things seasonally, “change your summer look with new throw pillows!”, repaint in the must have *now* colors …

Much of what the consumer now buys, ends up in the trash or on the curb on bulky day. This was not true of our supposedly more stuff-materialistic recent ancestors.

Their stuff per stuff-unit meant more to them, sure.

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I think maybe that's because the "materialistic" desires of my Depression living parents and grandparents were for things that were mostly essential to any kind of decent life.

Today you could take lots of items that are not only easily replaceable but not necessary to life in any real sense out of my home. Do I need that Bunn coffeemaker? Do I need and Instapot? Do I need a half dozen computers?

When the necessities are easily acquired I suspect the "materialism" wanes.

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Jul 20·edited Jul 20

Agree.

"But there is a lot of stuff not being made here any more because the share of our consumer desires that are satisfied by stuff is much smaller than it used to be."

Temu and Amazon would like a word.

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Yes, and stuff = landfill trash isn’t exactly proof of lesser materialism.

In fact, I would think landfill trash volumes handled would be a good metric.

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Yes, I know it’s *billions* - for my own sanity I am going to pretend otherwise.

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Productivity statistics are just one example of statistics that are precisely reported, widely interpreted, and misleading at best. Another example is per capita income. Various people claim that real incomes for most workers stopped growing (or began growing only very slowly) around 1980. Government CPI and income statistics may support such claims. But this claim is synonymous with a claim that most people's material standard of living today is no better than most peoples' in 1980. Ten seconds of thought should expose the ridiculousness of the claim.

* Average houses are larger, for smaller families, than in 1980, so there is a lot more house per capita.

* Few houses in 1980 had walk-in closets, because few people had enough clothes to fill them, but people have far more clothes now, and walk-in closets are standard for houses and mid-range apartments.

* Numbers of airplane flights per capita have increased dramatically.

* In 1980, most US residences didn't have air conditioning. Today, 90 percent do.

* Arnold already mentioned improvements in health, healthcare, and automobiles.

* I won't even mention electronics, except to point out that in 1980, telephones per capita was considered an important measure of economic development. Today, telephones are so numerous that they can't be reliably counted, and so available that it wouldn't be worth counting.

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Jul 20·edited Jul 20

"GDP is a good measure of economic activity."

I suppose I agree but one could definitely pick at this.

1 - Black market activity generally isn't included. This includes far more than drugs (including alcohol and cigarettes), guns, and sex. There is a wide variety of cash transactions. And while resale websites like EBay capture some of what would have been black market or no transaction, Craigslist and FB Marketplace don't. Then there's things like entertainment tickets that are counted at one price and then resell at higher prices that aren't counted.

2 - Another factor is unpaid labor. One can define that as not being economic activity but that misses the tradeoffs made between paid and unpaid. It seems pretty likely that today we pay others to do far more that we used to do ourselves. As you mention, we eat out more. We also eat more prepared foods. Both create more GDP but we still eat no matter who prepares the food. The additional amount we eat and resulting weight gain is relatively small and irrelevant here. How many lawn mowing services were there in 1974? There are many other examples. This increases GDP without increasing what is actually "produced."

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Not including a lot of illegal alien work in the reported measures was one reason the 2006 peak house construction bubble popped but that huge real increase in unemployment isn’t part of the Fed’s statistics. All the illegals stopped being paid, in unreported cash, and some million or two of them went back to their families in Mexico or farther South.

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I find your comment to be ambiguous. It seems you are using "increase in unemployment" in a nonstandard way and really mean decreased employment. If they aren't here, they aren't unemployed. If I got that right, what you say sounds right.

More to the point regarding productivity, many of these workers probably weren't counted in that measurement either.

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Another excellent and important and brief post.

Total productivity for producing things, and when the things are quality comparable, such production comparisons make sense. Productivity measures for a company making things, like cars or smartphones, should continue being used by the company to improve.

The parts of the economy which really are GDP factory produced stuff might sort of allow inter-temporal comparisons, but quality changes reduce the usefulness of any such measures -- tho they are better than any other numbers. (Maybe not better than nothing -- no measure, no govt action would often be better; like prayer would be better than most govt actions.)

Producing services is much different -- is the $40/hr babysitter really doing a 10x better job than the next door teenager for $4/hr in 1974? Or teachers ... of kids who graduate from HS but can't read nor write.

Median income, and total employment rates, are the two most important supply side measures. The govt should be providing a guaranteed job offer than everybody who is willing to work will be told some job to do -- work is what is done (lots needed!), a job is doing work others tell you to do but who give you money to do that work.

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My go to example for measuring "the good old days" has always been dentistry. I only kid a little bit when I say that when as a child in the 1950s got a cavity filled the dentist was using a foot-pedal powered drill. In fact, as good as I can remember it was pnuematic. And it was fairly terrifying, especially since most dentists were not using any anesthetic prior to drilling.

As I aged and needed dental work some 40 years or so later the difference was immediately noticeable.

I think other technological advances may be more difficult to 'notice' as we have come to expect them.

Perhaps we need a better definition of productivity as well.

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The 'energy efficient' fridge I purchased to replace the 15+ year old original fridge in my previous home crapped out after 5 years. The Korean brand washing machine left by the previous owner of my current home is full of electronics and has all these nifty bells and whistles (it plays a tune to let you know when it has finished a load), but it is prone to becoming unbalanced in the spin cycle (a mechanical procedure that American appliance manufacturers had mastered by the time I was born), a problem I have to intervene manually to fix (stop machine, open the lid, redistribute the clothes and towels by hand, and hope for the best), and according to Ben's Appliances and Junk youtube channel, I will be lucky if I get 10 years of service out of it. I'd like to be able to purchase those reliable moderately-price home appliances with service lives of 15-20+ years that we had when I was a kid (shopping for new appliances is a pain in the ass), but my understanding is they are no longer available. That's one reason I don't fret about JD Vance and the demise of neoliberalism.

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I wish I could share a photo of my mother’s washer. Which they didn’t need but being elderly they were easily bamboozled into the idea that they needed a matching “set”, when the dryer went out.

There are as many possible permutations of time, fabric (?), and temperature as a Sonic drink menu.

None of which she really grasps and only one or two does she use. So a lot of electronics that will ensure the inevitable “fix” when the control board goes out, is more expensive than another washer. She sadly remarks sometimes that she wished it didn’t “lock” - you can’t easily open it and throw in more stuff. Funnily enough I discovered about a year in that they had installed it wrong and the cold was to the hot. Not sure it matters as it appears to use no water. Which is why it’s the more confusing that it’s 3 feet deep.

When it gets going, rarely “balanced”, it sounds like it’s achieving liftoff.

It also plays a cheerful martial air.

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The company that made my washing machine is also a leading chip fabricator and producer of flat-screen televisions. For items that are predominantly electronic devices like TVs, being a chip fabricator may give this company a 'comparative advantage,' as they say in economic textbooks. But a good washing machine is mainly about mechanical engineering -- agitating the items in soapy water to get them clean, rinsing them to get the soap out, and then spinning to get the water out. Putting a bunch of chip-based electronics on a washing machine that fails the mechanical engineering test is like putting lipstick on a pig. In the case of washing machines and other household appliances, I sometimes question whether 'free trade' and globalization/neoliberalism works like the economic textbooks say they should. Instead of resulting in better or comparable products that lower prices, maybe it works more like Gresham's Law -- lower quality and less reliable products drive out the better ones. Anyway, since old Joe is now out, AK can vote for Kamala to save neoliberalism. Jacob Dreizin has a post calling Joe's exit a coup. Yet another example of the analogy with the late USSR.

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The last time a dishwasher crapped out on me - steam in the electronics evidently, a quiet Bosch which I had purchased after getting on Consumer Reports at the library - I made sure I was buying a tub with a latch and a manual dial and that was it.

We moved a few short years later. Afterwards any sentimentality or sadness I had about our longtime home which was to be demolished - were channeled into recurring thoughts of The Claw getting my dishwasher, that last simple one, which we had clumsily but successfully installed with a neighbor’s help. (He saw that we were diligently reading the instructions.) And that DIY mainly because I was so vexed about the $ thrown away on the $$$ Bosch that lasted little more than 3 years.

(Internet re that Bosch model: you can repair but you’ll be repairing again.)

One day a few months after we moved away, my husband made a mysterious visit back to our old town, and returned with my dishwasher. A little stealth operation in the empty house.

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A few years before I sold my previous home, the original 30 year old GE dishwasher finally died and I replaced it with a quiet low-end Bosch. The new owner updated the kitchen anyway, but if the Bosch had crapped out in less than 4 years, it wouldn't have been my problem. I thought Bosch was supposed to be the best brand of dishwasher. I had a Bosch front loading washing machine in my first Moscow apartment, and it was pretty good.

On stuff, most of my kitchen ware, including my dishes, silverware, and most of my pots and pans, were either hand me downs from my mother while she was alive or items I retrieved after both my parents had passed. She had expensive taste, and I was happy to take it instead of spending my own money on that kind of thing. She also foisted her mink jacket (which in turn had been made from a mink stole that had gone out of fashion) on me. It sits in my coat closet taking up space, but I don't have the heart to get rid of it.

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Ha, yes, I use the family’s old revereware and Dansk Dutch ovens and Pyrex and corningware and so forth. I’ve never bought so much as a saucepan though I did buy a 10 inch lodge cast iron skillet as the familial one was awfully heavy and hard to keep slick.

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I’m curious what the total cost of ownership is. Yes, maybe refrigerators lasted longer but they were much more expensive relative to household income. I’d bet the total cost to own one four fridges in 20 years is still cheaper, even including the hassle factor of having to replace it. I own an apartment complex and occasionally we have to replace one. I can do that by ordering one from the Home Depot web site. They will deliver it, install it and haul away the old one for $80.

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$80 is the delivery fee. The refrigerator itself usually costs around $500

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Here's an old joke.

How can you tell when an economist is overconfident? When they use two digits.

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All your points show that there has been considerable material progress over the period of the productivity growth slowdown -- but neither I nor most people who consider that slowdown problematic would disagree. The question is about changes in the rate of progress. It seems your answer is that measurement is impossible and we can't know anything -- therefore, if we can see continued progress now, we can't say that there's a problem. But of course I (and you too!) could write out a long list of examples of growing barriers to innovation and progress -- NIMBYism, growing bureaucratization of science, the NRC, build-up of dysfunctional environmental and safety regulation in general, overprotection of IP, etc. If you think productivity stats are useless, I can understand that -- I know they're flawed, but I still think they shed light. But putting aside productivity data, don't you think the institutional environment for innovation and growth has deteriorated over recent decades?

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What a clear & simple argument. Brett gets it wrong but he's not the only one - many economists make similar claims. Perhaps you'll address in one of your future posta a) how we should evaluate progress & rates of progress & b) why this is so hard to do.

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Just thinking here, if we have a large increase in available unskilled labor, is that likely to reduce productivity?

If the demand for labor is large and all the marginally employable workers can find jobs, is that also likely to reduce productivity?

On the other hand, I suppose a tight labor market is like to drive productivity upwards.

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The rate of change in the growth of Total Factor Productivity over the previous three months implies...

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I enjoyed the piece.

Unless I'm mistaken, you've also implicitly explained one reason why inflation is less than the measured values.

I'd love to see an expanded version that includes more on calculating productivity, GDP, and inflation.

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