
Is Productivity Growth Becoming Irrelevant? - mpweiher
https://www.ineteconomics.org/perspectives/blog/is-productivity-growth-becoming-irrelevant
======
Animats
From the article:

 _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.

~~~
jjoonathan
> 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.

~~~
Animats
Yes, there's an echo of Marx and Veblen here, but this becoming a big part of
the economy is a recent phenomenon. It's a result of having vast manufacturing
capacity.

Basic fact: for thousands of years, the big problem was making (or growing,
catching, or mining) enough stuff. In the 20th century, that problem started
to be solved. By the second half of the 20th century, the leading industrial
nations had it solved. Then Asia caught up - Japan, Taiwan, S. Korea, and
finally China. China was the big one, being a huge country. Suddenly there was
overcapacity in almost everything.

Now, as I write occasionally, it just doesn't take that many people to make
all the stuff. It's now possible to have a successful economy with a huge non-
productive underclass. Economics and politics haven't caught up with this yet.

~~~
jjoonathan
Oh no, you said his name, and like clockwork my precious upvotes have started
to turn to downvotes :-)

We agree, though. Capitalism is really, really good at growth and really,
really bad at steady-state. We've never really come up with a good alternative
for steady-state. I think Marx got the diagnosis right and the treatment
wrong, which seems like a pretty modest hypothesis given the relative
difficulty of the two. Regardless, we had better figure this out or things
will get messy. Very messy.

TBH I have higher hopes for a couple more industrial revolutions to push the
meltdown out beyond my lifetime. Bio and space, maybe? :/

------
svara
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.

~~~
matt4077
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.

~~~
ridgeguy
"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.

------
lordnacho
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.

~~~
chiefofgxbxl
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](https://www.youtube.com/watch?v=VO6XEQIsCoM)
[1]
[https://www.youtube.com/watch?v=F4QzhSlqmqg](https://www.youtube.com/watch?v=F4QzhSlqmqg)

~~~
watwut
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

------
PeterisP
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.

------
paul_milovanov
>> 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.

~~~
krona
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.

~~~
matt4077
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.

~~~
paul_milovanov
It sure claims that they're all mostly useless though.

------
woodandsteel
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.

------
Zarath
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).

------
jpao79
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](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).

------
xupybd
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?

------
stretchwithme
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.

------
KamBha
Not sure if the author of this link is responsible for this page, but it does
not work in Firefox :(

------
BenoitEssiambre
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.

------
arcanus
No, productivity growth _as measured by economists_ is becoming irrelevant.

~~~
blazespin
How should we measure it?

~~~
crdoconnor
It's not really measurable.

Whatever it is, GDP / hours worked isn't it.

------
FryHigh
All business is aimed at "human welfare". Even if the people in the business
are not fully aware of it.

~~~
woodandsteel
You are absolutely correct. So for instance, corporations never attempt to
make money doing something they know would be bad for society.

------
untangle
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).

~~~
refurb
_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.

~~~
thethirdone
How is South Korea a good example? They have a sizeable military (huge for
their population), and have a high gdp.

~~~
MagnumOpus
Yes, exactly. And if the did away with that military, the whole country would
become a giant gulag within a few years.

------
yuhong
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.

~~~
mattmcknight
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.

