The UK is in the midst of a productivity panic. The country has exhibited a solid economic recovery measured in terms of GDP, but not one in terms of being able to do more with less. In short, the country is pumping out a larger amount of stuff and services because a) more people are working and b) those who are working are putting in longer hours.
Likewise, the US faces a similar productivity conundrum (if not quite so pronounced). Take this chart from the Federal Reserve Bank of Atlanta (here, click for larger image):
The US appears to be productivity-challenged as well. And productivity is the thing that is supposed to make us rich (sort of). What is going on? Well, we could surmise that we are suffering from the early symptoms of diminishing returns to technology, an idea advanced by the growth economist Robert Gordon (see here).
An alternative idea is that much of what we produce and consume is not now priced–think social media. This has always been an issue in GDP accounting; for example, all those activities that lie outside of the monetary economy such as childcare or voluntary work are given a value of zero. Yet all these ‘free’ activities are actually not free if we think of them as opportunity costs.
We value our time and we choose whether to give it freely or not. An economist calls this a shadow price. Just because we do something for nothing doesn’t mean we attach zero worth to it; rather, we give up doing something for a fee to do something without one. Indeed, this is where the dismal science is so dogmatic (but actually right): by doing something for nothing, we actually attach a price–the wages foregone. Sorry, the sharing and caring economy is a market economy, albeit with price signals once removed.
But for me, all this is a secondary concern. Rather, as long as monetary or non-monetary actions produce well-being I don’t care. Modern capitalism has long rested on the assumption that if something wasn’t priced within a GDP metric it had no value. With more and more stuff not being priced, I hope the GDP fetish will be trashed once and for all. The goal is not to produce greater GDP per head, but to create more and more well-being per head. I wait for the day when a politician will lead off with such an assertion in a TV debate.