Tuesday, February 15, 2011

Productivity and measuring well-being

I'm not sure it's his original contribution to the discussion on growth versus stagnation in the U.S., but David Brooks raises some relevant issues concerning how we measure well-being. I haven't read it, but Tyler Cowen's Great Stagnation book argues that growth in total factor productivity and median household income has slowed down after about 1973, which is undeniably true if perhaps a little overblown. Brooks points out that at least a portion of the new economy probably isn't being measured particularly well by GDP. Well-being has probably increased because we have access to a lot of free services like Twitter and facebook, and there is an array of other such pursuits that may not be measured very well by market transactions.

Brooks also worries about how the illusion of such non-market wealth --- if folks think they'll eventually see financial returns to welfare-improving contributions that are now largely free and not captured by markets --- could have played a role in driving folks into overspending. I think both points are interesting, but I also suspect that overindulgence prior to the most recent collapse was instead driven by very tangible market returns associated with real estate. One could certainly also call such market returns illusory, but they're very different from the perceived wealth that Brooks is talking about.

Is the share of our well-being being that is produced outside of markets rising, falling, or staying the same? The rise of market substitutes for household production, like cleaning and babysitting services, would suggest it's probably falling, not rising. But I would certainly agree that some part of my daily well-being comes from web services that are completely free and didn't exist at all several years ago. I just doubt that value has risen by a lot relative to all the other things I do.

UPDATE: An op-ed by Scott Turow et al. today obliquely speaks to these issues. Their point is that the thriving creativity of the Enlightenment was due in part to playwrights like Shakespeare and others being able to market their intellectual property and be protected by copyright. The link here is that if stuff is free, whether intentionally or unintentionally (through theft), its value added isn't measured, nor do any pecuniary profits accrue to the creator.

UPDATE PART DEUX: One thing Turow et al. left out is that innovation has often been supported by government, whether monarchy or republic. In Shakespeare's time it was the former; today, it's the National Science Foundation or the National Institutes of Health.