Bryan Caplan  

Always Keep Your Eye on Production

PRINT
Happy Presidents Day... Always Keep Your Eye on Produc...
As a child, I was a bad baseball player because my mind wandered.  Adults and teammates tried to improve my performance with a classic adage: "Always keep your eye on the ball."  I didn't change, but their advice was excellent nonetheless.

Laymen often criticize economics for its arcane complexity.  When I talk with non-economists, though, so many gravitate toward Rube Goldberg stories.  Random example: Yesterday someone suggested to me that failing to fire under-performing government employees is actually economically beneficial, because secure jobs sustain the middle class, the crucial bedrock of our economy.

When I encounter stories like this, I reply with an adage I urge my fellow economists to adopt: "Always keep your eye on production."  Whenever analyzing an economic problem, you should, by default, ignore longs chains of social causation and ignore distribution.  Instead, remember that mass production is the root cause of mass consumption.  Then ask yourself, "How will whatever we're talking about change the total amount of stuff produced?"

Application to yesterday's random example: What happens to production when lots of skilled workers enjoy pay and employment even if they're unproductive?  Production falls, impoverishing society.  Subtler analyses must strive to keep sight of this basic truth.

"Always keep your eye on production" superficially sounds free-market or right-wing.  But it's non-ideological.  Think about tax policy.  The adage urges us to forget distributional effects and focus instead on how taxes alter behavior - which along many prominent margins, they plausibly don't.  "Always keep your eye on production" also reminds us to think long and hard about what "production" really is.  When pondering pollution policy, for example, the saying makes us reflect, "Is clean air, like a car, a valuable consumption good?"

As a moralist, I freely admit that my proverb could be misused.  As a social scientist, however, I find "Always keep your eye on production" wonderfully clarifying.  Productive societies are rich societies.  The rest is details.


Comments and Sharing






COMMENTS (19 to date)
JLV writes:

Crucially, though, productive societies are not necessarily rich societies. (Where "rich" means broadly prosperous). Without thinking about distribution early in your analysis, you won't be able to tell the difference.

Nick writes:

One possible misuse of this adage that comes to mind is in vices. There are behaviors that are rewarded by the market & counted as productive behaviors by GDP statistics, yet make people & society worse off.

The second thing regards why keeping one's eye on production does not necessarily lead in a right-leaning direction. Specifically that production occurs when there is demand. Those at the lower end add more demand (relative to their incomes) & so giving an extra dollar further down the economic ladder can increase production more than a policy that gives it higher up.

Ken P writes:

Couldn't failing to fire under producing government workers result in less interference and therefore more private production?

Jay writes:

@JLV and Nick,

Can you please provide examples

@ Ken P

Your sentence sounds like a non-sequitur, can you explain.

David R. Henderson writes:

@Bryan,
Excellent post.
@Nick,
Like Jay, I would like to see examples. Most of the vices I can think of (or, at least, they’re vices in many people’s eyes) that are counted in GDP are also productive. Think production of gambling services, cigarettes, and alcohol. There are some vices that aren’t counted in GDP because they’re legal, but they’re also productive. Think prostitution and illegal drugs.
@Ken P,
I can think of an example that makes his point: a government official who is supposed to enforce a destructive government regulation and doesn’t do his job.

Yancey Ward writes:

Bryan, unfortunately, you really need to be preaching to the ones who call themselves "economists". Now, they won't so blatantly tell you a story like you quoted from the non-economist, but too many of them dress it up in nice clothing and retell it to the public.

I must be missing something. Wouldn't it be possible for an economy to produce a lot of stuff no one wants? I guess Russia could produce a huge abundance of snowballs. Or do you mean production assumed to satisfy consumers' demand?

Peter H writes:

Richard,

Sure, it's possible. Heck, there are some damn good examples without having to go all communist, such as most military production. Bombs are worse-than-useless goods.

But the general principle still holds. If we're talking about fairly normal goods within a fairly market economy, "how will this impact overall production" is a really good question to be asking.

Nick writes:

I think Mr. Henderson essentially got the items I was thinking about vices. Some behaviors impose social costs (i.e. addiction leading to destructive behaviors) that make it such that encouraging more production in, for example, gambling services can be such that counting them as productive will be a broken window fallacy. You could tax the vice, but our GDP statistics would count both the economic activity from the vice as well as the expenditures to deal with the imposed cost as production even though it doesn't really add anything over & above if the increased vice activity could be avoided.

Mark Bahner writes:
Then ask yourself, "How will whatever we're talking about change the total amount of stuff produced?"

OMG! Don't ask that! ;-)

I'm just now trying to explain to Grist blog readers why the economy can be infinitely large, even on a finite planet.

The reason, of course, is that GDP and GWP are measures of the total *value* of goods and services. Since GDP and GWP are measurements of value, they can be infinitely large, because they aren't physical things.

GWP is about value, not "stuff" (physical things)

P.S. Of course, one could argue that "stuff" also refers to activities, e.g., "I'm doing lots of stuff." But I think most people think of "stuff" as referring to physical things.

Andrew_FL writes:

@Mark Bahner-GDP (assuming you mean "RGDP") can't be a measure of "total value." Value is subjective. it can't be totaled for the whole of society. It's also relative, as in, I can value certain things over others. But value in absolute terms is not...it's really not a thing

Real production is constrained by scarcity, but "can't be infinite" is not some devastating critique of economic growth. It merely means growth cannot be asymptotic.

But we'll have moved beyond the finite Earth or gone extinct long before the finite amount of matter on the Earth really becomes an obstacle to increased production.

Andrew_FL writes:

Also, I don't think it's good to focus on aggregate production per se because when you say "mass production is the root cause of mass consumption" You need to be more clear that the individual components of production need to align to what consumers actually want to consume. Yes, market allocation of resources assures this, but just asking the question "are we producing the largest amount of "stuff" possible" does not.

Jacob from Kent writes:

"Instead, remember that mass production is the root cause of mass consumption."

Though I heartily agree with this point, I think it needs to be argued more thoroughly, especially if your intended audience is non-economists, and *especially* if your audience is philosophy or humanities students.

Economists understand that economic growth really is the most important tool for maximizing welfare, in total and for the poorest persons. But a creative philosopher can gin up a thought experiment where "well what if you double GDP but in the process make it so that one person owns 99% of the wealth?" to undermine this idea as a moral principle.

Mark Bahner writes:
@Mark Bahner-GDP (assuming you mean "RGDP") can't be a measure of "total value." Value is subjective. it can't be totaled for the whole of society.

So you're saying this definition is wrong (emphasis added):

DEFINITION OF 'REAL GROSS DOMESTIC PRODUCT (GDP)': An inflation-adjusted measure that reflects the value of all goods and services produced in a given year, expressed in base-year prices. Often referred to as "constant-price," "inflation-corrected" GDP or "constant dollar GDP".

?

Thomas writes:

"how taxes alter behavior - which along many prominent margins, they plausibly don't."

I'm going to call "BS" here. I find it implausible that there is any margin along which taxes don't alter behavior. It's implausible on its face: it denies the law of supply and demand, which is among the most thoroughly scientifically tested laws in the social sciences.

The timescale required for change may be significant, though: when people have made investments in capital assets (including human capital) they often have no choice but to monetize, regardless of tax rate - but the next round of investors will make different choices.

Andrew_FL writes:

@Mark Bahner-Yes, it's absolutely wrong if value is meant in the economic sense, rather than the mathematical sense.

Floccina writes:

And when talking taxes one should always ask: "because of this tax who consumes less and who consumes more?"

Harold Cockerill writes:

Along with keeping your eye on production shouldn't you be keeping an even better eye on that which is productive? An awful lot of stuff gets lumped in with production that I have always thought should be excluded. An example would be money spent on expensive tax lawyers protecting someone from the IRS. Society pays for both sides of that fight yet it gets added in as if we end up with a richer nation because a bunch of lawyers got paid.

Do we have a picture of what is really produced as opposed to how much money got moved around without doing any real good?

Bedarz Iliaci writes:

David R. Henderson,
There are some vices that aren’t counted in GDP because they’re legal, but they’re also productive. Think prostitution and illegal drugs.

Prostitution is productive of what?

Comments for this entry have been closed
Return to top