Given that this is from Willy Hutton of course it’s somewhere between misleading and wrong. But why is it?
Britain is suffering from an intensifying four-decade-long investment drought in the public and private sectors – the root cause of the crisis in stagnating productivity and living standards that shapes our politics and daily lives.
Whether or not the gross amount of investment is too high, low, about right, is not our point. Rather, where it’s going is. For where whelpingly massive amounts of what investment that does happen are going does, by definition, reduce recorded productivity.
We would also argue, quite a lot, about living standards and even GDP. Living standards are determined by GDP plus the consumer surplus, not by GDP alone. Much of the technological development of the past few decades has vastly increased that consumer surplus which also either not being fully included in GDP or sometimes even reducing it.
There are those estimates that Google and free email are worth $18,000 a year per head of population, that Facebook is valued at $800. As Hal Varian has been known to point out, GDP doesn’t deal well with free. The consumer surplus is there in such things but not the GDP (which is actually just the advertising on those things, not the value of the things themselves). We’d also use the example of WhatsApp. This has no revenue associated with it at all, no ads, no subscription. There is therefore no output measure at all in GDP. Yet there are costs of course - a couple of hundred engineers in Facebook last time we asked them. That means - labour costs, no associated measured output - that WhatsApp is in economic statistics as a reduction in productivity. Despite 1 billion people gaining some or all of their telecoms from it - for free.
But we can and should go further than that. We all know there’s a vast amount of investment happening in this going green stuff. Maybe that’s a good idea, maybe not, that’s for another day. But the point of what is being done is to address an externality - those environmental damages, costs of emissions, which do not show up in prices and therefore are, again, not in GDP. So, we solve those externalities - and maybe we should! - and we create green jobs while doing so.
Cool. So, now we have the same output - say a GW of ‘leccie, even a GWhr - with the same value as before but we’ve used more human labour to produce it - those green jobs that the energy transition creates. By definition productivity has declined. Again, by definition productivity has declined.
Investing in not boiling the planet seems fine to us. An increase in the consumer surplus pleases us, not worries. But one thing you simply do not get to do is insist that we solve externalities then worry that GDP is not moving as a result. That’s just a fact of solving externalities, things that are not measured in the price system. Further, if we create lots of jobs to do things in non-polluting ways - again, not something that we’re necessarily against - then you don’t get to complain about falling productivity. Because that’s the outcome of the very thing you’re demanding we do. Creating jobs is reducing productivity, they mean exactly the same thing.
Yes, we know, here’s no excuse for Willy Hutton. But we do still wish for even a little intellectual clarity on these simple economic points. Going green reduces labour productivity. The country’s been investing vast amounts on going green. Yet people then wonder why labour productivity’s not rising?
Sheesh guys, try reading a book.