Up to this point, we have taken it for granted that economic growth approximates human progress. Last week's discussion of meritocracy still held that our goal should be growth, with some allowances for fairness. The philosophical relay of John Locke (1632-1704), David Hume (1711-1776), Jeremy Bentham (1748-1832) and ultimately John Stuart Mill (1806-1873) passed the baton of classical liberalism towards a theory of utilitarianism. The "fundamental axiom" of utilitarianism – it is the greatest happiness of the greatest number that is the measure of right and wrong – may not appear to be a pro-growth policy. Maximizing collective happiness even sounds slightly socialist or perhaps anarchistic. Furthermore, we find ourselves in a cultural moment critical of utilitarian institutions for not being utilitarian enough, and this is the fundamental conceit of anti-capitalism.
Before delving into alternative value systems and the economic calculation problem, a few more words on culture. To frame the economic arguments of man vs man, we turned to Hamlet. Here too, we can find instruction in Shakespeare. Already in last week's piece I alluded to Othello in the title. The play's plot centers around a valiant, eloquent and honorable, if overly jealous, foreigner who climbs the ranks of Venetian society through his service and wins the heart of a noble woman – a meritocratic parable with a tragic ending.
In this week's discussion of measurement and values, we will turn to A Midsummer Night's Dream for instruction. These two love stories are a helpful tool of analysis because forbidden love is a conflict between the couple and the culture. In Hamlet, the villainy of the uncle is clear, but the right action, to forgive or punish, is not. In the loves stories, particularly Shakespeare's most famous forbidden love story Romeo and Juliet, culture is the villain, but the right action is clear.
The most notable difference between Midsummer Night's Dream and the two other love stories is that they are tragic, but Midsummer Night's Dream is utopian. The play begins in Athens, an orderly world of hierarchy, law and custom, but the primary characters, a love triangle plus one more, flee to the woods to realize their forbidden love. The woods are liberating, filled with fairies, potions, tricks and magic. The freedom, first enjoyed by the lovers, soon turns to chaos. Just at the moment when this utopian dream turns into a nightmare, the sprite who catalyzed the mayhem resolves it. The lovers then return to Athens with their rightful partners and act as audience to the farcical play, Pyramus and Thisbe (basically Romeo and Juliet). Unlike Hamlet's play-within-a-play, this play-within-a-play ends happily. What does all of this literature have to do with growth, culture and the question of mismeasurement? On growth, it is not obvious, but I intend to clarify it in this piece. On culture, there is no better guide to custom than romance and on the particular question of how to measure progress, the touchstone is utopianism. It is Midsummer Night's Dream's warning about how utopian dreams can quickly turn into dystopian nightmares that we should carefully observe.
I’ll Follow Thee and Make a Heaven of Hell
To demonstrate why this warning is so important, we must go back and explore how the pioneers of sociology, economics and modern philosophy thought about progress. Before the Enlightenment, ethics was a matter of duty (deontology), but with rationalism and new ways of thinking about the self came new ethical beliefs that emphasized results (consequentialism). Aristotelian and Confucian ethics were based on virtue. How society should be structured and what is good were determined by a higher power and hierarchy was strictly enforced. In a rational individualistic world these questions are answered not by higher powers, but by scientific method. We are all utilitarians now. The question has become, how to measure and achieve utilitarianism.
Locke's natural rights of individuals coupled with Hume's theory of causation produced Benthamite utilitarianism that Mill popularized. These classical liberals influenced and were influenced by the free market capitalism of Adam Smith and David Ricardo. To understand how Mill, Hume and Locke arrived at the conclusion that democratic capitalism is the correct system, we should look back to some of their other influences, such as Henri de Saint-Simon, mentor to the previously mentioned Auguste Comte.
Saint-Simon, whose school of thought is called industrialism, has the distinct honor of being cited by capitalists, socialists and anarchists as an inspiration for all three of their theories. A product of Napoleonic France, he was a technocrat and a revolutionary (both American and French) who deeply believed in hierarchies of merit rather than class. In wishing to do away with the old, feudal, class-based system, he was an advocate of progress enabled by industry.
It is from Saint-Simon, through Mill, Marx and Proudhon, that we can see three versions of progress: democratic capitalism, socialism and anarchism, respectively. We can take it as a given that capitalist and socialist approaches are progressive utopian ideologies. While they differ on the approach to growth, they are both materialist and scientific. Let us set these ideologies aside, so that we may return to the technical question of measurement later and focus on Proudhon's peculiar definition of progress:
The vulgar, by which I mean the majority of the savants as well as the ignorant, understand Progress in an entirely utilitarian and material sense. The accumulation of discoveries, multiplication of machines, increase in general well-being, all by the greatest extension of education and improvement of methods; in a word, augmentation of material and moral wealth, the participation of an always greater number of men in the pleasures of fortune and of the mind: such is for them, more or less, Progress. Certainly, Progress is this as well, and the progressive philosophy would be short-sighted and bear little fruit, if in its speculations it began by putting aside the physical, moral and intellectual improvement of the most numerous and poorest class, as Saint-Simon's formulas said. But all of that only gives us a restricted expression of Progress, an image, a symbol, (how shall I say it?) a product: philosophically, such a notion of Progress is without value.
Progress, once more, is the affirmation of universal movement, consequently the negation every immutable form and formula, of every doctrine of eternity, permanence, impeccability, etc., applied to any being whatever; it is the negation of every permanent order, even that of the universe, and of every subject or object, empirical or transcendental, which does not change.
The affirmation of universal movement is a curious way to define progress, but as a first principle we could do worse. It gets at both the capitalist ideal of free markets and the socialist ideal of freedom from want. Capitalism and socialism of course create new coercive mechanisms through the labor market and centralized planning. Still, absolute entropy would hardly be most people's idea of progress, when so much of our lives depends, not just on autonomy, but on our material well-being. All else being equal, people would like to live a life of material comfort, not to the exclusion of all self expression or choice, but we all make individual compromises to attain a standard of living that we desire. To address this, Proudhon favored mutualism and small cooperative ownership rather than state or capital control of property.
Small scale, locally embedded and materially sufficient was Proudhon's ideal. Economies of scale, bureaucracy and mass material production would be impossible and also besides the point in such a system. It is not until 1937, when law school professor and economics Nobel laureate Ronald Coase, published "The Nature of the Firm" and later in 1960 "The Theory of Social Cost" that we would have a theory to describe market failures due to bargaining and information gathering. Coase posited that this was the justification for legal allocation of rights. We will leave a further discussion of Proudhon, libertarian socialism, market anarchism and nihilism for a future piece on the ethics of growth. For now, let us address one final point of Proudhon's before returning to materialist measurements of growth.
Proudhon saved his most acerbic criticism for the owners of property by which others labored to make their living. Like the Georgists mentioned earlier in this series, this mostly meant land ownership, which is not acquired through merits or labor of the owner. The complaint about mismeasurement of progress can be read as requiring a whole new set of values not dependent on rational, scientific and free market principles, or a defense of these values, which have created a coherent, stable and welfare-increasing system despite being constructed on the flawed premise of privatization of socially created value.
This is clearest when examining how it is that there can be material deprivation despite so much progress. The source of demand for good paying jobs derives primarily from rent and taxes. Taxes exist to create demand for public money and are the means by which public goods can be provisioned. Rents serve no such social purpose, so it makes sense that we should provision our government by taxing rents. This would solve many of our mismeasurement problems, but not address Proudhon's critique of growth, which we will save for another time. Still, there are still those who would rather quibble about the numbers than admit to miscategorization or rethink fundamental measures of growth.
Girdle Round About the Earth
GDP is a notoriously blunt instrument, and I don't intend to defend it or various productivity metrics, except to say that whatever their inaccuracies, they have been improving in accuracy across time. All we need is a reasonable benchmark, not a tool of precision. In Robert Gordon's previously mentioned The Rise and Fall of American Growth, he addresses this problem head-on. "Real GDP is the numerator both of output per person and output per hour. This tendency of real GDP measures to understate progress implies that the growth rate of these key ratios has been systematically understated." The growth in labor force participation from increased civil rights, immigration, and the women's movement have all greatly worked to conceal the extent of the slow-down. Still, some argue that many of the innovations since 1970 create consumer surplus uncaptured by the numbers.
For this to be true we would have to believe not just that the advances from the touch-tone phone to the multi-touch smart phone (1964-2007) have made our lives much better, but also that this improvement was greater than the advancement from outhouses to indoor toilets (1890-1940). Among the inventions that Gordon lists prior to the 1970s that created great consumer surplus uncultured by GDP are light (fewer accidents), refrigeration (less contamination and waste), motor vehicles (less animal waste and more time), telephone (more efficient coordination), entertainment (records, radio and movies), sewage/clean water (less disease and greater comfort), schools (literacy and human development), etc. He admits there have, no doubt, been advances since the 1970's, but do the uncounted benefits of air conditioning, auto and aviation safety, TV, internet, health (notably anti-smoking), civil and labor rights (race, gender, sexual preference) and home appliances obviously outstrip the previous gains? That seems incredibly unlikely.
Besides the computer and the often underrated air conditioner, there has been a large leap forward in our access to cheap junk (toys, screens, kitchen gadgets, tools and widgets) enabled by globalization, plastics and big box stores/e-commerce. The main things people care most about, however, such as good health, an eduction and the ability to raise a family, have exploded in cost. The aggregate measure of GDP, combining junk with things we care about, growth hides this. Things are even worse than they appear, if you take GDP at face value. For evidence, see the popular graph below:
If the measurement of progress isn't showing up in greater GDP, can't be due to lower prices and is not plausibly capturing less consumer surplus today than in 1960, then what evidence can adherents of mismeasurment muster? One common refrain is that more proximate measures of innovation, like patents and R&D, are on the rise. While it is true that patents are on the rise, there is little to no evidence that patents are a sign of progress. The primary reason patents have skyrocketed in recent years is because America has become more litigious, not more productive. In fact, a rise in patents is likely a counter-indicator. Many of the innovations before 1970 were not patented, but today companies and patent trolls hoard many overlapping, contradictory or overly specific patents as potential ammunition in a negotiation. What then of the rise in R&D spending? This rise is mostly addressed in the earlier piece on public goods, but it should be noted here that a distinct uptick occurred around 1981, when the R&D tax credit was passed. Today, companies spend countless hours on time sheets to record and classify work as R&D so that they can maximize their tax credit, altering the perception of R&D spending in the process.
One more point on the question of mismeasurement before we return to the philosophical discussion of value. Jason Crawford wrote that it is not the quantitative arguments that convinced him of stagnation, but the qualitative assessment that previous eras of revolutionary innovation (such as the Industrial and Technological Revolutions) had upwards of three technology breakthroughs each that touched nearly all of his six main sectors of the economy (manufacturing, agriculture, energy, transportation, information and medicine). You may not agree with his ontology, but the point is correct however you categorize it.
This Weak and Idle Theme, No More Yielding, but a Dream
If all signs of material growth have been slowing and any counter arguments debunked, then we are left with only metaphysical signs of increasing growth, but here too the way is blocked. America is experiencing an epidemic of loneliness, a crisis of faith as well as a decline of trust in each other and civic institutions. While it is possible that these are the cause of stagnation, which I will explore in the future, it is not a possible defense of growth through mismeasurement. If anything we should be more worried about metrics understating the severity of the crisis.
These are not the only metaphysical developments of the last 50 years, just the most recently visible. We have made great civil rights advances in gender and race, although some, if not all of these gains have been captured by increasing efficiency and growth in the labor market. There are environmental successes as well and other externalities that are yet to be priced in, but overall the feeling is of falling behind and being left out, not satisfaction and finding purpose.
In Michael Sandel's "What Money Can't Buy" he observes the totalizing effect of the market and how attaching a price to things (bribes, fines, social relations, organ donation, etc.) may offend and even corrupt us. What he does not claim is metaphysical growth outside of the market. Eric Weinstein offers this critique of the market and the state saying, "we should expect that because there is as yet no known alternative to market capitalism, central banks and government agencies publishing official statistics will be under increased pressure to keep up the illusion..."
Illusion takes us back to where we began with Midsummer Night's Dream. Before Puck, the spirit of mischief, returns our protagonists to their right minds he must first prevent them from fighting. He calls to them mockingly redirecting their anger towards him, then putting them to sleep together in a glade where they are found and wake from their "dream." When they return to Athens, the specter of violence still lurks in the background, only fully exercised by the play-within-a-play, Pyramus and Thisbe. The actors put on such a bad performance of tragedy that despite horrifying tale of innocent lovers sacrificing themselves to end a generational blood-feud, the audience laughs as though it were a comedy. Mockery and mischief are the antidotes to the poison that turns utopia into dystopia. Hoping to beat back stagnation through illusion and ideology are both dangerous.
We know we aren't measuring progress correctly, and we know that the things that matter most can't be priced. This is no more true today than in 1970. If anything, we are more accurate in measurement and more of our lives exists in the market. Furthermore, if it was simply the numbers that were off, but the popular mood was fine, that would be sufficient. Americans, however, feel less secure, less happy and less hopeful than ever before. This cultural malaise isn't just cultural, but is showing up in our health, our education system, the cost of housing and the combination of all three – the expense of having a family. People are afraid to have children, afraid of nuclear energy, afraid of driverless cars, afraid of 3D printed guns, afraid of vaccines, afraid of capitalism, afraid of government and the list goes on... But fear is a topic for next week's piece on risk aversion.