Productivity is Great at Measuring Production, But There’s More To Life Than Productivity

I did a column arguing that crowdfunding models like Kickstarter could prove to be a substantial negative shock to productivity if they really take off.

A bunch of people wrote to me or tweeted that this shows the inadequacy of our productivity measures. But it really doesn’t. Productivity is derived from our GDP calculations, and though the Bureau of Economic Analysis statisticians aren’t perfect they’re pretty damn good at measuring exactly what GDP is supposed to measure—the market value of goods and services produced in the United States. But it’s important to say that this is hardly all that matters in life. The contribution to GDP of the Metropolitan Police Department of the District of Columbia is measured on a simple inputs = outputs basis because a police department doesn’t produce any goods for sale at market. That means that if the police chief comes up with some exciting new strategies that help reduce violence in the city at no additional financial cost, that doesn’t show up as a benefit. The National Income and Product Accounts are indifferent as to whether MPDC spends its money rescuing little old ladies or brutalizing non-violent drug offenders. Obviously we as a society should not be indifferent between these options, but NIPA exists to serve some very specific purposes.

Back to Kickstarter. My point was that people work for money, but relatively few people are actually maximizing their earnings potential at work. Quality of life considerations enter into the picture. And to the extent that people prioritize quality of life over income-maximization, productivity declines. My view is that Kickstarter will make it easier for hard-working people to deploy their hard work toward goals other than income-maximization, which may be a good thing for the world but will stress our efforts to collect taxes and fund public services.

That’s really all I had to say about it, but Felix Salmon seems to have thought I was making a much more complicated argument to which he offers an extensive rebuttal focused on the virtues of disentermediation. I think I agree with what he has to say, but my guess is that the choose-fun-over-money effect will dominate the issues he’s pointing to.