The Wealth of Nature. John Michael Greer
tampering with data practiced in, say, the Lyndon Johnson administration. With characteristic Texan straightforwardness, Johnson didn’t leave statistics to chance; he was well known in Washington politics for sending any unwelcome number back to the bureau that produced it, as many times as necessary, until he got a figure he liked.
Nowadays nothing so crude is involved. The president — any president, of any party, or for that matter of any nation — simply expresses a hope that next quarter’s numbers will improve; the head of the bureau in question takes that instruction back to the office; it goes down the bureaucratic food chain, and some anonymous staffer figures out a plausible reason why the way of calculating the numbers should be changed; the new formula is approved by the bureau’s tame academics, rubberstamped by the appropriate officials, and goes into effect in time to boost the next quarter’s numbers. It’s all very professional and aboveboard, and the only sign that anything untoward is involved is that for the last 30 years, every new formulation of official economic statistics has made the numbers look rosier than the one it replaced.
It’s entirely possible, for that matter, that a good many of those changes took place without any overt pressure from the top at all. Hagbard’s Law is a massive factor in modern societies. Coined by Robert Shea and Robert Anton Wilson in their tremendous satire Illuminatus!, Hagbard’s Law states that communication is only possible between equals. In a hierarchy, those in inferior positions face very strong incentives to tell their superiors what the superiors want to hear rather than ‘fessing up to the truth. The more levels of hierarchy between those who gather information and those who make decisions, the more communication tends to be blocked by Hagbard’s Law. In today’s governments and corporations, the disconnect between the reality visible on the ground and the numbers viewed from the corner offices is as often as not total.
Whether deliberate or generated by Hagbard’s Law, the manipulation of economic data by the government has been duly pilloried in the blogosphere, as well as the handful of print media willing to tread on such unpopular ground. Still, I’m not at all sure these deliberate falsifications are as misleading as another set of distortions. When unemployment figures hold steady or sink modestly, but you and everyone you know are out of a job, it’s at least obvious that something has gone haywire. Far more subtle, because less noticeable, are the biases that creep in because people are watching the wrong set of numbers entirely.
Consider the fuss made in economic circles about productivity. When productivity goes up, politicians and executives preen themselves; when it goes down, or even when it doesn’t increase as fast as current theory says it should, the cry goes up for more government largesse to get it rising again. Everyone wants the economy to be more productive, right? The devil, though, has his usual residence among the details, because the statistic used to measure productivity doesn’t actually measure how productive the economy is.
By productivity, economists mean labor productivity — that is, how much value is created per unit of labor. Thus anything that cuts the number of employee hours needed to produce a given quantity of goods and services counts as an increase in productivity, whether or not it is efficient or productive in any other sense. Here’s what A Concise Guide to Macroeconomics by Harvard Business School professor David A. Moss, as mainstream a book on economics as you’ll find anywhere, has to say about it: “The word [productivity] is commonly used as a shorthand for labor productivity, defined as output per worker hour (or, in some cases, as output per worker).”18
Output, here as always, is measured in money — usually, though not always, corrected for inflation — so what “productivity” means in practice is income per worker hour. Are there ways for a business to cut down on the employee hours per unit of income without actually becoming more productive in any meaningful sense? Of course, and most of them have been aggressively pursued in the hope of parading the magic number of a productivity increase before stockholders and the public.
Driving the fixation on labor productivity is the simple fact that in the industrial world, for the last century or so, labor costs have been the single largest expense for most business enterprises, in large part because of the upward pressure on living standards caused by the impact of cheap abundant energy on the economy. The result is a close parallel to Liebig’s law of the minimum, one of the core principles of ecology. Liebig’s law holds that the nutrient in shortest supply puts a ceiling on the growth of living things, irrespective of the availability of anything more abundant. In the same way, our economic thinking has evolved to treat the costliest resource to hand, human labor, as the main limitation to economic growth, and to treat anything that decreases the amount of labor as an economic gain.
Yet if productivity is treated purely as a matter of income per worker hour, the simplest way to increase productivity is to change over from products that require high inputs of labor per dollar of value to those that require less. As a very rough generalization, manufacturing goods requires more labor input overall than providing services, and the biggest payoff per worker hour of all is in financial services — how much labor does it take, for example, to produce a credit swap with a face value of ten million dollars?
An economy that produces more credit swaps and fewer potatoes is in almost any real sense less productive, since the only value credit swaps have is that they can, under certain arbitrary conditions, be converted into funds that can buy concrete goods and services, such as potatoes. By the standards of productivity universal in the industrial world these days, however, replacing potato farmers with whatever you call the people who manufacture credit swaps counts as an increase in productivity. If you have been wondering why so many corporations with no obvious connection to the world of finance, such as auto manufacturers, launched large financial branches in recent decades, this is part of the reason why: the higher income per worker hour from manufacturing financial paper enables the firm to claim increases in productivity.
As important as the misinformation produced by these inappropriate statistical measurements, however, is the void that results because more important figures are not being collected at all. In an age that will increasingly be constrained by energy limits, for example, a more useful measure of productivity might be energy productivity — that is, output per barrel of oil equivalent (BOE) of energy consumed. An economy that produces more value with less energy input is an economy better suited to a future of energy constraints, and the relative position of different nations, to say nothing of the trend line of their energy productivity over time, would provide useful information to governments, investors and the general public alike.
Even when energy was still cheap and abundant, the fixation on labor productivity was awash with mordant irony, because only in times of relatively robust economic growth did workers who were rendered surplus by such “productivity gains” readily find jobs elsewhere. At least as often, they added to the rolls of the unemployed, or pushed others onto those rolls, fueling the growth of an impoverished underclass. With the end of the age of cheap energy, though, the fixation on labor efficiency promises to become a millstone around the neck of the world’s industrial economies.
Economic Superstitions
After all, a world that has nearly seven billion people on it and a dwindling supply of fossil fuels can do without the assumption that putting people out of work and replacing them with machines powered by fossil fuels is the way to prosperity. This is one of the unlearned lessons of the global economy that is now coming to an end around us. While it was billed by friends and foes alike as the triumph of corporate capitalism, globalization can more usefully be understood as an attempt to prop up the illusion of economic growth by transferring the production of goods and services to economies that are, by the standards just mentioned, less efficient than those of the industrial world. Outside the industrial nations, labor proved to be enough cheaper than energy that the result was profitable, and allowed industrial nations to maintain their inflated standards of living for a few more years.
At the same time, the brief heyday of the global economy was only made possible by a glut of petroleum that made transportation costs negligible. That glut is ending as world oil production begins to decline, while the Third World nations that profited most by globalization cash in their newfound wealth for a larger share of the world’s energy resources, putting further pressure on a balance of power that is already tipping