Productivity should improve your life

In his 1968 “The Tragedy of the Commons“, Garrett Hardin explained how population growth threatened ecosystems that lacked the carrying capacity for billions of people. In her 2000 “The IPAT Equation and Its Variants” [pdf], Marian Chertow reviews the history of I=PAT, an equation that summarizes how (Environmental) Impact rises with Population and Affluence but falls with Technology.

In my Jive Talk with Brian Czech of the Center for the Advancement of the Steady State Economy, I was frustrated with Czech’s advice that humans “restrain themselves” from over-consuming as a means of replacing consumption and economic growth with renewal and economic stability. Indeed, Hardin, who thought little of self-control, called for “mutual coercion” as a means of “relinquishing the freedom to breed” [pp 1247-48].

Clearly, there are problems with reducing Impact via reductions in Population or (the wages of) Affluence. There are also, I think, problems with hoping (or assuming) that Technology will advance fast enough to overcome pressures of Population or Affluence. I hold this view because most technological advances increase supply by lowering prices or providing larger quantities at the same prices, which usually means that innovations bring more rather than less consumption. This dynamic is known as the Jeavons Paradox, and we can see it in the way that additional food from the Green Revolution led to population growth, increases in auto efficiency led to larger cars, cheaper clothes led to larger wardrobes, etc. 

Are we doomed? 

There’s no sign, after 50 years, of Hardin’s “mutual coercion, but I think we have a few chances to save ourselves by reversing our burden on resources and ecosystems. I’ll go from least to most promising.

First, there’s a small chance that technological breakthroughs will bring about an increase of sustainable supply that is so significant that we can eat our cake and have it. In this category, I’d put something like a fusion reactor that sucks CO2 and methane from the air while making energy so cheap as to replace all fossil sources. This “Elon-the-savior” solution is unlikely.

Second, we could price damages and protect collective property via changes in laws and regulations. This step includes global carbon taxes and actions to replace political management of the commons with property rights for all citizens. I’ve written about this idea for national water, but I don’t see the political will to take away all those goodies from the 1 percenters who currently enjoy excess wealth at our expense.

Third, I think that there’s a strong business model for short sellers who use science and public pressure to ban or bankrupt firms contributing to climate disruption, biodiversity destruction, and ecosystem death. In most cases, short sellers bet that stock prices will drop so they can make money. It’s my suggestion that they cause prices to drop by getting businesses penalized or banned.  The UK Labour Party has floated the idea of delisting firms that do not keep to climate limits. Many asbestos firms were bankrupted by their legal liabilities. This idea is more powerful than divestment or boycotts that do nothing to undermine these companies’ basic purpose.

Fourth (and the purpose of this post), I think there’s the chance of a paradigm shift in which people decide to consume less than their affluence would support (and perhaps even have fewer kids). This “inward shift of demand” would lower economic growth without lowering our quality of life.

How would it work?

Let’s begin with a definition and a misunderstanding.

The definition: Economic output = productivity * work effort, holding constant capital stocks and allowing proportional input of raw materials. This concept underlies economists’ claim that our prosperity advances with our productivity. It also explains why GDP/capita is the target measure of choice for most economists. High GDP/capita defines the difference between rich and poor countries, but it ignores inequality as well as sustainability. (I prefer the Inequality-Adjusted Human Development Index and Genuine Progress Indicator as measures of success.) 

The misunderstanding: Productivity automatically means more output and consumption, when it need not mean more of either. A recent Economist repeats this assumption by asserting that “improving productivity is generally agreed to be the best way to achieve faster economic growth and higher living standards.” Economic growth is neither necessary nor sufficient in providing higher living standards once a minimal level of food, clothing and shelter is achieved. 

To understand more about this misunderstanding, remember that economists target “utility” — often defined as happiness — as our motivating goal in life, meaning that humans will chase increases in utility when given the opportunity. But what contributes to utility? Sure, we can talk about the consumption of basic goods (food, shelter, clothing), but we can also include leisure time, a satisfying job, or good health — things that do not necessarily arrive with more money. Going further, we also know that people spend a lot to get  “positional goods” that set them above others in some way — a penthouse apartment, for example. (These goods are also called Veblen goods after the economist whose 1899 book, The Theory of the Leisure Class, first defined “conspicuous consumption”.)

The problem is that economists, by assuming we always want as much as possible (“non-satiation”), have lost track of the different ways we maximize utility.

Higher productivity could mean less work rather than more consumption. 

Here’s an example. If I work 40 hours and make $10/hour, then I earn $400/week, which I spend on goods and services. Thus my contribution to GDP is $400/week.

If I learn skills and double my productivity, then my wages should rise in proportion (to $20/hour), and I have more choices:

  • Conventional: Work 40 hours @ $20/hour to earn (and spend) $800/week. My contribution to GDP doubles with my consumption, and that higher consumption means my “footprint” has also grown heavier.
  • Security: Work 40 hours @ $20/hour. Spend $400/week, save $400. My contribution to GDP stays the same but now I have way more financial security, and my savings contribute to capital accumulation that increases productivity and/or natural capital.
  • Leisure: Work 20 hours @ $20/hour to earn (and spend) $400/week. Now I have 20 extra hours to do what I want, which could mean doing free activities (cash consumption equal) or “self-supply” activities (e.g., cleaning my own place or watching my own kids) that will save me money but also reduce GDP. 

Of course, I could also choose a mix of these three extremes that matches my preferences (subject to “frictions” around working 20-40 hours). The key ideas here are that we should use our productivity gains (i.e., the returns  to university education, work experience and the wisdom of life) to make our lives better, not just to consume more — and contribute to ecological stress. (I’m aware of Keynes’s 1930 “Economic Possibilities for our Grandchildren” [pdf] which I will read ASAP 😉

Can this happen? How would it work out?

Yes, it could happen. I have personally made choices that involve less work and less consumption in my pursuit of financial security and a simpler life (what a relief, selling my car). I have also explored how hipsters can pursue a low wage, low consumption path to satisfaction. In terms of social transitions in rich and poor countries alike, I see these steps:

Early stage: Hippies, tiny-house advocates, and those who agree with Thoreau in “my needs are few, therefore I am rich” perspective consume less in a consumerist society. Mr Money Mustache is a famous proponent.

Adaption: Poorer people can immediately do better for themselves if they replace wasteful consumption promoted by influencers and advertisers. The poor of rich and poor countries can pivot to better role models. The poor are still targeted by ponzi schemes, mafias, predatory preachers, and corrupt politicians, but greater financial security might give them more breathing room to step back and make better choices

Competition: Some people think them must work harder to compete for limited living, educational or social space. That’s true, but reduced consumption of new cars, dinners out, etc. can leave “non-consumers”  with more savings or buying power.

Population: A non-trivial number of young people are thinking twice about having kids, mostly because kids are so expensive, but also because it’s hard to bring more children into a world that’s increasingly stressed under the environmental and political pressures of 7+ billion people struggling for positional success. Fewer kids mean less spending and thus less pressure to work as much.

Supply Side: The big change would happen if there’s a “tipping point” of housing demand, i.e., smaller houses replacing larger houses at a 2:1 ratio (two 75m2 flats replacing one 150m2 flat), which would mean more affordable housing, shorter commutes and denser urban spaces. Such changes would need to come with caps on parking spaces (for those who still “must” drive) and other areas of competition over the commons, but the supply shift would also reduce prices and thus the need to work as much.

Demand side: Lower consumption would means smaller stores, fewer deliveries, less waste, and many other improvements that would improve quality of life and reduce ecosystem pressures.

My one-handed conclusion is that you should think about converting your productivity gains into greater happiness rather than greater consumption.


Addendum (21 May): Here’s a good podcast discussion on happiness via non-consumption.

Author: David Zetland

I'm a political-economist from California who now lives in Amsterdam.

3 thoughts on “Productivity should improve your life”

  1. Totally concur with all that you have mentioned above. Eliminating consumption habits by living a life of minimalist can present its own rewards and challenges. I am constantly struggling with this idea of minimalism/frugality in this hyper consumer world. I have been a minimalist all my life, was raised to be one by my adoptee grandparent. However, in case I loose any one of my meager possessions like a piece of clothing or jewelry, I sweat over it for a long time… Still trying to figure that out 🙄Having less items means less home and storage needed, not having a car means public transit is important and raising only one human means way less expense and headaches than my neighbors with 5 children..
    Watched a very nice indie movie called ‘Lucky’ a while ago. Worthwhile to mention here that the title character actually says that nothing is permanent in this world, drawing the conclusion from Buddhist teachings. And, when all is gone, we smile from the knowledge that it was never meant to be permanent. Highly recommended movie, in case of interest!

  2. Really appreciated this post David, thanks! I like the way this implies a transition and not just a jump to what all the ecological economists would like. I guess it could be fleshed out even further but it would need a monetary and debt model a la Minsky. Most macro models wouldn’t let you look at this I don’t think. I think that’s why people who want change have found it difficult to present the info. There are some people building such models and you probably already know well about them.

    I think there is one more category that could be defined. The rate of energy transition implies an increased fraction of resources going to the energy sector (as opposed to previous times when the consistent flow was out of energy and food and into other sectors). If we leave it too late it will require huge amounts of capital. One way to think about this is the later we leave it the more debt in the financial system there is (regardless of any environmental debt of course).

    We know we need lots of credit for the transition. I think it is included in your security option but could be made more explicit – so perhaps 400 200 200 where 200 goes to sustainable transition investments.

    Although there are feedbacks of course. I have heard it be said from even the ecological economists that we will essentially be committing to a rescission if we deploy so much capital so quickly (and we have to do this now of course). Which is where I guess all this ‘war time’ talk comes from (although that’s slightly misplaced here for other reasons).

    Just some more thoughts!

  3. Thank you for the post and thoughts. I grew up around people who valued experience far more highly than things: climbers and artists, both of whom at the extreme sought to work as little as possible, possess as little as possible, and climb and create art as much as possible. Climbing or creating art were their passions. Status was only acquired through how hard you climbed (and sometimes how far you were able to hang it out and return alive) or how brilliant your art. And in fact, to some degree, the less you possessed the better, so long as you could throw down a hard climb or create a great piece of art. In fact, it’s generally held that climbers invented the term, “dirt bag,” and in their world, it was actually a title you had to earn. Ironically, a few dirt bags found, almost by accident, how to channel their, energy, passion and creativity into business, sometimes big business. Probably the best example is Yvon Chouinard and Patagonia. To this day the inner conflict he holds between making millions (or maybe more) off of consumers buying Patagonia gear and sensitivity to the impact of consumption on the environment he loves is on display in much of how Patagonia operates. Just this week, the Patagonia “repair wagon” was in town. Anyone could take any product, no matter the brand, to the three or four experts in this mobil van, and they would repair torn, worn out gear back into useful gear rather than tossing it. Here’s a fairly comprehensive primer on Chouinard: https://www.patagonia.com/some-stories.html#/home . Cheers.

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