We need to be careful not to reify the economy

By Tim Worstall , written on April 5, 2014

From The News Desk

Sure, we'd all like a better economy. And other things being equal a bigger economy is better than a smaller one: it means that there's more wealth and or income to be shared around all of those people in the economy. But it's a dreadful mistake to then go on and to reify the economy, to think of it as a discrete thing that needs to be either considered or maximised for its own sake. The economy is a means to an end, no more and no less, that end being the maximisation of the possible life choices of the people that make it up.

In the larger sense this is why fetishising GDP doesn't make much sense. Sure, again other things being equal, a larger GDP is better than a smaller one. There are the well known problems with GDP as well: cleaning up pollution counts towards it, the damage done by pollution in the first place isn't counted at all. There's a reason for this, being that GDP looks at the current account rather than the capital: the pollution damage is a destruction of wealth and wealth isn't something that GDP measures. The value added by clearing it up is an increase in value being added, and value added is what GDP measures.

But even aside from the various complaints about GDP like that it's still a gross mistake to argue that we want to maximise GDP. Only other things being equal do we want to do that. For example, we could most certainly increase GDP if we all went back to working 60 hour weeks (or for those of you in start ups, cut back to that few hours). But there's more to this life than increasing GDP as we all agree: playing with the kids, going surfing, out on the stoop with a beer. What we want to be able to do is maximise our ability to do all of those things, and GDP is a measure of how much value is being added in our economy, leading to our ability to do these things plus eat, clothe, house and feed ourselves.

A slightly long introduction but we've got another instance of someone reifying the economy over at Reuters, where Felix Salmon tells us that:

But take a step back, and no one’s really disagreeing with the fundamental premise underlying such proposals. A country can only thrive if it has the human capital to do so, and it’s one of the most important roles of any government to maximize the value of its country’s aggregate human capital. One way it does that is by encouraging population growth; but the main way it does that is by providing universal education.
Well I'm disagreeing with it although whether I'm anyone important is another matter. The task, concerning the economy, of a government is to maximise the potential utility of those who make up that economy. And that's a very different thing from maximising any other aspect of it. And the difference is most important in this particular discussion. What Salmon and Reihan Salan and others are discussing is whether there should be natalist policies or not. Natalist meaning tax or other social policies which lead to people having more children. And if you think of the economy as being something to be maximised, or human capital, or the population, then you can indeed be led into the error of thinking that persuading/bribing women to have more babies is a good idea.

But that is that reification again. It's to consider the economy as being something separate from the people who make it up. And in reality the various measures of an economy are only, as above, there to remind us of the central purpose of all of our efforts. To maximise the life choices of the people who make up that economy. Which, is turn, means that if women are deciding that they'd prefer to push a few fewer human beings through their vaginas (apologies to Luis CK for that one) then good for such women and we should all support them in that decision. Not try to cook up methods of bribing them to do this a little bit more because we worship something called "the economy".

To use the language of an earlier paragraph, if women decide that fewer children maximises their utility who the hell are we to try and second guess that decision and to coerce them, however gently with tax breaks or grants, into changing their behaviour? Now that we have finally got to the point where reproduction is a choice then we should rather be respecting the choices being made rather than trying to change them.

Whatever this means for the economy of the future. If the choices of the women of America today mean that in the future there will be fewer Americans well, so what?