I have never been to an event or cocktail party where raising the issue of economic efficiency engendered a particularly emotional discussion or any level of enthusiasm. I have never been to a Thanksgiving dinner table where someone gave thanks for GDP growth. I suspect this may happen in the economic departments of a few universities and perhaps in the halls of some vested bureaucracies in Washington. In general, people care little about the nation’s gross domestic product (GDP). The academic debates in the literature over how useful it is as an indicator of well-being, or even how we should be measure it, are even less interesting.
GDP measures the final goods and services produced in a country in a year. We measure output because, in the context of markets, suppliers only bring goods and services to market they believe people want to purchase. We purchase things to satisfy our needs and wants. Measuring output, then, is a way to understand the consumption capabilities of people in a society. When we divide GDP by the number of people in a country, we call that “GDP per capita,” which is a proxy for comparing living standards of people across countries and across time. But still, who cares? We should care about output and the efficiency in obtaining that output, not because we want to sound smart at cocktail parties, but because we care about how ordinary people are doing. We care about human agency, life satisfaction, and human flourishing. Rising standards of living brought to us by increasing levels of human productivity that yield economic efficiency matter for all the above.
Here’s a very concise primer on economics to get us started: Economics is the study of human action and choice under conditions of scarcity and radical uncertainty. Economics requires, then, that we start with the lowest common denominator of choice, which is the human person. Any study of economic affairs, whether micro or macro in nature, must begin with the human being. Human beings have dignity, which comes from being made in the image and likeness of God (imago dei). Our dignity is not determined by our job title, our degrees, or our income, but rather it’s part of our nature. As such, we must think of economic affairs in the context of protecting and elevating human dignity. This means that as dignified human beings who face scarcity and need to cooperate with each other, we must consider how best to steward our scarce resources. Economic output, when measured over time, allows us to compare the consumption choices that people have and how those choices or access to goods and services have changed—for better or worse.
People who live in high-income countries as measured by relatively higher per capita GDP figures have more choices about their daily and future consumption. Our income grows when we become more productive. The difference between high-income per capita and low-income per capita countries gives us insights into differences in labor productivity. Why are some people more productive solely based on their country of birth? It would be incorrect to suggest that the citizens of Ghana are less worthy, less dignified, or less creative because they have far lower levels of productivity than, say, the average citizen in Sweden or the United States. It’s not the people; it’s the institutional regime under which they live, which either provides incentives for us to serve others, which in turn spurs entrepreneurship and scalable economic growth, or retards these things.
Ludwig von Mises astutely demonstrated that all economic growth depends on savings. Savings depends on successful and persistent increases in human productivity. The application of our human capital in the discovery of finding new ways of doing things allows us to get more from less. In this process we lower our opportunity costs and widen our range of choices over consumer goods and services. But this is not just about getting more stuff. It’s also about being able to trade off backbreaking work for easier work that allows us to economize on our time, our most precious asset. More time means more opportunities for specialization, family, community, and church. Productivity advances allows each of us to contribute to and benefit from greater human flourishing.
This productivity is gained because it allows us to be better stewards of our scarce resources. Stewardship is intimately tied to efficiency. We care about efficiency because it means that we are discovering new and better ways of doing things. It means we get more from less, which means we get more for less. The quest isn’t just conspicuous consumption for its own sake but expanding human agency and fulfillment. As Hans Rosling has elegantly pointed out, being more productive means trading off the backbreaking work of washing clothes by hand at the bed of a river for being able to put the clothes into a washing machine, which allows us more time for many things—including reading books, which is an investment in human capital, which in turn makes us even more productive.
Advances in human productivity foster greater savings, which allows for human capital investments that yield even greater productivity. The massive increases in human productivity that Dierdre McCloskey refers to as “The Great Enrichment” and Angus Deaton refers to as “The Great Escape” are things we should marvel at and work to understand better so they may continue into the future. Something for which we should all be grateful.
