After three weeks of trivia, we’ve finally alighted on the one issue that towers above all others. Productivity. It may sound a rather insipid word, but it’s the fundamental determinant of living standards, public services and whether we have the budget to upgrade our (currently enfeebled) military. And it is painfully, tragically flat.
True, then not true. Productivity isn’t everything but in the long run it’s almost everything – to quote Paul Krugman.
Productivity isn’t flat today in the slightest. It’s just turning up in the consumer surplus, not GDP. As with my favourite example, WhatsApp. That is in the economic statistics as a decline in productivity (no, really). It’s also giving 2 billion people free telecoms. As another (non-NL so far at least) economist, Hal Varian puts it, GDP doesn’t deal well with free.
Why? The reason is that every technological innovation — and there were quite a few — ran into an insurmountable problem: a lack of energy. Agricultural economies, you see, were fuelled by biomass: plants. We ate plants for food, our domesticated animals ate them too and we burnt them (in the form of wood) for industrial processes. But to obtain more plant energy our ancestors had to bring inferior land into cultivation, reducing returns on labour and capital. Growth fizzled out almost as soon as it had started.
Tossery. Productivity increased just fine. So did output. What actually happened is that a better food supply led to more humans, therefore living standards went back down to subsistence again. It’s called a Malthusian economy.
This is important because it reveals something invisible to most economists: abundant energy sits at the centre of all economic activity and, therefore, growth.
The claim that many tens of thousands of often quite bright people, chewing over a subject for centuries, are going to miss something as obvious as that? Tossery.
The point is that productivity growth is about energy, energy and energy. And, while economists fiddle with their abstract models, this is what is screwing us today: we are an energy-constrained civilisation.
Ignorance. Summat called “energy intensity of GDP” which is how much energy do we have to use to create a unit of measured output? Been declining since Nineveh.
This is why I suggest all politicians open their eyes to what’s staring them in the face: productivity will rise only when we move to higher-EROI sources of energy.
Oh, so that’s where he’s going, EROI. Folk stumbling through economics do find the weirdest things to call unicauses.