Economic Performance

My grandfather used to say that all wealth comes from the ground: one either mines it, grows it, or cuts it down. No town, he argued, could get by “only doing each others’ laundry”.

I find this a useful starting point for understanding where we are today, with enormous cities that do not seem to be mining, growing, or cutting. But, of course, being me, I think we also need to start with a definition of “wealth”. I suggest we think of wealth as possessing things we desire. If I have food and shelter and mate, I am wealthier than if I don’t. If I have the ability to travel as I wish, I am wealthier than if I don’t. If I have a high social status I am wealthier than if I don’t. I see wealth defined in terms of human nature. We can have long debates about whether we really desire this or that (yes, ice cream is desirable, but would eating 3 gallons a day really make us wealthier?), or on the “types of fun” (we’re stuck on the side of this mountain in a storm; cold, hungry, and tired. Boy, is this ever fun!), but I argue that all things that qualify as “wealth” are founded directly or indirectly on what we want as humans. “Wealth” has come to be synonymous with money since money provides access to (most) of the things defined above, but I find the distinction useful.

Energy, historically either dug up or cut down, is a key to wealth. A warm home in winter, a tractor for plowing, refrigerators for unspoiled food, hot water for showers, lights in the darkness, and motors to take us essentially anywhere we want to go. Of course, we also need to dig up the steel to make the tractor, the fridge, and the motors. And we need to know how to do this digging and making. And we need the time to dig and make. And we need the labor to either do the digging and making or to operate the machines that do.

There is a school of thought that says wealth and resource consumption are the same thing. That we are wealthy in direct proportion to how much we dig, grow, and cut. But let’s review: the digging and making are costs we incur to become wealthier. To the extent we can do less of these things and still get what we want, then we are wealthier still due to reduced “costs”. An automobile today is, arguably, better than those of earlier times. Faster, safer, and more comfortable. They are much lighter and use vastly less fuel. I argue that we are getting more wealth with less “cost”, that is, we don’t have to dig up as much stuff to get an (even better) chunk of wealth.

There is, to be sure, the wanton consumption of resources as an in-your-face show of status, in essence, “I can prove I’m rich ’cause I can, and am, trashing stuff you would kill to have”. But setting this edge-case aside, I submit that wealth and resource consumption are not inexorably locked in fixed proportion. And the difference is technology: the smarter we get, the fewer resources we need to attain the same, or better, wealth goals. (We can, if we like, think of resource consumption as “recurring expenses” and technology as “one-time expenses”.)

Let’s expand this a bit. I would argue that the Economy can be understood as the engine of wealth. Our Economy is just the name we give for the activities we pursue to maintain and increase our wealth. And, as Steven Pinker has pointed out, the discovery that other people are worth more as trading partners than as murder targets, has incidentally provided us with another, previously unimaginable, source of wealth: dramatic reductions in violence. (We can, if we like, think of trading partners as “recurring income” and murder/theft as “one-time income”.)

The world economy has brought us everything from governments to space exploration, to scientific discovery, to cameras and cars, to TV and phones, to fresh food and flights to warm sand and clear water. I claim that today we live better lives, knowing more about the Universe, its nature, and ourselves, than any of our ancestors did, or could have imagined, and that a thriving economy is the cornerstone of our luck.

But, you say, resource extraction, caused by economic activity, is destroying ecosystems, polluting the air, and creating a run-away furnace of our once lovely, stable climate! I agree. But here is what excites me: it appears, as above, that resource consumption and economic activity are not strictly linked. Consider a new SUV that costs $40,000 and weighs 2,000 kg. And a smartphone that costs $600 and weights 120 grams. The SUV produces $20 of economic activity per kg of resource, and the 11,000 kg of gasoline it might consume only generates about $1.50 of economic activity per kg, for a total of about $4.30 per kg. The smartphone produces $5,000 per kg, or about 1,100 times more economic activity than the SUV per kg of stuff we dig up. I think of this as “economic performance”; how much economic activity (good) we get for how little resource use (bad).

Arguably we can not, and do not want to, have an economy that makes only small computers. But the introduction and rapid expansion of this category, and the general rise of items with lots of value added to not much resource, means that we can increase our overall economic activity—and its attendant virtues—while reducing the dangerous and destructive resource consumption required to achieve it.

To be clear, I am not saying increased economic performance guarantees escape from a climate, or other, Black-Swan-style catastrophe, but I am saying that increasing economic performance suggests both a direction to pursue in our economic and policy efforts, a guide in our purchase decisions, and the possibility of simultaneously imagining both our continued pursuit of wealth and a future for Civilization without the aid of hallucinations.