December 03, 2018
The media fixates on GDP and unemployment rate. When GDP is high and unemployment is low, the economy is considered to be doing well.
Of course GDP and unemployment rate are very narrow metrics with severe flaws that are well-documented, so I won’t get into them in detail in this article. But here’s a quick summary:
GDP: Sum of all monetary transactions in an economy.
Flaws: The amount of money changing hands says nothing about standard of living, quality of life, distribution of wealth, or externalities such as the effects on the environment.
Unemployment rate (U3) flaws: Says nothing about wages, quality of jobs (eg. autonomy) or meaningfulness of jobs (eg. in New Jersey and Oregon its illegal to pump gas, this creates jobs but is a net waste). A physics PhD working part-time as a barista because he/she can’t find a job that utilizes his/her skills is counted as employed while a discouraged worker is left out of the statistic.
Instead I will propose two new objectives that society should strive to maximize
Freedom (freedom of time, economic freedom, political freedom)
Freedom is of course a broad term that encompasses many things. But the most important freedom we are neglecting is freedom of time.
Freedom of time is the freedom to spend one’s time how they wish, whether this means working on whatever you want or spending more time with your kids.
When freedom is discussed, the discussion generally pertains to freedom of speech, association, marriage, voting, business, etc, but rarely is freedom of time mentioned. Maybe it’s because our country was founded by slaveowners who had unlimited free time, or the cultural legacy of the Protestant work ethic. But regardless of your political stance, freedom of time is something that we should strive for.
Commuting to and working a job one doesn’t find meaningful or enjoy but feels obligated to undergo due to lacking any other alternative is not real freedom.
Economically, freedom can be maximized by maximizing wealth and income relative to cost of living.
Freedom metric: (Wealth + Income) / Cost of Living
So freedom can be maximized by increasing wealth and/or income, and by reducing cost of living.
Net Worth = Assets - Debt
Wealth is a function of saving and inheritence, and thus a byproduct of income relative to cost of living. I include it because one doesn’t need to have an income to be free (eg. the retired, trust fund kids).
One can have a lot of assets negated by having a lot of debt (eg. mortgage, auto loan, student loans). Debt as a result of cost of living should be minimized. Interest payments are a drain on real income.
Labor’s share of national income has declined since the 1970s. Since most people make income from labor, this is a problem.
Cost of Living
Income is meaningless without factoring in cost of living. Reducing the cost of living needs to be given higher priority.
Cost of living is largely comprised of housing, food, transportation, healthcare, and education.
The price of housing has skyrocketed, and it’s not because the quality of homes have skyrocketed. 100 year old tenement buildings in NYC have gotten incredibly expensive because there’s a housing shortage - created mostly by zoning restrictions that prevent new modest housing developments.
Education and Healthcare
Higher education and healthcare in the U.S. is exorbitantly expensive, should be considered an international embarrassment, and need to be reduced.
Essential Consumer Goods
The ability to own and use things such as a laptop and software could be considered a freedom.
I’m not proposing that we mandate prices on laptops or software to force them to be accessible. I’m simply stating that increasing accessibility via lowering prices is a desirable outcome that should be strived for, and it’s a natural byproduct of technological advancement.
Political freedom is another freedom that is severely lacking. It’s true that every citizen now has the right to vote, but despite this the citizenry don’t feel represented by their government. This is endemic of a broken outdated system of governance that needs to be modernized (more on that in the “Modernize Democracy” section).
I don’t think there’s much disputement that technological advancement is good - whether that take the form of faster computers, renewable energy, better medicine, AI, etc.
I mention it because I don’t think it gets enough priority when it comes to policy. Technological advancement reduces cost of living and improves our standard of living. Automation means less people have to work, freeing their time up to do other things. Much of the drudgery of household work (eg. washing machines), farming (combine harvesters), and factory work have been automated away. Soon self-driving cars will make truck driving, taxi driving, and delivery (with the help of drones) obsolete. This is something that should be celebrated.
The problem is that under our current economic system, automation - rather than being something that’s unequivocally positive - is feared because it deprives those whose jobs are lost of their livelihoods.
This is a severe systemic flaw that discourages technological advancement. This can be remedied via an improved safety net, universal basic income, job guarantee program, or fundamental restructuring of the system.
Another problem with GDP/capita and unemployment rate is that they are mean/median statistics, and thus say nothing of the distribution.
If Jeff Bezos walks into a bar, the average person there is a millionaire (or even a billionaire), but that says nothing about the financial situation of the customers and bar workers.
Instead of fixating solely on means/medians, we should be looking at distributions. If the median person is living well but 30% of the population is broke, depressed, and living paycheck to paycheck, then there is a severe problem there. If the median person has a home but 10% of the population is homeless, there is a severe problem (these aren’t real statistics, I’m just proving a point).
Rather than just maximizing means/medians, we should be maximizing the minimum. Instead of just maximizing the standard of living of the median person, how about ensuring that every person has access to shelter, food, healthcare, and education?
Our democracy is fundamentally broken, and this doesn’t get enough attention.
Representative democracy was devised during a time when horseback was the primary means of transportation and direct democracy was technologically unfeasible.
We are now in an era where direct democracy on a mass scale is technologically feasible.
Representative democracy is prone to corruption and the principal-agent problem. Political parties are failing to represent the citizenry, catering instead to the wealthy.
It’s time to modernize democracy, such as via an electronic democracy (aka liquid democracy).
Freedom and technological advancement should be the primary objectives of economic and political policy. Freedom encompasses freedom of time, economic freedom, and political freedom.
GDP and unemployment rate are horrible metrics that say nothing about standard of living and get way too much attention.
Median/mean statistics get way too much attention while distribution and accessibility don’t get enough. We should maximize the minimum rather than just maximizing the median.
Democracy must be modernized via an electronic (liquid) democracy.
I’m not aware of any political party that’s advocating for these things.
Written by Jeremy Bernier who left the NYC rat race to travel the world, work remotely, and find the meaning of life.