Productivity, consumption, and leisure
Tyler Cowen links to Matt Yglesias writing about the future of capitalism and social democracy. Yglesias writes:
When I was in Finland, where they have quite a mild right-wing, the thing that the conservative politician I spoke to seemed really upset about was the idea that Finnish kids are spending too much time in university. Too many students in college! Too many of them getting master’s degrees! Sometimes people would even take time off from their studies to travel! Here in the United States a huge swathe of the pundit class seems to deem it outrageous that the Social Security retirement age hasn’t increased as rapidly as average life expectancy. Don’t people know that they were put on this planet to work! How dare we, as a society, take some of our increased productivity in the form of an increased measure of liberation from our employers rather than more material possessions? The public, sensibly, doesn’t see it that way. When life expectancy grows faster than the retirement age, humanity is making progress.
Insert gratuitous Monty Python reference here. (Sorry, I couldn’t resist.)
I can’t imagine any defender of capitalism and markets, except those of a strangely Puritanical variety, who name their children Cotton and Jereboam, actually holding the views that Matt seems to ascribe to defenders of laissez faire. This is straw man burning of the silliest order.
Nobody argues that it’s at all wrong to “take some of our increased productivity in the form of an increased measure of liberation from our employers rather than more material possessions.” Indeed, that is exactly why productivity gains matter in the first place. What we cannot do justly is take the productivity gains of other people (specifically, those younger than us) and channel them into our own liberation.
The reason that productivity growth — which capitalism achieves — is so important is that it allows for a greater basket of consumption. From an economic point of view, leisure is a form of consumption, whether taken in the form of a shorter work week, longer retirement, later age of beginning work, or shorter working hours. Productivity growth in an of itself is not a goal; the goal is to do more with less. That’s the essence of economics, the study of scarcity.
Liberalism allows us choice about whether we wish to channel marginal productivity gains into taking more leisure time or consuming more. If my productivity increases by 25%, I can either take Fridays off and maintain the same level of consumption, or keep my working hours the same and enjoy 25% more consumption. (And of course, I can do something in the middle.) Nobody argues that a five-year uptick in life expectancy means we should work five years longer. The relevant question is one on the margin, which Matt misses altogether.
The problem that I and many others have with the way that American entitlement programs are run is that the math doesn’t work out. It’s noble to save for retirement. Many people choose to work extremely hard for 25 years, living frugally, and squirrel enough money away to retire at 50. That’s their prerogative. What is not their prerogative is what is currently being demanded of Social Security: for inputs to remain more or less the same today and have outputs increase tomorrow. That’s about intergenerational wealth transfers, not increased worker productivity. (And lest we forget, wealth is a stock while income is a flow. A transfer of a stock is not the same as a flow.)
What proponents of raising the Social Security retirement age to, say, 67 are saying is this: Your retirement is going to be about 15 years longer than your parents’, so you should probably work 2 years longer to pay for it. That’s still a 13 year marginal increase in the length of retirement. Which is something brought about by productivity gains, which are notably lacking in the social democratic countries of Europe.