Our whole system of judging how prosperous we are is based on GDP. There are a huge variety of criticisms of GDP, and I don't need to rehash them here with no extra commentary; you can search for them yourself.
The point about GDP is that it's a measure of activity, and it assumes that any activity is useful. We assume this because economists have decreed that in perfect markets people all choose to do the things that make them happier and create wealth, because they know exactly what to do and how to do it. Therefore no-one will do a useless activity, because it won't have any value to anyone else; and if something does have value to someone else, then it is by definition not useless.
In essence, the fact that someone pays for something means, to an economist, that that something must have value; and if no-one will pay for something, then it has no value.
Sadly, humans are not perfect, and we do not necessarily have enough insight to know what matters to us and what will make us happy, and we don't have the ability or time to peer into the future and work out what things we will need or not need to be happy then, and plan accordingly.
We are flawed beings who can be deceived, can be wrong and can simply not eve know that there's a question to be answered, right or wrong.
In a very well-known example, a natural disaster can increase GDP by creating work to be done repairing whatever was damaged. Some modern economists have a counter-argument, which is that it won't increase GDP, because the money spent on repairs would otherwise have been spent anyway, but on other things of more value. Economists therefore, in order to avoid the ridiculous notion that a disaster is beneficial, agree that some expenditure can be wasteful. In the context of recovering from a disaster, repairs are more necessary than whatever items they replace, but they are objectively less preferable than there having been no disaster, as proven by people's preferences beforehand.
People's preferences, after a disaster, have been altered such that they suddenly prefer to buy repairs (say, a new roof after a bad storm, or a new carpet after a flood) where before they might have bought a faster PC or some exciting new gadget. However, we can legitimately compare the situation that would have happened had there been no disaster to interfere with their preferences with the situation that did occur, and we judge which is better using the prior set of preferences.
We assume that the initial set of spending plans was optimal, but that it required everything the person already had to remain as it was. Any losses are sub-optimal.
So far, so simple. That's the world of basic economic theory, phrased in my words. What's the problem? The problem, as I've told people for a very long time, is marketing. The justification for marketing is that is helps spread information; it contributes to the assumption of 'perfect information' that I mentioned previously as an important assumption behind basic economic models.
By justifying marketing this way we implictly admit that the market is flawed; if there were already perfect information then we wouldn't need a process to spread information. If people don't have the information to make optimal decisions, then using activity as a proxy for value becomes foolish (and there are plenty more criticisms of GDP and the assumptions behind promoting unfettered markets).
If we can't point to markets as accurately reflecting people's true desires and wants, because they are flawed, perhaps we need some other definition of value. That's why we still have philosophers and their corrupted cousins, politicians. Allowing perfect markets to dictate the shape of our society is one possible ideology, based on a liberal ideal that everyone should be free to pursue his own interests without interference or prejudice. I have issues with even perfect markets (which do not exist) dictating the shape of society, because markets and interactions of people seem to follow standard patterns in which some people become very disadvantaged, others become grossly wealthy and these differences perpetuate themselves across generations and friendships. This directly conflicts with the underlying liberal principle that everyone should be free to pursue his interests as much as possible, because those who end up stuck in poverty are not free to pursue their interests. There is an inherent injustice in allowing such an outcome, which we must address with various redistributive and regulatory policies if we are to stay true to the underlying justification for having markets in the first place.
The most popular alternatives to that liberal ideal are ones that involve some level of compulsion; theocracies involve compelling everyone to comply with the religious laws of the state religion, whether they believe in the religion or not (and claiming not to believe can be a crime as well). Less extreme alternatives do involve some level of enforcement of independent judgements of value, often called 'the nanny state'.
We therefore have no perfect system. In perfect free markets, we get a sad divergence from equal opportunities and in nanny states through to theocracies and dictatorships we have some level of compulsion preventing dissenters from achieving what would be of greatest value to them. Even western countries therefore end up striking a balance, in which the state does forbid, regulate or mandate activities beyond those which maintain the market.
Incidentally, the way that some economists abdicate responsibility for determining what is of value is often perceived by humanities students as immoral in itself. Our society necessarily must choose a system by which we conduct our affairs, and the consequences of that system are ones we have chosen and must therefore support. We cannot legitimately say that just because the consequences of markets are emergent properties of complex systems we have no responsibility for them, or that because the consequences can't be traced to any one decision again there is no responsibility for them. Markets and their outcomes are one ideal that can be criticised even if (especially if?) the outcomes are unpredictable and uncontrollable.
But, to return to natural disasters, I concluded that we can assume that people's preferences before the disaster were correct and that the disaster, by inducing expenditure on other things, set the economy back (and by implication, human wellbeing or value). Alternatively, if long-term studies of natural disasters are to be believed, our preferences typically allocate too few resources to upgrading existing infrastructure, and the trigger of a natural disaster can increase long-term growth by forcing us to invest in things that need it. In that case, our initial preferences were wrong (i.e did not actually lead to our greatest happiness, as measured by the value exchanged in the economy)
I know perfectly well that our preferences are wildly inappropriate for achieving our own goals, even isolated from others. When we combine our preferences with those of others to create interactions that we do not foresee, we simply add even more to the problem. For example, most people will agree that it would be wonderful if all children in our society could have a fair chance at 'making it' in life, however that child defines it. But at the same time, most parents will do their best to bypass meritocratic systems that guard success. Families will pay for extra tuition, cadge jobs from friends or simply support children through unpaid internships, all of which destroys a system that otherwise would be more fair. When one person does this, the system looks to be fair for everyone else, so things are still alright, but when everyone does it as much as they can then success becomes a function of your family's wealth and connections.
The famous examples of this are thought experiments like the prisoners' dilemma or the tragedy of the commons, in which individuals combine to act in ways that harm them because individually they think that they benefit from the action. Kant's categorical imperative goes some way to fixing this, but people prefer to be hypocritical than principled when they think about these things at all.
Not only are our preferences poor in isolation, and exceptionally poor when combined with the preferences of others, but they are also hugely malleable. And this, despite all the waffle I've already written, is my focus for today. Human happiness seems to depend on unmeasured things such as inherent character (for example, I'm perenially discontented), good company, friendship, family and, importantly, circumstances.
People can be happy in Africa; people were happy in mediaeval times and previously, and yet the modern western world has GDPs so much greater that one would expect us to be in permanent nirvana. Humans adapt to what they see around them. People who become paralysed rate themselves, after 6 months, as happy as those who won the lottery six months ago. They will live in very different worlds, and objectively we can look at the two and know that we prefer one a lot more than the other if we were to choose, but most people live their lives dealing with friends, family, colleagues and personal challenges, and those can be good or bad in any situation.
Given this basic summary of a very interesting branch of psychology, it's obvious that the situation that would make us most unhappy is one in which the world we see around us presents us with things that we would like but cannot achieve or own, since we adapt to be happy with what we see.
Does that sounds familiar? That's what our version of capitalism does to us. Not only are we presented with super-rich idols whose lifestyles we can never hope to emulate, but we are constantly bombarded with possible new purchases from companies desperate to gouge a little extra money from us. If marketing and advertising didn't work, it wouldn't be a successful business. Marketing companies market themselves on their ability to create demand for products and services. A tiny fraction of marketing is telling people that the need they knew they had can be satisfied best with a product they didn't already know about. That's the economic justification for marketing; that it spreads information, making the market more like the economic models that have 'perfect information' for market participants.
But marketing is not about information. It's about creating needs that people did not previously have. Even without the subtle or the obvious manipulation, the simple fact that people are exposed to such an enormous quantity of possible goods probably makes them unhappy, as they can't buy them all!
The market economy is predicated on the assumption that people are machines with unchanging, transitive preferences, but that's not true. Our preferences change, and we always have more preferences. We always want something else once we have what we previously wanted.
Advertising expenditure alone (ignoring the vast amount of other things that go into the marketing industry) in the US in 2013 was $171.05bn. About this much was agreed by another source too. The US economy was $16,768bn in 2013. So far, a mere 1% of GDP. But paying 1% on every transaction is a big deal!
It's not just advertising expenditure that matters. What about all those things people are persuaded to buy that they don't need to?
Fashion is a pet hate of mine. Fashion is a sub-category of planned obsolescence and applies not only to clothing, but many products. Different styles are an enormous part of marketing and utterly superfluous. Apple, a company that hardly needs an introduction, has enough cash reserves to buy small countries and recently announced the biggest ever quarterly profit in American history of £18bn. Apple is renowned for making sleekly-styled products that often don't do much more than the previous one; creating demand through style is much easier than through substance (a topic I have much more to talk about). Not only does it hoover up over 90% of the profits on handsets in the market and not pay much tax, but it has released a new handset almost every year.
How long do handsets last? That's a tricky question. People seem to be much more careless with their phones than I am, and I don't feel the need to upgrade very often, so I'm a bad example, but I doubt that many people queuing for an upgrade at Apple shops for the last few releases really needed that next version. Had it not even existed, would they have been dissatisfied with their previous phone?
I need to be careful here, as we earlier saw that people tend not to invest in upgrades enough. But that was when considering infrastructure damaged by natural disasters. Infrastructure is generally left for longer than a year. I've not seen anyone rebuilding the Caravan Bridge in Izmir (Turkey; built in 850BC) recently. Infrastructure helps everyone go about their other tasks and its value lies in affecting lots of people in small ways.
I can't put a figure on how many iphones, or how much digital hardware in general, were not really needed, because there are small advances all the time in computing and everyone will have a different threshold at which there have been enough advances that they will genuinely get more benefit from a new item than from keeping the money for something else. However, marketing and style changes certainly accelerate this process. Apple makes 90% of the profit because of its style, not because it is hugely advanced.
The US apparel industry is worth $225bn. Fashion makes people buy new clothes; planned obsolescence makes them throw out old ones. I can't understand the need to buy new clothes all the time. If something suits you, it'll suit you until it breaks or you get fat. Someone has already done a back-of-the-envelope calculation for me, finding that globally fashion is about 2% of GDP. If you don't trust the extrapolation, clothing fashion alone was up to $400bn in 2008. This source suggests that it was $250bn in 2013, so there seems to be reasonable agreement (we're not factors of 10 out or more). Now, 2% is of global GDP, so I guess clothing fashion might be more that that in western economies alone.
In general, we already account for 'brand loyalty' as an asset. Companies try to place a value on customers' loyalty to them. Companies are only allowed to do this where the 'goodwill' has actually been paid for (i.e someone bought the company and therefore paid a certain amount for the brand it bought); they can't value it themselves and report that. So although many mergers and acquisitions in the corporate world are overpriced, the large number of companies that have not had brand value actually traded will make any survey of goodwill in accounts an under-estimate. Sadly I can't do such a survey because I don't have the time or access to Companies House. But accountants regularly see very large goodwill values compared to the more tangible assets of a company; frequently bigger than other assets combined.
But I have found a news bulletin about goodwill impairments on the STOXX 600 index, presumably the top 600 European listed businesses, or some variation thereof. In order to impair goodwill, at least that much needs to have been recognised beforehand, and in 2012 impairments were 66.4bn Euros.
More precisely, it turns out that Duff and Phelps looked at over 5000 publicly traded US companies and found that goodwill was about 12.5% of the other total assets (taken from this dissertation). Although this goodwill isn't all branding, these figures are a valuable demonstration of the magnitude of branding in the modern world.
If 1/9 of all assets owned by companies is goodwill, and even 1/3 of that is branding, that's still 1/27, or roughly 4% of the stock exchange (except that it's larger in large companies, which are the ones listed in the famous indices such as the FTSE 100). If GDP corresponds to valuation (and it ought, since in a perfect market low returns on capital will mean it gets invested elsewhere until returns are equal) that's 4% of GDP.
These examples show that the various tricks of marketing are big. Style, products, adverts, inbuilt obsolescence and branding are overlapping areas but not all the same. If we add 1% for adverts to 4% for branding to 2% for clothing fashion we can see that we're getting into a lot of expenditure already.
There are plenty more examples. What about music, a relatively small industry at $47.4bn per year, globally? Psychology studies show that we like what we've heard before. We can easily grasp this by looking at music across different cultures. Western music based on the octave and the pythagorean note system (give or take some tiny fractions) is different from Indian music, Chinese music or Indonesian music. Are there really genetic differences between us that determine music taste? No, of course not. We like what we've grown up with.
The same applies on a smaller scale. If you are played music repeatedly, you will usually express more interest and enjoyment from hearing it again (unless you consciously disliked it the first few times). People's taste in music doesn't spring entirely from some internal aesthetic sense, but from associated memories and from repetition and accustomisation. You can train yourself to like new music... and so can other people. That's why radio stations are paid to play certain tracks. That's how so much of manufactured pop works, and why it works. Pop artists are not necessarily better than unsuccessful local bands: there's a whole subsection of the industry devoted to promoting music that might as well have been arbitrarily chosen (and in the case of Pop Idol and X-Factor, pretty much was).
As Noel Gallagher, a famous singer, recently noted, music is about selling a character as well as music. He was complaining that modern bands are too bland, but his words made an important point. In his day, you created news stories and got people enthused about you as a person; you built a personal brand. Nowadays it all relies on repeat plays and mass exposure through PR outfits. I don't think either approach is very much 'about the music'.
I don't know how big the 'impulse buy' market is, but it's got to be significant. Although the sweets at supermarket tills are the most obvious example, impulse buys happen all the time, in many places. Children are great targets, having more impulses and less self-control. I doubt that crisps, sweets and snacks bought on impulse are an enormous market, so maybe the direct economic cost is small, but news stories have proliferated about the obesity epidemic in the western world, and there are many documentaries about the evils of food marketing. Food marketing plays into the chaos sown by the rest of marketing, because people's unhappiness finds small outlets. Just as poor people will console themselves from their stressful lives by making more impulse buys, rather than fewer, as would be appropriate for their poverty, so people in general demonstrate their dissatisfaction with materialism, purchasing what they can, which is often food.
Of course, there are also reams of writing about how advertising and celebrity gossip makes people ashamed of their bodies, which also makes people unhappy and prone to comfort-purchasing and comfort-eating.
With the addition of many more examples, even the overlaps between them won't stop us reaching over 10% of GDP. I look around as I walk down the street and most of the stuff seems pointless; far more than the 10% I'm going with. I do regard myself as a liberal person, and I understand that not everyone shares my tastes. That's why I'm happy for some people to save the environment by avoiding meat, whereas I do it by avoiding heating and oil-based transport.
But where people's tastes have been created or manipulated, and interference has ensured that they want new things, I think it's important to question that interference, and whether it's a good thing.
Even beyond the pointless products, there are people who claim that large numbers of middle-management jobs are pointless. Some people think that the legions of desk-based lackeys we have in the western world are mostly working towards nothing. We all know stories of days filled with pointless meetings; this article talks about how half people's time is wasted. Paper-pushers create more demand for paper-pushers but very little actually happens to that paper at the far end. Also, people work better when they're happy.
So even if people are in an organisation purportedly doing something useful, is the person? Is a PR team useful for a good organisation? Would it need someone to manage public relations if they tend to be good anyway? I don't know, but some people question that too.
Finally, not all activity is equal. We have a limited amount of human capital in the world. If there are some problems that really need exceptional people to solve them, then we haven't got a proper market. Markets are able to adjust supply to meet demand or vice versa, but there are only so many workers in the world, and there is a limited supply of exceptional people who have been well-educated to use their talents. Market forces might offer someone a lot of money for creating demand, and so the talented people might work on something unproductive, and then not only are we wasting money on creating more waste, but we are wasting people.
If there really are problems that require talented people to solve, then by allocating the talented people elsewhere we might be wasting the time of other people who are working on solving the problem, and we might be holding ourselves back by delaying genuine advances in knowledge and technology.
When people suggest that some sort of state direction of activity is inefficient, I think back to the private-sector inefficiencies I've seen of empire-building, ego-massaging, fire-and-go bosses, and I think of the enormous waste in direction of our economies, and I think that if the only argument is inefficiency, I'll win that one. Most useful private-sector research comes on the back of state-funded academia anyway, yet it claims the credit for all the economic value that was realised.
When we think of progress, we think of innovations. Glasses that allow so many of us to see; surgical procedures that allow us to survive; great plays and songs that keep us entertained through centuries of listening. As I say often, we are homo sapiens, the thinking man. What distinguishes us from other apes is our technology and culture. I've seen good arguments for calling us homo narrans, (storytelling man) or trading man, but homo sapiens is not only the most obvious distinction, but also an aspirational one. It is progress that makes us proud, not shifting widgets and tat a bit more efficiently. Research and culture should be our focus, not by-products.
When we see children playing in playgroup, we see a lot of activity. We would never dream of calling that productive. Yet the children are enjoying themselves, and people look back fondly on their childhood. When children get unhappy, it's because we've regimented them in order to advance their knowledge and perhaps teach them some culture. When we measure GDP, we're measuring activity, and we blithely assume that all the toiling workers must be working towards something even though we've set no direction. After all, we wouldn't adopt a system that did nothing and made people unhappy, would we?
