Improper Concepts to Measure

In the comments on my recent Home Work, GDP, and Family Values, which discusses a recent study (PDF) on the subject, Saturos points to this Arnold Kling post replying to a Timothy Taylor post summarizing that study.

Saturos thinks Arnold’s post is “excellent.” I think otherwise.

Arnold says “the value of household production” is an “improper concept to measure.” His reasoning:

Should you measure the value of the deck by multiplying the number of hours I spend on it times the wage rate of a professional carpenter? If the carpenter takes 40 hours and I take 4000 hours, then you want to tell me that my deck is 100 times more valuable?

So it’s “improper to measure” this concept because Timothy suggests the wrong wage rate to be used in the measurement/estimate. (Be Very Clear Here: all of the national accounts values are estimates, some more firmly grounded than others.)

I agree that the value of home production shouldn’t be estimated based on what a professional would charge for the same work; that makes no sense. The median wage — what I suggested in my post — does, especially since we’re talking in terms of aggregate national amounts. This completely ameliorates the problem that Arnold’s objection is based upon (basically, normalizing for “utility” and market value) — perhaps not perfectly but very effectively, estimating based on dollar-denominated, market-determined values.

But Arnold seems to want to do much more than correct the estimate. He wants to make off-limits any estimates of productive work not involving monetary exchange. It’s “improper” to even measure the concepts. They’re not just hard to estimate; they’re wrong to estimate.

Discussions of proper methods and targets for national accounting go way back. You’ll find them in spades in Kuznets (basically the father of modern national accounting) as far back as 1946. For an excellent overview of the history and issues, see Jorgensen and Landefeld’s 2004 Blueprint for an Expanded and Integrated Set of Accounts for the United States (PDF).

Three snippets from that fine work:

Simon Kuznets, one of the primary architects of the U.S. accounts, recognized the limitations of focusing on market activities and excluding household production and a broad range of other non-market activities and assets that have productive value or yield satisfaction. The need to better understand the sources of economic growth in the post-war era led to the development—much of it by academic researchers—of various supplemental series, such as investments in human capital.

Kuznets (1946), favored development of a much broader set of welfare-orientated accounts that would focus on sustainability and address the externalities and social costs associated with economic development.

Work by Nordhaus and Tobin (1973), among others, on adjusting traditional economic accounts for changes in leisure time, disamenities of urbanization, exhaustion of natural resources, population growth, and other aspects of welfare produced indicators of economic well-being.

It’s hard to avoid imputing normative objectives to Arnold’s objection. If you outlaw measurement of things that are not represented by money transactions, you essentially outlaw discussion of utility (or, the equivalent: pre-assume that one dollar always and everywhere equals one “util”). This avoids the need to perceive some obvious implications of Textbook Economic Concepts like declining marginal utility, which tells us that transferring money from the rich to the poor, ceteris paribus, creates utility out of thin air.

I wouldn’t even dream of saying that Arnold makes these kinds of assertions to please his masters at Mercatus. (No names, just initials: Koch.) But I have no qualms saying that if he didn’t make these kinds of assertions, he wouldn’t have ended up there. See Manufacturing Consent.

Cross-posted at Asymptosis.