Remember when more and more women – stay at home mothers, housewives – began entering the workforce and taking “real” jobs? Real Gross Domestic Product went up and the growth in labor productivity rose. Life was good. Politicians accepted the credit for the growing economy and for the rising real wages. And, economists boasted about how their models were working and helping to create a better world.
Well, the work of homemakers – or, housewives – was not included in the measurement of GDP. And, as soon as these women took a paying position in the community, their contribution to the productive output of the country was measurable and counted in the output of the country.
To me, this example gives us a clear picture of some of the issues that we are now facing in terms of economic growth, the growth of labor productivity, the structure of corporations, and many other things going on in the world of today.
We are going through a massive transformation and we have yet to find out how to describe the transformation, let alone measure it.
As a consequence, we moan over the fact that the United States economy has only grown at a compound annual rate of growth of 2.2 percent over the past nine years. We wring our hands over the fact that the growth of labor productivity has been barely positive over the same period of time.
We are concerned that the structure of the job market is changing. “It’s Not Technology That’s Disrupting Our Jobs” reads the headline of an op-ed piece in the New York Times over the weekend.
“Social change is typically driven by decisions we make about how to organize our world.”
All the data point to the massive change in our business structure and how this is changing the composition of wealth in the modern world.
The arrival of the FAANGs has pointed to the role that networks and platforms play in the approach to markets. Connectivity is the key word in this new worldview and the “new” Modern Corporation.
And, now we hear “Models Will Run the World,” not robots or artificial intelligence or any of that other “stuff.” Models.
“A model is a decision framework in which the logic is derived by algorithm from data, rather than explicitly programmed by a developer or implicitly conveyed via a person’s intuition. The output is a prediction on which a decision can be made. Once created, a model can learn from its successes and failures with speed and sophistication that humans usually cannot match.”
“When built right, (models) create a reinforcing cycle.” The “models” will allow an organization to become a continuously innovating system.
When a human being performs this way, we say that the human is using inductive inference to make a decision or solve a problem.
In Bayesian decision-making systems, we connect making a decision or solving a problem an integral part of building a model, making predictions, and, then, seeking more information if it is felt that the existing model is not adequate for the question at hand. Again, this is the model of inductive inference adapted to the situation of decision-making or problem solving under uncertainty, or, with only incomplete information.
Now, however, we can automate this process of inductive inference and produce models that, as the authors of “Models Will Run the World” state, “are the business.”
How do you measure all of this? How is this “work” incorporated in the measurement of GDP? How can we then measure the growth of productivity in such a world?
Maybe we can’t…
How can we say that in the modern world of today, we are better off than we were in the world we formerly knew? How can we prove that we are better off if we cannot develop comparative data?
Steven Pinker discusses this at length in his recently published book titled “Enlightenment Now.” His basic argument is that by using the older views of the world, by focusing on what we could measure using the criteria of the past, we tend to dwell on what is not happening. And, this tends to give our worldview a “cloudy” perspective.
The economy has only been growing at a compound annual rate of 2.2 percent. The growth of labor productivity has been close to zero. And, so forth. Gloomy.
On the other hand, Pinker argues, look at what has been done, what has been accomplished, what we have now that we didn’t have before.
Given this perspective, incredible things have happened. We are now working with some unbelievable technologies. We have solved some real health problems. We have created a new world of work. And so on. We just cannot measure their contribution using the “legacy” view of the world.
However, this “new” world also ignores things, and we need to be cognizant of what adjustments need to be made that deal with those people and things that have gotten left behind in the transition.
For example, how do we deal with the fact that the labor force participation rate is so low? What can we do about it? This may require re-training, re-positioning, or re-education. It may mean re-locating. The changes leave some people behind, and this we need to be aware of and do something about.
So, maybe the times are not that bad. But, maybe we need to shift our focus on how to deal with the things that seem to be “out-of-sync.” Maybe we need to focus on some of the needs of the people that have been left behind? And, maybe we need to rethink what our young people, everywhere, need in order to prepare themselves for this world.
Furthermore, maybe we need to re-think our approach to economic policy, which tends to focus on the short-term…how to put workers back to work in the jobs similar to the ones that they once held. Maybe we need to restructure government thinking to look a little more to the longer-run in terms of encouraging and supporting innovation and in encouraging and supporting the preparation of the people for the world we have now moved into.
It’s an incredible world! We just cannot judge it by old, out-of-date standards.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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