The insightful Handle writes,
free YouTube videos combined with cheap and quick home delivery of tools and parts have made my own home, computer, and auto repairs much more worth my time than trying to arrange for an experienced professional.
I get it that having a YouTube video that tells me how to fix my toilet can lower the time it takes me to do it myself. But the Internet also makes it easier for me to find a cheap handyman. Overall, I think that my propensity to spend time fixing things myself has gone down rather than up over the past decade. Not that it was very high to begin with.
I think Prof. Kling misunderstood Prof. Cowen’s point. Less household production as share of GDP is not necessarily a bad thing and the best number may very well be 0%.
However, household production is generally not included in the GDP figures, even though it arguably should be. If actual GDP, including household production, used to be 37% higher than measured GDP, but now is only 20% higher than measured GDP, then the growth in actual GDP over the period has been even lower than the pretty dismal numbers we are observing.
Hence, this statistic supports Prof. Cowen’s hobby horse of the Great Stagnation, regardless of how one feels the ideal percentage of GDP household production ought to be. I think he is right on this point.
In a follow-up, the commenter writes,
My neighbor and I live in identical houses and we are equally messy. Initially, we both clean our own houses and nothing is added to measured GDP.
Then we decide to pay each other $100/week to clean each other’s house. Suddenly, measured GDP is $10k/year higher than it used to be. But economically nothing has changed. This suggests that we ought to include our cleaning labors in GDP regardless of whether we clean our own houses or each other’s.
I think this is misleading. I prefer to look at it this way:
1. Suppose you are willing to pay me $100 for 5 hours of cleaning services. Then that puts a value on my time of $20 an hour.
2. Now, suppose that I decide to spend 5 hours cleaning my own house. You want to say that I have produced $100 of output.
3. I would say instead that the 5 hours I spend cleaning my own house is a waste of time!
Maybe if you assume that the most valuable work I can do is cleaning houses, then you are sort of right. But if I am a surgeon, then you are pretty much wrong. And I claim that as an economy gets more efficient at using specialization, you become less and less right and more and more wrong.
In terms of comparing well-being now with well-being 50 years ago, suppose that most of the reduction in housework is due to the prevalence of permanent-press clothes rather than having to iron them. Suppose that our entire (market-based) GDP consists of shirt production. It would be really nice if the GDP calculation subtracted the need for ironing from the cost of today’s shirts. But it could only show up as a quality adjustment that I suspect is too sophisticated to be captured in the statistics.
Suppose that actual shirt production remains the same as it was 50 years ago. Then measured GDP might be the same, also (it could be a little higher, if the statisticians pick up some of the quality adjustment). But the alternative concept, of GDP + household production, has gone down from 50 years ago, because we have stopped ironing. To me, that makes GDP + household production a stupid concept. It has things exactly backwards.
If you are going to add anything household-related in GDP, it ought to be leisure, not housework. If you show me that leisure + GDP is not growing very much, then I would count that as an argument for a Great Stagnation. But I am not the least bit persuaded by a measure of GDP + housework.
Like most ideas about human behavior, this starts to fall apart when you take it to its logical extreme.
Specialization produces impressive efficiency gains, but as others have alluded to, it also weakens us. I’m not sure we want to live our lives doing one narrow thing, encased in an endless series of end user license agreements.
“1. Suppose you are willing to pay me $100 for 5 hours of cleaning services. Then that puts a value on my time of $20 an hour.
2. Now, suppose that I decide to spend 5 hours cleaning my own house. You want to say that I have produced $100 of output.
3. I would say instead that the 5 hours I spend cleaning my own house is a waste of time!”
What were you doing for five hours? Did anything get cleaned? Does cleaning not have value?
Anyway, I feel like the comments in the original post addressed a lot of your concerns already. It kind of reads like you really dislike housework…
Let’s rephrase your above.
“1. Suppose you are willing to pay me $100 for 5 hours of babysitting services. Then that puts a value on my time of $20 an hour.
2. Now, suppose that I decide to spend 5 hours watching my own kids. You want to say that I have produced $100 of output.
3. I would say instead that the 5 hours I spend cleaning my own kids is a waste of time!”
Given that a lot of this change in household production was women paying other women to watch their kids I’d say its more accurate. I’m not sure kid watching technology has fundamentally changed.
The key distinction, which I think you dance around a bit in the cleaning example, is this:
You don’t value time spent cleaning, either yours or someone else’s. You value having a clean house (whether a lot or a little). Thinking of it in terms of hours of labor leads to confusion.
If you and your neighbor each clean your own houses, GDP shows nothing (too low).
If you pay your neighbor $100 to clean your house, while he pays you $100 to clean his house, GDP goes up by $200 (to the correct amount).
Then linoleum is invented, and you both manage to get your cleaning done in 4 hours instead of 5. Now GDP is still up by $200, and productivity is up by 20% (correct).
If GDP is adjusted by the *value* of household production, it will be more accurate. If GDP is adjusted by the *labor cost* of household production, it will be less accurate as you describe.
the late futurist Herman Kahn, I believe, grew some tomatoes and later mused
“These are $200.00 tomatoes” based on his imputed wage and the opportunity cost.
Fun. By that estimation, I have a $2,000 picnic table in my back yard.
It is an old joke demonstrating the silliness of the labor theory of value. In fact, what something cost to make is irrelevant to its value; all that matters is what somebody would be willing to pay for it.
Your point about youtube is correct. Doing things yourself is cheaper, but so is finding someone to do it for you. So youtube is only useful if you you can’t specialize. I have a salary job, so working more hours doesn’t get me more money. And there are not a lot of part time jobs worth more than doing housework myself.
“Doing things yourself is cheaper, but so is finding someone to do it for you.”
Only if you assign a zero value to your time; most of us assign it a higher value.
And even then, not necessarily. For example, when my daughter needed brain surgery, I’m glad I outsourced it to a specialist, rather than performing it myself with the help of some YouTube videos. And I’d still feel so even if I thought my time had zero cost.
re: Household production
I beg to differ. I’ve always believed that household production was included in GDP.
A man can spend a couple of hours in the kitchen making dinner. If his wife does the cooking instead, that frees up his time to continue working, the extra work adding to GDP. In effect, the wife’s work is embedded in the extra GDP that the man produces.
“I beg to differ. I’ve always believed that household production was included in GDP.”
I’ve always believed that household production *ought* to be included in GDP. But an “ought” is not an “is.” Here is a recent paper by published by the BEA, the official keepers of the GDP statistics, that makes clear that household production is not currently included in the official GDP statistics. https://www.bea.gov/scb/pdf/2016/2%20February/0216_accounting_for_household_production_in_the_national_accounts.pdf
My point was that household production was already being counted, albeit indirectly. If the government started to include it in GDP, than that would be double counting.
Sorry for misunderstanding your point. But I am still not sure I agree with it.
If the man is enabled to work an extra couple hours by somebody else cleaning his house, then his extra labor will be reflected in GDP.
But if that somebody else is a paid maid, so will the maid’s labor; if that somebody else is his wife, her labor will not be reflected as additional GDP.
Given the identical production of value, it seems unreasonable for GDP to differ between those two scenarios.
Good point.
If the maid is someone else’s wife, some man somewhere is doing his own cleaning now which subtracts from his time and GDP.
In that case, the net effect of the maid is a wash.
Mr Fares, do I understand you correctly that you think that even paid maid services should not be included in GDP because they are already counted in the extra hours the beneficiary of these services can work? Or only if the maid is married?
How far are you willing to take this principle that anything that merely enables somebody else to work more hours ought not to be included in GDP?
For example, a man’s car may cut down on his commute time to work, compared to walking or public transportation, so it will enable him to work longer hours. Would you say that hence the value of the car is already reflected in the man’s extra hours and hence including car sales in GDP is double-counting and ought to be stopped?
As you may gather from my tone, I don’t think I agree with you. But these are genuine questions to which I’m sincerely interested in hearing answers.
“To me, that makes GDP + household production a stupid concept. It has things exactly backwards. If you are going to add anything household-related in GDP, it ought to be leisure, not housework.”
Totally agree. And also, the line between leisure and household production is often blurry. Which category does gardening fall into? Or home brewing? Or cooking a nice meal?
“But the Internet also makes it easier for me to find a cheap handyman.”
I’m sure the search is easier, but ‘cheap’? Has the cost of skilled home service technicians and contractors really declined in the last couple of decades? My observation is the opposite — no internet search is going to find a good inexpensive plumber. They just don’t exist (at least not where I live). In fact, I’ve found that service calls have become expensive enough that we tend get rid of appliances and buy new ones rather than have them repaired. If an 8-year old clothes dryer breaks, is it worth a $200 service call to repair? Or is it better to have a new one delivered for $400? We usually go with the second strategy now.
I can’t imagine paying plumber to make a call for a simple toilet repair. Even if you have to replace all the internals, a kit is $10 on Amazon and it would take about 10 minutes to install. But, I find this kind of thing easy to do. I spend my working life at a desk in front of a monitor and so I don’t mind some tasks that involve a bit of physical exertion and a different kind of problem solving. And since DIY comes pretty naturally to me, the experiences tend to be satisfying rather than frustrating. I wouldn’t call it leisure, but it’s not exactly work either.
There are some other funny things going on, too. I can’t imagine bringing in a plumber for a simple toilet repair, but I also can’t imagine fixing strangers’ toilets as a second job, and that logic applies to any of the other DIY tasks I do around the house. Figuring out how to do new things and successfully completing them — providing I can do the tasks whenever I have the time and energy — is often interesting and satisfying. But doing any of these things 40 hours a week would be drudgery.
As the “another commenter” referenced in the original post, let me first clarify one point: I am in violent agreement with Prof. Kling (and disagreement with some of the posters) that much outsourcing of household labor is efficient (i.e., a good thing). Indeed, 20% of GDP spent on household labor is probably too much and I’d expect it to continue falling.
[Up to a point. The maids who clean this lawyer’s house probably ought not to outsource the cleaning of their own homes. As evidenced by their profession, their comparative advantage probably already lies in house cleaning. Adding the advantages of local knowledge, the absence of a principal-agent issue, and the saved travel time, it is probably efficient that they clean their own homes.]
All that said, I still do not understand any principled reason that if a $500/hour brain surgeon cleans her own home, this should not be included in GDP, just as it would if she was paid to clean her neighbor’s home. Is that the highest and best use of her time? Surely not, unless she receives some personal satisfaction from performing this task (there are people like that!). Would it be better if she hired a maid? Absolutely.
But even so, her labors–inefficient as they may be–still produce something of genuine value (even if it is less than what she could produce in the same time otherwise), a clean house for her and her family to enjoy. That value ought to be added to GDP just as much as if a paid maid had produced it.
“Would it be better if she hired a maid? Absolutely.”
Maybe. But given the nature of modern work, most people don’t have the choice of working professionally for another paid hour vs doing an hour of housework. For most, the trade-off is home-production vs leisure not home-production vs marginal paid income. Is leisure time so scarce that people value every hour of it at the same rate as their job pays? A minority of people work such long hours the answer is ‘yes’. But for most, the answer is surely ‘no’.
“But the Internet also makes it easier for me to find a cheap handyman.”
But who is going to watch the handyman, and what is the opportunity cost of that person’s time? He is a cheap stranger you found on the internet, hoping the reviews were reliable, which they often aren’t. And what about the time spent reading the reviews, and applying judgment to them?
What happens in these conversations about home production is that typical economic doctrine has created a set of comprehensive definitional pigeon-holes into which every reason can be crammed. There is a presumption of a gain from specialization and trade when a high income individual hires a low income individual to perform some service, so when it doesn’t happen, it’s either transaction costs, or market failure, or ‘consumption’, or some kind of psychological bias or irrationality.
And sure, this is always true by definition. But what happens in the conversations is that these explanations are used almost dismissively, usually with a jaundiced eye towards home production.
The trouble is that the reasons people engage in home production are important for deciding how to estimate the gains or losses from changes in policy.
So, for example, I’ve seen dozens of papers with rosy estimates of the overall gains from low-skill immigration which seem to depend in large part on assumptions about specialization and trade. But how do we know that people will actually trade and not try to do things for themselves whenever possible?
We don’t. And high-income people might not trade for more services after all. That’s the thing about the numbers Taylor reports on. What we see is some very stubborn attachment to lots of home production and self-reliance. After fifty years, the numbers haven’t gone down that much, and maybe in ‘real per capita’ terms, even less so.
So it’s important to explore the reasons for home production to illuminate just how intractably inelastic the demand for certain personal services might be. If these reasons and significant and unlikely to change, then predictions of large gains from hypothetical new trade precisely be means of providing new, cheap substitutes for typical home production services are wildly overestimated.