Creating Economic Value

You know what really bugs me? Activities which don’t create economic value.

Almost everything human beings ever do create economic value - in the broad sense of value equals happiness. Watching a movie, helping your child with their homework, even reorganizing your sock drawer (if you enjoy well-organized socks) all create economic value. This, of course, is in addition to the more common things we’d think of in association with that term, like doing some work for an employer or a client.

But some activities create no economic value, or worse, destroy it. Take the upcoming economic stimulus package. Put aside for the moment whether you think that taxes are too high, too low, or just right. Also put aside whether economic stimulus packages work (though I recommend this podcast if you’re interested in the historical evidence on both sides of that argument).

Instead, ask this: what is achieved by having the federal government take several thousand dollars of your income, shuffle it around between a bureaucrats for the better part of a year, and then mailing you back a check for $600 at the end of it all?

No economic value is created by this activity. You might think - hey, the government employees who shuffled all the money around got paid, how about that? But that would be just another version of the broken window fallacy. Those people could have been paid to do something else - something useful, that creates happiness for others in the world.

When you witness a process in action - business, government, or an activity of your own - take a moment to consider: does this create economic value? And to answer that question, you have to ask: is someone made happy by this? Happier than they could be made by putting those same resources to some other use?