Stimulate "Value," Not Consumption

By Bruno Behrend

We've been artificially stimulating consumption for decades now. Isn't it time we stopped and thought about what we should be "stimulating?"

I think "stimulus packages" are nonsense, but if we are going to go down that path, shouldn't we rethink what we should be stimulating? We ought to be stimulating the production of value, and nothing else. Perhaps more importantly, stimulating the production of value goes hand-in-hand with preventing (current and future) the unnecessary destruction of value, which comes in the form of waste, corruption, duplication of effort, and any other misallocation of resources in both the public and private sector.

Why is the mere stimulation of consumption a mistake? One obvious answer is that this the kind of nonsense that got us to where we are. Whether one likes demand-side ideology (Keynes -- "demand creates its own supply") or supply-side (Say's law -- "A product is no sooner created, than it, from that instant, affords a market for other products to the full extent of its own value"), the fact is we have played out the string on both of them. If you spend enough time on "econo-blogs," it becomes apparent that the two bleed into each other so much that they are virtually indistinguishable. Excessive government transfer payments are welfare for the unproductive/connected, and excessive tax cuts are welfare for the rich.

I think it's far more important to discuss the concept of "value." What constitutes "value?" Value for whom? How do we stimulate its production? If we focus on these questions, we will arrive at a better policy mix than if we merely look at goosing consumption until the next meltdown.

"Value," of course, is a pretty subjective concept. It comes in many forms, some of them not immediately discernible in economic terms (you might not be able to price them). Over the last few decades, as western civilization's hegemony over the "commanding heights" of the economics has grown, few would argue that this hegemony hasn't produced trillions of dollars in tangible and, more importantly, intangible value. If we think about it, isn't the "intangible" value the more valuable of the two?

For example, take all the servers, routers, cable and telephone wires, computers, etc., that make up the Internet. This must add up to $100s of billions, if not trillions, of dollars. Yet, all the infrastructure is likely a fraction of the value of the information, ideas, and explosion of knowledge that is now available to every person on the globe who can gain access to them. That said, it is clear that the hard assets are a necessary foundation of the creation of all that intangible wealth. We need both.

So how might this concept impact our view of the creation of "value?" One set of answers exists on a purely personal level. If one is happy living a less materialistic and economically driven life, s/he may save him- or herself thousands of wasted hours chasing dollars, not to mention having a life with much less stress and aggravation. In a society where it is so easy to meet the food, shelter and security levels of "Maslow's Hierarchy of Needs," more and more people might question just how much big houses, extra bathrooms and fancy cars suffice in meeting the top of that hierarchy.

If you can be happy working at Starbucks or waiting tables while you write for your blog, sell some books, or remodel that house you plan to live in the for the next 10 years, why waste all that effort consumed by increasing your level of consumption?

But enough of all that touchy-feely stuff. What about macroeconomics? How do we build a bigger rat-maze, complete with fancier cheese to hunt down, wider halls to run through, treadmills to spin, and (drum roll please) early retirements to wallow through (funded by someone else's work, of course)? Leaving the moralizing aside, I think there is a pretty good answer, both personally and as a society: If we want that bigger maze, we each (as individuals, companies or governments) need to create value. Also, as mentioned above, we need to stop destroying value.

So, what creates -- and destroys -- value? It isn't always simple to discern, but we can make a few obvious judgment calls. Creating a fleet of high quality cars that get good mileage creates value. Shelling out unwarranted loan guarantees to prop up companies that negotiated unsustainable labor agreements does not.

One could argue that taxing the wealthy to create a safety net for the needy creates value, in that it offers the needy the opportunity to grow out of their predicament so that they too can create value. However, taxing the more productive to prop up the non-productive for sustained periods of time is moral, fiscal and cultural insanity. We may disagree on where we cross that line, but that is what reasoned debate is for.

Paying a teacher to educate a class of 20, 25 or 30 kids to read and/or understand the world around them arguably creates more value than virtually any societal investment. On the other hand, paying two (or more) teachers to teach those same 30 kids in two classes of 15 so as to beef up employment inside a protected monopoly of enforced mediocrity potentially destroys more value than anything else in America right now. (America's experiment in "class size reduction" has been a huge financial and educational failure.)

Paying a superintendent of schools creates no value whatsoever. School districts, as a concept, are nearly total destroyers of value, as they are engines of taxation and spending, with virtually no visible addition to the net connection of neurons in a child's head. This scenario extends to virtually every position of "education administration" in America today.

Creating incentives for greener and cheaper fuels has a huge potential to create value for everyone on the planet. Showering subsidies on corn producers and ethanol plants is clearly a net destroyer of value, as ethanol currently takes more energy to produce than it creates in its use.

Raising gas taxes to spur innovation in greener transportation is probably good policy, but showering transit workers and management with sinecures and rich benefits packages is an obscene use of that money.

I think you can see where I'm headed. Some of these judgment calls are harder than others. However, the current financial conflagration is going to force our hand. We must realize that we need to ignore the clout of the connected. Protected public employee unions, large manufacturing concerns (Big 3) , and the "Masters of the Universe" of Wall Street have all had their day in the sun. Each had a hand in our current troubles.

From a policy-maker's viewpoint, each and every allocation of resources needs to be looked at through the prism of "value." We must maximize the creation of value and cease every action that destroys value. From a personal perspective, reassessing what it is we do in relation to the creation (and destruction) of value wouldn't hurt either.