Self-care and Capitalism, why we must value leisure time and why inequality means something’s broken.
I wanted to cover two important points that come up in political conversations that I think are vitally important but overlooked. They are two interrelated misunderstandings about economics that have fundamentally reshaped our politics for the worse and the knock-on effect has been a worse quality of life for real people. Luckily they’re actually quite easy to correct!
The first is around GDP and what it is and what it is not. When people dislike GDP their usual complaint is to say that GDP is a bad measure but I think that is wrong in a subtle but important way. GDP is a very useful tool for the specific thing that it is supposed to do but we keep using it for a completely different thing… which it’s bad at.
GDP was originally created as a measure of a country’s production output mostly as a way to gauge it’s likely industrial capacity during a war. It’s therefore useful not just for a war but any large scale event that requires mobilisation of the nation’s resources towards a specific goal. What it does not measure necessarily is how easily that productive capacity can be reorganised for this new purpose or how resilient that productive capacity is or, crucially, quality of life for citizens. So, for example, you may want to know how well a nation can handle a global pandemic and mobilise the necessary resources to keep its people fed and provide medical care at that time, GDP helps somewhat with that but is by no means a perfect measure. Other scenarios might be a natural disaster or a coming natural disaster like climate change where mobilisation in advance of that disaster can protect against its effects or stop it from happening. That’s a useful thing to know, it is however not the same thing as standard of living for the citizens of that country! More recently GDP includes a lot of financial services, at least in the wealthier countries, I would deeply question how useful this is or measuring industrial capacity for a military scenario but it is useful for getting a sense of what value of capital assets a nation’s economy can sustain. This is because true financial assets, unlike currency, require some financial return in order to maintain their value. A £ is worth a £ regardless of circumstances but provides no further return. A stock or a bond contains some risk but is expected to yield, on average, some return to the investor who owns it. GDP that includes financial services gives a good sense of the total returns available for financial products denominated in the currency covering that jurisdiction of GDP. It’s also important for the value of the currency in relation to other currencies. A £ may always be worth a £ but it is not always worth the same amount in $s or in terms of real goods and services. If GDP contracts it can affect how valuable each unit of that currency is. Given how important financial stability is in mitigating recessions this is an important use for GDP.
So GDP really is useful and tells us genuinely important things, what it does not do is tell us the standard of living inside a country. Nor does simply dividing by the population and getting GDP/capita. For standard of living we both need to worry about inequality of income and wealth, as clearly a high GDP where the gains all flow to a small number will not result in the same general standard of living as the same GDP more evenly distributed, but also we need to include the aspects of life that are not included in GDP. This is the first of the two big misconceptions I want to handle in this post. GDP does not measure value to human beings, it measures the value of things traded between human beings for cash. That value is enormous and important, we care a lot about the sort of things we trade for cash- food, wine, coffee, cinema tickets, tables, fence posts, train tickets, glitter glue, anything you can think of that’s traded for cash we clearly value. How do we know that? Well someone was willing to buy it for that amount so we must value it! But what absolutely no part of economics has ever said is that this is all value that’s created!! When your partner gives you a hug after a bad day the fact you do not pull out your wallet and pay them in cash does not mean the hug is worthless. Going to the park with your friends is not valueless because the park is free while going to the cinema has value because it’s ticketed. Our easy ability to measure value is not the thing that makes something valuable. Value that is difficult to measure is not non-existent due to not being measured.
The traditional way to get around this problem has been for us to use government spending to pay for things that we think are valuable but are for some reason not happening. We obviously don’t need the government to pay for hugs but we do need them to keep the parks open. Government spending really is an important lever for value not captured by other mechanisms and if we as a society really do think something is more valuable to us than the amount of money the government would have to pay to make it happen then it is rational for the government to pay for it. This then is counted in GDP because government spending is a part of GDP. However, there are some obvious problems with this approach, mostly that we do not necessarily all agree on the assessment of what is and what is not sufficiently valuable or how much those things are worth. This causes something of a dilemma. A government which spends a considerable amount of money in a way that a powerful interest group wants, and manages to secure, will count in GDP even if it actually makes people’s lives worse! This is why, again, GDP really is a terrible measure of standard of living.
This dilemma is also the ideological underpinning of neoliberalism (although the economic and financial arguments for neoliberalism are related but a little different as they also connect to hyperinflation concerns). I want to emphasise the “neo” part of neoliberal here. Neoliberalism wasn’t and isn’t actually very popular with Liberals and it has a number of important ideological and economic clashes with Liberalism, something I and others have written extensively about. Neoliberalism initially came into world politics via Conservative politicians moving away from a more collectivist Conservatism to a new highly individualist one. In the UK we know this as Thatcherism and in the US it is more associated with Ronald Regan. You can, somewhat, see it as “Conservatives do Liberalism” and parties of this ideology are often referred to as “Liberal-Conservative” parties, with the Canadian Conservatives at one point changing their name to the “Progressive Conservatives” and the UK Conservatives going so far as to make their logo the torch of Liberty for some time, the same Torch of Liberty previously seen in both Liberal and Socialist insignia.
What the ideology actually is, however, is fundamentally individualist rather than Liberal. It argues for considerably cutting government spending so as to allow the market to take over, with the expectation that the market will value all things that need valuing. This is, essentially, ‘GDP as all value’ model of thinking. It also values human beings this way, the market will allocate rewards to individuals according to ‘merit’ and their worth to society. It’s the traditional Conservative ideas of hierarchy and a Hobbs ‘Leviathan’ providing order but instead of the Leviathan being a monarch, as in Hobbs original view, it is instead the market itself. This brings us to the second of the misconceptions I want to correct in this blog: that economics says people are paid according to how much “merit” they have. This is absolutely nowhere to be found in free-market theory and is largely something neoliberalism simply made up. Talking about why this is incorrect and how we can value things outside of the market, put together, would be enormously helpful in moving our politics to a better place.
It is important to briefly deal with how the Blair and Clinton “3rd-way” movement responded to, and fit within, neoliberalism in order to get a full picture of how correcting these two problems would help fix our politics. 3rd-way politics was a compromise between Thatcher/Reaganism and old Liberal and Social Democratic positions. It accepted the core notions of individualism and the ‘market uber alles’ with value being fundamentally market-based. However, it created more room for government spending through attempting to subject government spending and decision making to market mechanisms. Regardless of how successful this was at actually constraining government decisions it did give ideological cover for, at least in the UK, significant increases in government spending as a percentage of GDP. However, it very much accepted the idea of merit-based on income and net worth and resulted in truly enormous inequality of wealth and income.
Finally, for clarity, we should spell out once again exactly what the economic argument is for the idea that government spending is definitionally bad because clarity on this point will be helpful later. There is a term often used “crowding out” which works broadly like this: Governments have enormous power within their borders and can do things private individuals and companies can not. As such it is well within their power to shift resources away from private spending to whatever the government wants to do. That may mean higher taxes or more government borrowing, which raises interest rates for the whole economy, including private business. This, in turn, means that resources that would be put to use privately are not and are instead put to use in government projects. This is actually not an idea invented by Neoliberalism and is one of the few Neoliberal ideas that really does honestly go back to classical, pre-Keynesian, economics. The difference in modern terms is that in the Classical economics era there weren’t true fiat currencies in the way we have them now and in the Keynesian post-war consensus central banks did not operate the way they do now. So in the post-1980 Neoliberal context the way this manifests is that central banks normally, although not since 2008, can balance the economy just using interest rates and so Keynesian fiscal stimulus is not required to achieve a full employment/a fully active economy. In that scenario, government spending is seen not in the Keynesian context of maintaining a fully active economy put purely in the Classical economics context of crowding out via higher taxes and higher interest rates redirecting economic activity away from private transactions and to government projects. When that is useful depends on whether the government is correctly allocating resources, the neoliberal view is that this is extremely rare and, except for a narrow range of core functions, the government is very likely to be misallocating those resources.
So how does all of this play out in relation to our two key points: incomes being said to reflect merit when they do not, and how we value leisure time/non-market activities?
If we dismiss the value of things other than those that produce a monetary income it certainly makes it easier to value people by the income they make, especially if we assume that income is proportional to “merit” in a free market. Unfortunately not only do non-monetary activities actually produce value but also that simply is not what “free-market” means.
It is true that free-market theory says that in a perfectly competitive marketplace goods and services will be distributed in a way that both maximises utility for each person and for the whole group. Meaning that in an ideal, perfectly competitive market, economic theory would say that everyone is equally happy with the outcome and that each person’s happiness (which is as high as everyone else’s) is as high as it could possibly be. Both the individual and the group’s utility/happiness is maximised. That’s true.
That does not, per se, mean that income is equalised but income will be equalised so far as people wish it to be and there won’t be any people wanting more income and being unable to acquire it because it has gone to someone else. What it does mean is that those who value income more, relative to free time, will have more income and those who value income less, relative to free time, will have less income but only in so far as this matches everyone’s honest preferences. Clearly this means that if you have large inequalities of income and wealth in the real world and many people want significantly more income then you have not achieved a functioning free market as described in perfectly competitive market theory.
A perfectly competitive market would mean that where jobs are particularly unpleasant people who value income more and are less concerned about that unpleasantness will take on those jobs and those who value income less but are more concerned by that unpleasantness will not.
The merit or worth of the individual is unrelated.
It’s easier to see when we look at an example of something other than work. Take apples for example.
Imagine a world with only one apple orchard that produces some number of apples.
Far away from the apple orchard only a small number of people will be willing to pay for the apples and the costs of transporting the apples so far and so the apples will be expensive in that place. Close to where the apples are grown more people will be willing to pay the cost of apples that does not include shipping costs. This is where the perfectly competitive market part comes in.
You might very well say that surely it is possible for the number of people willing to pay as much or more for apples as it costs to produce apples will be greater than the number of apples one farm can produce. This may well be true and the price difference between how much apples end up being sold for because they are scarce vs the cost to produce them is the profit BUT in a perfectly competitive market any number of new orchards can be created instantaneously! Now that may sound bonkers but that’s one of the many reasons why absolutely perfect markets are impossible in the real world. So in a perfect market new apple orchards will appear until each apple sells for exactly the cost of production. So people right by the orchards will pay for each apple exactly the cost of producing one apple. People far away will pay exactly the cost of producing an apple plus exactly the cost of transporting said apple to them.
So what about the merit of the apples? What if some apples are better apples? Well, that still isn’t what is measured by the market. If good apples and bad apples cost exactly the same to produce then in a perfect market they will cost, to the penny, exactly the same amount. (Which of course means no one would ever buy any of the bad apples as they can get the good ones at the same price).
Labour markets are the same.
In a perfectly competitive labour market you would only be paying for how difficult it is to persuade any given person to do the job you want doing. For example, say you want a job doing where some people would want hundreds of pounds for the work, some would want a middling amount and then the very lowest of any group is the group of people who all are willing to take on that unpleasantness for £13.27 exactly. In a perfect market, because in perfect markets everything is infinite, this group of people who would charge £13.27 could be split into those who would do the job perfectly, those who would do it well, do a middling job and a bad job and there would be an infinite amount of each category. You would, therefore, hire one of the infinite number of people who would do it perfectly for the lowest amount. Their perfection at the job ended up having no effect on how much they were paid. Many people who would demand more for the same work would be worse at the job than them and there were many people at the same price who would be worse than them. What decided the price was the minimum price that anyone would agree to do work that difficult, inconvenient or unpleasant at. It is the nature of the work and how pleasant or unpleasant it is that decides the price NOT the skill of the individual doing that work. Nor would it make either you (paying £13.27) or the person you hire (for £13.27) happier than the other. The amount of happiness you lose by paying £13.27 would be exactly matched by your joy at having the work done. Equally, their happiness at gaining £13.27 would be exactly offset by the unpleasantness of the job. However, the overall happiness of every single person overall would be increased because jobs that needed doing were getting done by the person it was least inconvenient to do to them! Perfectly competitive markets are weird like that.
Ok, so you may ask how does this relate to the real world then?
And the answer is in massively important ways!!! Firstly we justify a lot on the idea that marking markets more like perfect markets gets us all more happiness, this is a solid argument and has a lot of merit but it does not then mean that people who are being paid more are generating more happiness in the world than the rest of us. If you argue based on the “free markets are good” argument you can not follow that up with “and therefore higher paid people must be better and more deserving”. The latter does not follow from the former.
Ok so in real-world markets is there some other reason why it might follow? Do the differences between perfectly competitive markets and the real world, ironically, make the free market camp’s argument work? No. They don’t.
Consider a CEO and a nurse. Many argue that CEOs work very hard, this seems plausible, but harder than a nurse? Unlikely. Besides prices aren’t about how hard a given person works in a free-market model. Perhaps then the value produced by the CEO, they may well produce a lot of value… but again more than a nurse? Sometimes people point to the value produced by the whole company and say it is more than any nurse could do but the CEO of a company is not that company any more than someone on the shop floor is. It is, therefore, something of a reasonable question to ask why CEOs are paid on the order of 100 to 300 times the salary of a nurse.
What’s the real world answer?
Negotiating power. Real-world wages are not terribly well correlated with total value produced or how unpleasant or difficult the job is or the skill of the individual. They are correlated well with bargaining power. CEOs are paid so much mostly because the people who set CEOs wages are largely CEOs. That’s it.
This leads to an interesting and legitimate discussion: ok so if we could equalise bargaining power and equalise opportunity would it not then be true that individuals who are better at the job are rare and yes they would gain some extra pay from that fact but it really would be down to being good at that specific job?
In theory yes… but only for value that is monetary, not for any other value created. There are several problems though. Firstly I’m not confident in our ability as a society to perfectly equalise bargaining power or opportunity. I do see that we can do a lot on both fronts compared to our current situation but it seems it would necessarily require largely equal incomes and possibly perfect information to achieve. That said I acknowledge that it would be possible to have a coherent political ideology arguing for this outcome where the scarcity of people who are more capable allows them to use that scarcity to get higher pay than others and keep that reward so long as your view that this was aspirational and that perfection could not be achieved. For example, how would you ensure an outstanding book from an unknown author would outsell a mediocre book from an already famous author? I don’t think you could.
However… Secondly, we would have to acknowledge this is absolutely not a free market outcome and does not reward or maximise all value. So if you wish to take that position then it is conceptually viable as a political stance but you are obligated to admit, if you want to be honest, that it deviates from the ideal free market outcome and therefore does not maximise utility. Now you could argue that free-market theory is wrong and that there is some kind of social utility in having “better” humans as wealthier and better rewarded and “inferior” humans as lower down on the wealth pyramid but the price of saying that is that you must then say free-market theory is wrong about utility and you do not buy into it as a concept for maximising happiness.
Thirdly and finally, again, although this argument is coherent it deviates enormously from perfect free markets in another way- the only value measured here is monetary. Things that have no monetary reward attached but nevertheless do generate happiness are simply not counted. Someone may be one of the best people in the world at being a friend but middling at best in the jobs market and they would be paid less under this system while someone who treats his family and friends terribly but is one of the best in the world in the jobs market would be paid more. Again it is possible to have this as an ideological position but it simply is not arguing from free markets. It’s broadly the “neoliberal”, what I would call individualist Democrat or individualist Conservative, position.
There are also other views that deviate from free-market theory. They also argue that there are many types of social value not counted in markets. They could be Social Conservatism or even Authoritarianism or they could be Socialism or Social Democracy. All of these may augment, or replace entirely, markets and utility counted in that way.
So given all that, we can now talk about valuing free time and how different philosophical positions could honestly and coherently deal with the issues raised here.
We have already covered just not valuing anything except monetarily rewarded activity and we’ve also talked a little about using government to fund activities, but we have not yet talked about two further important points. First is that you can use government regulation to enforce society’s views on what the “correct” value of free time is via, for example, mandated rights around sick leave, vacation time, paternity and maternity leave, weekends, overtime rules, maximum working hours, age restrictions on employment, pension rules, etc. What we have not talked about is the second set of policies available: the ones that allow individuals to make their own choices on what hours they prefer. This primarily comes down to what options do you give to people who choose not to work as many hours? We tend to shun this discussion because we don’t like giving people this choice but if we are to properly value free time we have to discuss it.
At the moment very few states offer unconditional income if you don’t do anything in return. However, they also tend to withdraw income quite rapidly if you do get a job. That leaves the welfare system as a slightly complicated element in this question. The other key market is what we call “gig work” it has much more flexibility of hours but is far lower paid than contracted work. As it is currently set up the labour market is not well designed to allow any individual to make a personal decision based on their own circumstances. That said we can still find a starting point in some very simplified economics and work from there. In a simplified labour market we know that there is some hourly wage. (In real life obviously not everyone is paid the same hourly wage so the “market hourly wage for labour” isn’t really a coherent concept because there are so many hourly wage rates. As a point to start at we can use the median hourly wage.) As we get into lower and lower wages I have argued repeatedly in other posts that although these do have more flexible hours they are often situations where the worker has no meaningful ability to refuse work because they must cover their fixed living costs, regardless of how low the wages go or how long the hours they are required to work. Equally very high wages can’t be seen as reliable either as we must assume that they are either the result of some form of market manipulation or some form of scarcity, possibly due to a scarcity of people with those skills and so that may, or may not, be attached to some abstract notion of “merit” but they very much are not simply a reflection of the minimum amount required per hour for someone to give up an hour of leisure time. The median hourly wage in an economy is closer to this concept and, I would argue, the closest measure we have. This wage is approximately equivalent to how much each hour of free time is worth to an average person in the same way the market price of a lamp is used as a guide for how valuable each one of those lamps is to people.
This is extremely useful to us in helping solve our predicament. We can use this to talk about, in reasonably meaningful terms, the value generated by economies where people have more free time but earn less overall. Without this figure it is somewhat unclear whether that’s a good thing or not. However, using this figure we can take one step forward in talking about the issue. For example, imagine three countries: Country 1 has a median wage of £15/hour and people spend an average over the year of 6 hours a day working and 18 hours a day not working. Country 2 has a median wage of £10/hour and people spend an average of 4 hours a day working and 20 hours not working. Finally, country 3 has an average wage of £15/hour and spends an average of 4 hours a day working and 20 hours not working. Normally we would consider both country 2 and 3 to be poorer than country 1. They would both presumably have lower GDPs/capita (assuming other factors are broadly constant). However, if we value free time we can now quite reasonably argue that even if it does have a lower GDP country 3 may well be just as well off or better off than country 1. Simply acknowledging that that free time has value, just like anything else one could purchase in an economy gives us huge scope to incorporate and acknowledge the value of things that are not purchased in stores but are purchased via taking time off from work to spend it with family and friends. It is reasonable to say that if life aside from monetary consumption is better if you live in X place than Y then you would need more persuading to spend more time working in X than Y and therefore we might expect, all else equal, to see higher hourly wages.
Just like how we can’t be certain of how well government spending maps onto value, however, we also can not be certain of how well this measure of the value of leisure time maps onto real value where it comes more from regulatory limits on free time than real individual choices. That does not mean it’s useless, just imperfect. So just as looking at median incomes rather than GDP/capita is an improvement on our current measurements of wellbeing, we could achieve an even better result by also incorporating an understanding of the value of free time as well as the value of the goods and services purchasable in a market with that median income.
What we can do to synthesise these views together is this:
-We need to acknowledge that if we claim GDP and “meritocracy” as our metrics for success we are fundamentally denying that anything you do for yourself has any value, only things where someone pays you to do it have virtue taking time off to relax is, in this view, worthless no matter how much utility or happiness it creates for you. Self-care is rated as worthless. Further, anything you do to make others happy that is not directly paid for is worthless, hugs, surprise parties, taking time to listen to a friend when they need someone to talk to, all of that has no value. While this is hypothetically a view one could take I believe it is ridiculous on its face and that a more traditional view of utility that values both monetary and non-monetary utility is clearly more valid. This implies that if we want to have a measure of wellbeing we should include the value of leisure time. This is the simplest and most direct way of adding in all of the things that do not have monetary value in trade as broadly speaking if you are choosing between more income to purchase things and more leisure time then the more non-monetary value there is floating around the more valuable leisure time will be relative to more purchasing power.
-We should, therefore, see our aim as increasing median incomes relative to purchasing power AND increasing median hourly wages. It may seem like the two inherently go hand in hand but remember median incomes can go up while hourly wages go down if people are simply forced to work more hours! What we want is a constant battle where people really value their free time and so it’s hard to persuade them to work for more income and so we have to compensate them appropriately for it.
-Flexible labour markets don’t have to be a bad thing if people have a strong ability to refuse work. Rather than taking our current route of shunning the idea that people should be able to say no to work we should reverse our view entirely. It’s worth remembering the wealthy can always refuse to work so a society that removes that freedom to refuse from the poor just creates mass inequality. Instead, we should empower the poorest to refuse work as they choose. How much? The answer is simple. Simply increase a universal basic income to whatever level is the maximum increase without forcing up inflation/interest rates. Any less than this and you remove some of the power of the poorest to say no to work, any more than this and the system isn’t sustainable.
-An alternative approach other than just refusing to acknowledge the value of leisure via the Meritocracy/Neoliberal/NeoConservative view is we could also take the view that value can be created outside of markets BUT only at the discretion of the community. This fits well with Socialist and Social Conservative views where perhaps a job guarantee could allow the state to determine what value outside of markets is a valid use of individuals’ time. Just like Neoliberalism/NeoConservatism this will, more or less, function economically but can still result in huge inequalities and fundamentally removes freedom from individual people. Here self-care may or may not be treated as valuable based on the whims of the state or local official enforcing the rules. I prefer the UBI/strong welfare state option of allowing individuals to choose for themselves what is valuable.
For these reasons it is my belief that the rational response to these two economic truths is a robust and unconditional welfare state, that is moderated subject to inflation pressures, combined with flexible labour markets. This will allow people to make their own choices about what will make them most happy and empowers all people, rather than simply the wealthiest, to make those choices without risk of economic damage.