Improper Concepts to Measure

In the comments on my recent Home Work, GDP, and Family Values, which discusses a recent study (PDF) on the subject, Saturos points to this Arnold Kling post replying to a Timothy Taylor post summarizing that study.

Saturos thinks Arnold’s post is “excellent.” I think otherwise.

Arnold says “the value of household production” is an “improper concept to measure.” His reasoning:

Should you measure the value of the deck by multiplying the number of hours I spend on it times the wage rate of a professional carpenter? If the carpenter takes 40 hours and I take 4000 hours, then you want to tell me that my deck is 100 times more valuable?

So it’s “improper to measure” this concept because Timothy suggests the wrong wage rate to be used in the measurement/estimate. (Be Very Clear Here: all of the national accounts values are estimates, some more firmly grounded than others.)

I agree that the value of home production shouldn’t be estimated based on what a professional would charge for the same work; that makes no sense. The median wage — what I suggested in my post — does, especially since we’re talking in terms of aggregate national amounts. This completely ameliorates the problem that Arnold’s objection is based upon (basically, normalizing for “utility” and market value) — perhaps not perfectly but very effectively, estimating based on dollar-denominated, market-determined values.

But Arnold seems to want to do much more than correct the estimate. He wants to make off-limits any estimates of productive work not involving monetary exchange. It’s “improper” to even measure the concepts. They’re not just hard to estimate; they’re wrong to estimate.

Discussions of proper methods and targets for national accounting go way back. You’ll find them in spades in Kuznets (basically the father of modern national accounting) as far back as 1946. For an excellent overview of the history and issues, see Jorgensen and Landefeld’s 2004 Blueprint for an Expanded and Integrated Set of Accounts for the United States (PDF).

Three snippets from that fine work:

Simon Kuznets, one of the primary architects of the U.S. accounts, recognized the limitations of focusing on market activities and excluding household production and a broad range of other non-market activities and assets that have productive value or yield satisfaction. The need to better understand the sources of economic growth in the post-war era led to the development–much of it by academic researchers–of various supplemental series, such as investments in human capital.

Kuznets (1946), favored development of a much broader set of welfare-orientated accounts that would focus on sustainability and address the externalities and social costs associated with economic development.

Work by Nordhaus and Tobin (1973), among others, on adjusting traditional economic accounts for changes in leisure time, disamenities of urbanization, exhaustion of natural resources, population growth, and other aspects of welfare produced indicators of economic well-being.

It’s hard to avoid imputing normative objectives to Arnold’s objection. If you outlaw measurement of things that are not represented by money transactions, you essentially outlaw discussion of utility (or, the equivalent: pre-assume that one dollar always and everywhere equals one “util”). This avoids the need to perceive some obvious implications of Textbook Economic Concepts like declining marginal utility, which tells us that transferring money from the rich to the poor, ceteris paribus, creates utility out of thin air.

I wouldn’t even dream of saying that Arnold makes these kinds of assertions to please his masters at Mercatus. (No names, just initials: Koch.) But I have no qualms saying that if he didn’t make these kinds of assertions, he wouldn’t have ended up there. See Manufacturing Consent.

Cross-posted at Angry Bear.







6 responses to “Improper Concepts to Measure”

  1. JKH Avatar

    The value of home production is not captured by GDP, but any durable value is captured by net worth measures that are estimated separately from GDP. The estimated market value of housing includes any value included that is attributable to home production – e.g. deck building.

    What is not captured by net worth measures obviously is the value of any home production that is consumed – e.g. meal preparation.

    Such production is consumed by the producer, in the context of the household as both producer and consumer. I think that goes to AK’s perspective on outsourcing circumvention.

    And the measure of that self-produced consumption is quite arbitrary and limitless. I am consuming the enjoyment of what I am producing just by typing this. And its value is very high. But unfortunately, it has just come to an end.

  2. Tom Hickey Avatar
    Tom Hickey


    Wikipedia/Kuznets: “Kuznets helped the U.S. Department of Commerce to standardize the measurement of GNP. He disapproved, however, of its use as a general indication of welfare,[1] writing that ‘the welfare of a nation can scarcely be inferred from a measure of national income.'[2]”

    As the saying goes, “The best things in the world are free.” But then Murphy’s Law: “The best things in the world are free — and worth every penny of it.”

    Price is an approximation of some utility, and price/value determination by marginal utility cannot be correct, in that not everyone can sell at that price at anywhere near the same time without flooding the market and depressing price. Price changes with supply and demand, but supply and demand don’t change real value. Moreover, not everything with actual value has a price. Accounting meets its limits at quality.

  3. Asymptosis Avatar


    All understood. We could talk about home production yielding investment (fixed assets) and consumption (consumables), the former of which they somehow estimate in the national accounts. (Property tax assessments? Je ne pas.)

    But I don’t get what you mean by “outsourcing circumvention.”

    I also don’t know what you think about trying to measure some well-defined subset of household production. If we compared two societies in which one always ate prepared and purchased food, and the other always cooked at home, would we learn anything about welfare? I dunno. But saying the effort is improper strikes me as dismayingly similar to the house republican bozos who are trying to defund the census economic surveys. You’ve heard it: “This isn’t a scientific survey, it’s a random survey!”

  4. JKH Avatar


    I’m commenting too quickly, sorry.

    “outsourcing circumvention” – meaning a monetary exchange involves a swap of consumption for production, where production is outsourced. E.g. you pay for a restaurant prepared meal, where you’ve “outsourced” production relative to the alternative of home production/consumption.

    You can circumvent outsourcing (outsourcing being the “norm” of the monetary exchange economy as defined in this context) by insourcing – with the household (as the unit being measured) swapping its own production for its own consumption. (Or by unmeasured barter or otherwise unmeasured exchange in the broader sense.)

    Apart from that, I’m not saying there’s no value in trying to measure the non-monetary economy. But it should not be a calculation to be confused with GDP, which as a calculation serves its own purpose. Maybe think of it as GDP+, but be careful with the measures. Don’t aggegate willy nilly, for reasons such as Kling suggests, but don’t ignore it willy nilly for the reasons he suggests either.

  5. JKH Avatar

    @Tom Hickey

    That’s fair.

    See my comment to Steve below, re “GDP+”.