Yves here. I’m featuring this post in part as a development exercise to Cliff, a German economist who has been blogging off and on since 2011 and plans to post on a more consistent basis. He has been warned that the NC readership can be rough.
I’m also of two minds about his argument. Initially I recoiled, because I think the personal service economy in the US has gone too far in some respects. To put it more precisely, the stratification of income has led to growth of the personal service economy, which serves to reinforce class distinctions. And Cliff takes up the fallacy that activities that are included in GDP are somehow better than if they occur outside the transaction economy. Vam Gogh sold only one painting over his entire life. Does that mean his output was worthless? Oh I guess it wasn’t only because now auction houses make ginormous amounts from his work. But per this logic, paintings that are traded often are more valuable than ones that are displayed in museums or are owned by collectors for a long time.
Married women with kids who work in professional jobs (unless they’ve managed to get a “work at home” gig, and I know all of one person who had that work well) are typically dependent on personal service workers, as in they need nannies (or at least some sort of part-time child care arrangement even if the kids are in school) and house cleaning. The big reason is the hours aren’t predictable and they often have husbands who have similar long work days. But that sort of efficiency leads to greater instability. I don’t know how many times my friends have come unglued when something happens to their nanny (illness, death of parent, or they turn out to be bad news and need to be fired). It’s really hard for them to manage while they are finding a replacement and difficult to find good caregivers.
And you’ve got the second-order problem identified by Elizabeth Warren in the Two Income Trap: having wives work means you don’t have a reserve worker in case something happens to the (presumably higher income primary worker) spouse’s job. And two income households have higher fixed expenses (the biggie is two cars, although that would probably not be the case in Germany, where public transportation is good in big cities) but they also per above need to spend more on services, thus making it harder to save).
But the flip side is that there is rampant unemployment throughout Europe, with emigration from periphery Europe to the north in search of jobs. It would be vastly better if the surplus countries abandoned their demands for austerity. Economists have argued as a next-best that northern countries will start putting more operations in the South as their wage levels fall. But that won’t provide relief any time soon. So perversely, more use by Germans of personal service workers would take up some labor slack at a time when jobs are in desperately short supply. But that seems a poor fallback to failed policies.
By Cliff, a German economist specializing in financial and macroeconomic policy analysis. Originally published at Cliffeconomics
Mowing the lawn appears to be a common pastime for Germans. Washing the car or ironing even makes it into a listing of ways to burn calories in a recent issue of the news magazine Focus. Does this make sense, economically?
Home production, i.e. productive non-market activities, are not captured in the national accounts. Time use surveys, such as the one carried out in Germany in 2001/02, show that adult Germans spend 25 hours per week on “unpaid” work, more than paid work on average.
Macroeconomic indicators may be reminiscent of the extent of home production in Germany. Labor participation, particularly among women, is low, possibly on the account of home keepers and stay-home mothers. Work hours have traditionally been lower, providing at least more opportunity to engage in home production also for those in jobs. These indicators distinguish Germany in particular from the US, where consumers are perceived to rather pay than doing stuff themselves. (For disclosure, Cliff uses dry cleaners, car washing, but doesn’t have a lawn to mow.)
Home production may be a popular or cultural preference, economically sensible it is not. If home production would be outsourced and thus count as market activity, per capita GDP in Germany could be about 40 percent higher, possibly closing the gap to the US. Buying services instead of doing it yourself bears economic benefits: Mothers with higher education are more productive in paid work of their profession. Other home activities requiring low skills, such as mowing the lawn, could provide work for the less qualified. Economies of scale allow dry cleaners to be more efficient than ironing shirts at home can ever be.
Also from a policy perspective, home production is a blight. By remaining outside the “paid for” economy, home production escapes taxation. With the extent of public services and social safety net the same, higher home production means paid-for economic activities have to be taxed higher. This results in a coarse and inefficient redistributive effect and fosters black market activities, to the detriment of those seeking work in the formal economy. Also, home production largely escapes the scope of regulation, such as professional standards in home improvement. In contrast, regulations for paid-for services (such as by German’s craft professions) often are excessive and deprive customers of the choice of less-quality but more affordable services. (Yet, environmental laws have put an end to Cliff’s most favorite Saturday activity: washing his car on public streets.)
Overall, the mindset with regard to home production has to change. Many paid-for services that substitute home production are taxed and regulated in ways that make them unattractive alternatives. Instead, it is home production which should be viewed as an unregulated, subsidized, and usually inefficient form of economic activity, and the bar for paid-for services that replace them should be set accordingly.
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Yves,
I understand where you’re coming from, but I come from a slightly different perspective. I see that for my wife (who’s at home) a childcare for a toddler is a literally 24/7 job, which, when your family is 500km away and I often 1000 miles away is very very though. Community isn’t what it used to be even when I was a kid – there’s only a few people around who would be willing to look after neighbors kids on a short notice (or help when the whole family is sick), not to mention much fewer people who would be willing to have their neighbors looking after their kids in the first place (there are some, but much less so say in London, or NY apartment block).
So a nanny for a day a week/cleaner etc. is not really “a luxury” (as lots of people see it), it’s about the only way to stay sane. I now believe that compulsory schooling was really invented as means to give parents some relief, rather than anything else (which would also explain why so many parents now effectively outsource the parenting to schools. unfortunately).
Moreover, I’d really make a big difference between say a nanny and cleaning job. At least in countries where I looked into it.
A professional, full-time, live-out nanny in London can easily make 30-40k _net_ GBP a year (which is considerably more than an average London salary). It’s not a low-skill job, quite a few of them have BSc or a higher degree (especially “cheap” immigrants from ex-communist block in the UK are often overqualified for this), or are qualified nurses etc. Of course, you can find a cheap, low-skill immigrant, but parents who can afford it tend to pay for professionalism and skill, rather than take a bet. Oh, and when this comes through an agency (which costs some more), then a replacement nanny for problems you describe is more or less automatic (I know at least one case where the agency owner stands in as a last-minute replacement nanny as well as running the agency).
Please see my comment on class stratification. There is class stratification among service providers. I never said a nanny was the same as a cleaning person, the only commonality is they provide care at home. The fact that I stated that it is hard to find and replace nannies says it’s a bigger deal than other service providers, like a yard man. (But it’s actually getting hard to find cleaning people in NYC, and that appears to be due to ever-rising rents driving lower-income workers further out, to the point where the ones who commute in either need a full day’s work at one location or other compensating factors to schlepp in).
ok, my understanding of your stratification was class stratification between the purchasers of the services and providers (the good old English upstairs/downstairs).
Re your point on high rents driving lower-income workers out, the fascinating thing I find about that in the UK is that this means that the housing benefits in the UK really subside the rich Londoners cleaning costs.
The real problem I see there is that the rich Londoners/NewYorkers should get used to pay more for their personal services than they do now , and we’d figure out what is the best way to do that. I know quite a few people who go through agency, and pay in effect minimum wages for their cleaners – but feel uncomfortable about it and pay money on the side (in the process commiting a crime of tax avoidance) to people they often like, find very good and want to help – but then I know people who boast they don’t pay their cleaners even mimimum wages.
Huh? In NYC you can’t get a cleaner for less than $15 an hour (at least not one you trust not to mess up anything remotely nice, as if if you have things that will break or furniture/objects that requires that particular products be used on them and hence the cleaner has to be attentive), and $20 is more like the going rate.
As to the “necessity” bit of your earlier comment, that’s the result of extractive practices among employers. What happens to middle-lower income workers who put in similar hours and can’t afford paid help? I know someone in that boat who jokes that his place is such a shambles that if a public services agency visited his home, he’d be arrested for abuse.
And I meant both kinds of stratification. Gross levels of stratification don’t exclude finer ones.
I know someone in that boat who jokes that his place is such a shambles
Then he has too much crap, no housecleaner will fix that.
Personally I would never allow a stranger in my home to rummage around unattended. Consequently, rather than direct supervision, I might as well do it myself. The biggest Rubicon is having a rule about what should be thrown out.
Maybe he has too much crap, maybe he doesn’t. Having never met the man or been to his house, I really couldn’t say…
The same thing is true in the construction world. I work with carpenters and masons who spend their days making the homes of the wealthy look schweeeet…and then they go home to their tumble-down house that they never have the time or money to work on, though they’ve got the skills.
Having to neglect your own life because you spend so much time taking care of other people’s is a very real phenomenon.
I doubt this is an issue a house cleaner or not will influence
Wow, are you wrong. The difference in my case between having a cleaner and not is night and day.
Can’t you get it through your head that some people like the state of “having things clean and tidy” but either hate the process of cleaning or lack the time?
Like clean and tidy, Don’t care for the process, and have less tome than most but i am even less interested in having a stranger in my home.
My own coping strategy is to minimize accumulation and aggresively giving away stuff i dont need… streamline the debia field and it’s simpler to keep tisy.
Need a cool 60’s vintage fondue set or even more cool art deco coffee service? I’ll UPS them to you
Cheers
debia= debris
iPhone keyboard blues
No, it’s not a matter of crap, it’s a matter of having no time to clean at all. I gather you’ve never been in that position. It’s amazing how rapidly things can decay.
” What happens to middle-lower income workers who put in similar hours and can’t afford paid help?”
I have a couple of friends who work as nannies…both in their 30s. They get paid ok, more than a janitor but not by much. Of course, they work for some rather wealthy folks, as no one else can afford to hire a nanny (least not around here).
More common is day-care. Average cost of full-time day-care runs $1200-$1500/mo. (last I checked) which is only slightly below our average wage in this state (~$2,100/mo.) So, if you’re an ordinary middle of the road person, income-wise, and you need to put your children in daycare so that you can go to work, you can expect to just barely break-even on the deal, once you’ve paid for the childcare.
If you want to have children you need to support them; in order to support them you need a job; in order to get a job, you need to put the kids in daycare, but; daycare costs as much as your job pays. That’s what we call the ol’ catch-22.
About social stratification – I remember back in the last millennium when Bill Clinton wanted to nominate Zoe Baird. She was dropped because she (or her husband) didn’t know anybody who would watch their baby for 25-30 thousand a year in 1993 which would be 35-40 thousand today. Notice how inflation invisibly creeps up on us regular people while the rich can pay people to keep track.
So she went to an agency which sent an illegal immigrant and so she lost her chance to be on the Supreme Court.
She had already given up a chance to be a full time mother to her children while the illegal immigrant probably had given up the same in order to survive.
It seems better the present German way if Germany would realize that unless there are jobs in the periphery then their German Banks are never going to get their loans paid back.
Trimming my own fingernails is “subsidized”? By whom? How?
I think it was JK Galbraith who explained that GDP would skyrocket if women stopped sleeping with their own husbands, slept with their neighbors’ husbands, and charged them.
I think it was Al Goldstein who said that.
Similarly, a feminist (Gloria Steinem?) on The Colbert Report, in response to Stephen’s quip that women should take care of their neighbor’s kids to improve the economy, said that at least that way they’d get social security.
All human activity should be monetised? I doubt those in german mini jobs could afford to make this contribution to the economy, or even most of the working population.
I also doubt they would want to, home work is autonomous, a quality rarely found in paid work.
Would the participants in the Koln Carnival be happier outsourcing the creation of their floats and costumes to others?
Nor could the working population here in the U.S. Not working at Walmart and MickeyD’s, that’s for sure. 1/3 of families are headed by a single parent, a second income can’t be assumed.
I wonder what it costs to get your yard mowed in Germany. The best price I could find for my front yard only, small, maybe 1500 s.f., was $35. A 30 minute job. I knew nurses, RN’s, who left nursing to start their own business cleaning homes. They said the money and the hours were both better. I guess people don’t need emergency mop jobs at 2 am. The bonded cleaners, who charge at least $20/hr here in Hooterville, they don’t pay their employees much over minimum wage.
“Also from a policy perspective, home production is a blight. By remaining outside the “paid for” economy, home production escapes taxation…. and fosters black market activities…”
Or as some others might put it, people adapt to stupid/burdensome government policies by ignoring them. You may have wonderful and ideal theories about how excellent everything would be if only people did what you suggest. And you may even get laws passed mandating that people do as you suggest. But if people decide that your suggestions are full of crap you’re only going to succeed at engendering distrust and contempt for the government (and economists)–which actually is something I applaud!
Therefore, I hope you will write numerous op-eds for various outlets, both American and German, advocating your ideas, and lobby legislators to implement legislation to their effect. Heck here in America we already have an “Obamacare Mandate” that’s causing plenty of people to hate and despise the government; a “Lawncare Mandate” would be a great compliment to that.
How about government-supplied lawncare? And housecleaning.
Dear LucyLulu;
We already have that, it’s called prison. The Gov is expanding that program daily.
Other commenters beat me to the first and most obvious problem, namely that monetarizing everything is both A) a really bad idea and B) unbelievably inhumane as a solution to anything. If the only way we can provide for people is by deliberately creating crappy jobs for them, then we didn’t need them to begin with and we could have a mandated wage.
Etc etc.
But here’s a novel idea. Every time we impose a transaction, there is a cost. If I mow my own lawn, I can do it whenever I want, however I want, to my own satisfaction, or not at all. Nobody fills out a form, nobody taxes anything, nobody has to drive to my house.
All of these are transactions that, as mentioned, count as economic activity and can be taxed, but only if someone else does them.
If someone else does them, they are often more wasteful even if they would be more efficient due to bulk-work, because of these transaction costs added on top. These costs need not be physical: You get a lot of peace of mind out of not juggling personal workers, as mentioned by Yves.
Doing your own work in your spare time is part of life and good for all of us. I would recommend looking into reducing the total hours of work per week as a remedy instead. Going from a 40 hour week to a 30 hour week (with no reduction in weekly pay) would quickly solve the ol’ unemployment problem AND improve everything else, because now we’d have more time to mow our own lawns!
-Just think: Instead of having to create a crappy lawn-mowing job, we could have that wannabe computer engineer actually program for a living, then go home and mow his own lawn, just like everyone else.
Thank you SaltyJustice, you seem to be arguing that Germans lead a better life than Americans, at least from looking at work hours. That lifestyle judgement I do not take issues with.
You also make a point about transaction cost. I though would not just call it transaction cost but principal-agent problem: you don’t know the quality of service you get, thus you incur search and monitoring cost. In areas where this problem is big, the government has already stepped in. For example, restaurants get hygienic/health checks (of different thoroughness, admittedly) so that guests have to worry less about… well, you know. These regulations impose costs on the service provider. My impression is though that in some areas the government intervention is going too far, making these services actually too expensive, and thus reducing demand, and reducing the monetary economy. Folks cook at home.
This is a stylized observation, and one would need to research more to come up with (better) examples. (In both US and Germany you can buy prepared food quite cheap, although I have heard of German restaurant business owners who reportedly suffer from what appears unreasonably intense government intervention.)
No, there is a transaction cost. They have to visit, you have to discuss the job and agree terms.
And you ALSO have to be ready for them to do the work. That means having the place ready (no toys on the lawn, for instance) and adequate supplies on hand.
FWIW, the Germans have already been doing the “job-sharing” thing for awhile. The author mentions in the article that most Germans do more unpaid work than paid…and the former number is only 25 hours per week, which must mean that average Germans do less than 25 hrs/wk of paid work.
The problem that the author is trying to address is the issue of distributing effective demand throughout the economy. In our current monetary, capitalist economies, effective demand means having money to purchase things. Since we inevitably end up with a few people hoarding massive amounts of money, while masses of others don’t have enough to feed themselves, finding ways to distribute effective demand (money) in such a way so as to allow the whole deal to keep running is a continual requirement of our system.
Since the traditional way of transferring effective demand from the wealthy to the poor is for the poor to work for the wealthy, that is what the author suggests more of. However, a Basic Income Guarantee would be more effective, while also allowing the Deutschlanders to continue cutting their own grass.
My concerns about Basic Income Guarantee are that
1. It’s funded by the 99.99% for the 99.99%, and not a wealth tax on the 0.01%
2. It’s straight out of the playbook of ‘how to torture a prisoner without killing him/her’ applied to ‘how to string along a serf without disturbing the soiree.’
Complete GDP sharing, on the other hand, will make the 0.01% sit up and pay attention and is actually about the realization that the GDP is a product of team work.
While I agree in principal, I have a hard enough time convincing my liberal friends that a BIG is a good idea, let alone GDP sharing (but, but…free riders!). For now I have to settle for convincing folks that an ELR/JG program is a good idea.
Life is like hiking with the Boy Scouts…the rate that any one person can travel is limited by the top speed of the slowest member of the group. I think we’re going to have to be pretty patient with this bunch…first JG, then BIG, then GDPS (or even better, just sharing)
There’s no reason an “income guarantee” and “having a job” must be mutually exclusive, any more than “collecting foodstamps” or “universal healthcare” and “having a job” are mutually exclusive, considering that most poor people are working poor people.
The bigger problem, and the more intractable problem, is not unemployment per se but the growing population of working poor (along with declining incomes generally), to which unemployment per se is only one contributing factor.
Given the downward pressure on wages due to globalization and the desire of the domestic US population in the private sector economy to hire people on the cheap, some of them because they can only afford to pay so much– these upper middle, middle class, and small business people still have way more political clout than the working poor and their advocates, therefore they win– I think that’s the more likely policy route, even though it seems counterintuitive to the moral scourges.
And there’s already a longstanding acknowledgment of this problem in the Earned Income Tax Credit, (whether Republican candidates for president choose to lose elections complaining about it or not).
This is as old as the New Deal. The Southern good old boys who crafted it deliberately excluded agricultural and domestic labor from all its provisions so they could keep their farms and households going.
When these f*ckers effectively helped themselves to a hand, I don’t know who it was that agreed to give them the whole arm.
But as opposed to the EITC, a real “income guarantee,” would make it at least a little easier for people to leave bad employment situations. I think this very important for everyone’s health and mental sanity.
Doesn’t the present earned income tax credit program subsidize companies like Walmart? Although I agree with the spirit of the law in this case, how it has worked out leaves a lot to be desired.
This is, I think, more problematic than Cliff suggests, at least in this post. For one, money is not neutral. There must be sufficient currency in circulation to buy all goods and services produced by the German economy; is the German government ready to spend sufficiently, or to push private debt to the point a potential 40% increase in output can be accommodated? Even if Germany has will I question whether it has means given the structure of the euro system.
Also, I’m troubled by the idea of extending taxation into the real of home activities. The German wealthy will likely already be paying for many of these services so as to relieve themselves of the time-sink of domestic chores, so this stands a real chance of becoming a regressive tax hitting hardest those who cannot afford to pay.
I have social concerns as well, but I’ll stick to the monetary/economic aspects.
The economy is supposed to serve the needs of society. Here we have it the other way round in Economic man. In class terms, this comes across as our elites should do the economic enlightened thing and hire more serfs.
“In class terms, this comes across as our elites should do the economic enlightened thing and hire more serfs.”
Aren’t the elite already hiring more serfs?
They are creating far more serfs than they are hiring.
I was under the impression the elite were busy laying them off.
Laying them off from higher paying jobs to hire them back at lower paying jobs. Not rocket science.
What if scientists invent grass that grows 2 inches then stops? Or clothes that don’t get dirty? what would that do to the economy? think about that before coming to any helpful conclusions. Jeez Louise. Some people have the nuttiest ideas,
what about all the time people waste posting comments on blog sites. isn’t there a way to monetize that and help the economy? I think so.
I’ll write and post comments in your name for only $1 a word. If you want it spelled right it’s $1.50. You can go to the office and work instead of sit around pissing yourself off reading the internet. Don’t let your vanity get in the way of productivity! The economy needs you, NOW!
for more information call my associate
Mr. Joe
D. Tremens & Company
“Professional Quality Commentary in your Name so you can Work Not Loaf”
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With a skill-set like that craazyman, you really should consider branching out, diversifying. I’m sure there’s an opening for you in related fields. Like writing up foreclosure reviews.
Worth every penny!
Did I write that or did you?
“what about all the time people waste posting comments on blog sites. isn’t there a way to monetize that and help the economy?”
yes but only by the blog owner
A personal favorite Belgian, if your successful in your monetization scheme , here is a way to put your revenue back into circulation
https://en.wikipedia.org/wiki/Delirium_Tremens_(beer)
“Economists have argued as a next-best that northern countries will start putting more operations in the South as their wage levels fall. But that won’t provide relief any time soon.”
In Ireland we have operations from around the world based here yet it has done nothing for the internal economy.
We are much like the Montana arms factory that Yanis thinks can make the euro more sustainable.
But that is not the core problem of the euro and indeed all banking union disasters (see UK and US)
Its a simple lack of local production to service local demand as the banks cause a concentration of money claims in national and financial cities causing a gross misallocation of capital.
The problem is these euro wide and beyond “operations” have not been designed to service wage demand signals… they typically are a intermediate part of very complex production process which is grossly credit fueled.
As I have said before – the most dramatic example of this is the steep decline of brewing in my home town where the final large brewery now only services local and stunted keg demand for stout and Heineken ……..it has essentially become a toy factory where the reps can fly the flag of local production.
(Beer is a heavy liquid which until the euro years was brewed near the demand signal)
Where does this euro production logic end up ? Eventually the euro will allow the air freighting of milk into Cork so that the tourists can drink cafe au lait and proclaim a shortage for the rest of the population who do not have any money to buy the product.
As for tax , well they are now banning turf cutting in Ireland making us even more dependent on this long distance trade / monetary / energy system.
Who can not say that the fairly recent introduction of a central bank into Ireland has not been yet another complete disaster for the local population.
Adding (taxes) costs to all human activities.
One must ask if taxes are needed if credit waste is subtracted from the equation.
One merely needs a fiat authority me thinks
I imagine the woman will go back to housework in short order.
National credit systems have destroyed local village exchange.
The Euro system has destroyed internal national exchange.
The real costs of such absurd trade is transferred to the population via increased tax or inflation (the same thing)
The Euro is the most evil construct ever designed.
It considers the total breakdown of internal national trade a success as it is the objective of such a system which must create living space” for absurd added value products.
If somebody can explain why I can buy a can of Heineken (brewed in Holland) for 1.25 in the local supermarket yet must pay 4.50 for a pint of Heineken (brewed in Cork) in a pub it would be greatly appreciated.
Tax on the pint is very significant but the euro has also destroyed the true input costs of production.
This price failure must manifest itself somewhere else.
And indeed it does , through the process of economic collapse where production and consumption becomes disconnected from each other.
The euro is perhaps the most extreme hard money / loose credit system on the planet.
The evidence for this is everywhere.
Chiefly the extreme inability to consume what we produce.
A quite fantastic state of commercial affairs.
The ultimate argument along these lines is that stay-at-home mothers should be paid a salary. After all, they work hard! Culturally, of course, that doesn’t wash. (Some countries do pay home care takers, of e.g. the very ill / demented, thru taxes, but not if they are parents of minors..)
Naturally enough, with a lot of stay at home women (low labor participation rate), and lowish living costs (rent, few children in comparison to say France) those not in work do all kinds of stuff like paint walls, knit sweaters, mow lawns, exchange favors (cleaning for English lessons), etc. And people will ‘work’ black. In fact, the German mini-jobs are sort of part of the same culture.
I find arguments for making activities ‘official’ as ‘jobs’, or the contrary, e.g. those who promote exchange of ‘work’ (although this if often carried out in conditions of necessity, that is, ppl have no money so barter their arms and brains) unpersuasive. One shoe does not fit all, and many factors intervene in a complex web.
Where I live this battle (pro and contra) has been raging for years. One compromise solution was implemented for cleaners / babysitters, nannies / elder care at home, part-timers in the main. (A full time official live-in nanny, say, would have a proper work contract.) If, but only if, employer and employee agree they can set up a contract where employee earns x wage, contributions to state pension, disability, and unemployment are made (not health, which is separate in Switzerland), making the activity almost a normal ‘job’.
This ups the cost considerably for the employer (though many are willing to pay that amount), but puts the employee into officialdom, which most of them don’t want, as they are illegals or semi-legals or just temps. The scheme is not a success .. plus it is bureaucratically cumbersome.
Andrea,
the new coalition in Germany did actually increase the state pension for those parents who stayed home to raise kids. And those mini jobs which were often mentioned already was another such attempt to lower the barriers to “monetize” economic activity. Likewise there were tax exemptions for small handyman jobs in Germany, and so on. I think many countries have toyed with policies to promote small services, often provided by micro enterprises and the low skilled, and also to avoid having them slip into the grey market. A guess the ultimate verdict is not yet out there, and I would be delighted if anyone can point out a good comparative study.
In Finland stay-at-home mothers are paid to look after their kids, if they so desire. The municipal government also provides home visits and material help. There are also 24-hour drop-in daycare centers where stressed parents can bring their children for supervised play on weekends.
If pensions are decoupled from salaried work, then, yes, it would be feasible to reward stay-at-home mothers for their work as well.
I think there is are inestimable social and psychological benefits in unpaid work, whether it is volunteer work, or hobbies, such as cooking, carpentry, gardening, and reading books, newspapers, and blogs, and yes, mowing lawns. Not to mention taking one’s children to the library or to music lessons, or bird watching, star-gazing just playing catch with them. (Well, I don’t know about mowing the lawn — lawns, especially in the United States, are a something of a blight).
“Mowing the lawn appears to be a common pastime for Germans. Washing the car or ironing even makes it into a listing of ways to burn calories in a recent issue of the news magazine Focus. Does this make sense, economically?”
What is meant by “economically”? If it means using a polluting, highly inefficient one hundred and eighty year old technology (infernal combustion engine) to trim grass because of a false sense of beauty, then that economics is faulty to begin with. Those lawns should be converted into growing food or trees or flowers. They should be designed to retain water to prevent costly flooding. See recent floods in England due to tree removal.
As for washing the car, way overdone in my region. Useful on occasion for removing corroding salt but otherwise just another flawed concept of beauty, mostly enforced by peer pressure. Also very polluting and wasteful of diminishing water resources. Paying debt slaves to wash more Porsches more often is a poor solution to our grave problems.
Same with ironing, dry cleaning, looking neat, presentable, businesslike. Why do I have to have creases on my shirts, pants? Washing, cleaning, ironing all way overdone to the point of obsession, mostly brought on by decades of unrelenting corporate advertising.
We need to stop growing and start preserving. Measures designed to continue and maintain a flawed, damaging, wasteful growth model are not the type of economics we need.
I second everything here – best comment so far.
We need to stop privatizing the commons, stop making people more dependent on the monetary economy, long logistics lines, and high-energy consumption. If these people could grow their own food (food forests/permaculture/etc), build their own homes (cob home building), have access to naturally occurring clean water, and develop close personal relationships in their communities, they wouldn’t need the money in the first place. It’s only their lack of access to these things that makes them poor – not their lack of money.
That food they produce and consume themselves will not add to GDP and will doubtless have to be taxed.
The ‘tragedy of the commons’ is only a problem for those (extractors,flunkies and enablers) who could not exploit it.
Read john prebble/ neil gunn and work out if those enjoying it made rational economc decisions or were coerced into surrendering it.
Its seems then if one buys products at Home Depot or Lowe’s that they are increasing GDP with their purchases but then negating other GDP contributors by doing the work themselves. Is this more a numbers game than it is humanly qualitative? Ian Welsh made an astute comment on his blog yesterday that questions the validity of the GDP in terms of what’s truly important in a social context. I tend to agree.
Countries want higher GDPs… so they can increase leverage.
From a economic point of view, contracting out home production might be useful as a way of increasing economic efficiency. Such increases in efficiency might be a way of either increasing a country’s net product or value creation – both the formal part we officially measure and include in GDP numbers the informal part we don’t include in GDP numbers. But simply moving work and value-generation from the informal sector to the formal sector does not in itself amount to an improvement in a country’s economic well-being. And the tax benefits to the public sector that might come from so moving it are not at all a justification for this outsourcing, since if higher taxes are needed, they can be collected without the outsourcing.
Suppose I incorporate myself as Dan Kervick Snowblowing Enterprises (DKSE). DKSE has one customer – Dan Kervick. DKSE is also wholly owned by one person – Dan Kervick – and its assets and profits are part of Dan Kervick’s net worth. DKSE also has a single employee – Dan Kervick, and a single piece of capital equipment: a snowblower. Whenever snow falls, DKSE’s employee, Dan Kervick, blows the snow out of the driveway. Then DKSE bills Dan Kervick for the work completed. At that point, Dan Kervick pays DKSE the billed amount. The dollar assets in Dan Kervick’s personal bank account diminish, and the dollar assets in the DKSE account go up. But since Dan Kervick is the owner of DKSE, his personal wealth remains unaffected.
Yet, voila! GDP in the United States has increased, because the value that is generated by blowing snow off my driveway has now moved from the part of the economy the US government doesn’t measure to the part the US government measures. But obviously, the well-being of my own household economy, and of the overall national economy hasn’t improved one bit.
Also, government tax revenues might rise, since there is now a nominal business transaction where there wasn’t one before, and assuming I duly reported it, various levels of government can take a cut. Is that good for the country? Possibly – it depends. But if higher tax payments from Dan Kervick are needed, they can be collected simply by raising income taxes without all of the other rigamarole.
Now some other snowblowing company besides DKSE might do the job better. After all, they are experts and have highly-developed snowblowing skills. And they can be more efficient. Over a few years time, the number of snowblowers a single company must buy in order to service 100 families should be significantly less than the number those families will buy to service themselves. From the standpoint of a single household, the decision that must be made is whether it would be better to pay a certain amount of money over a series of years to a service, and not buy a snowblower and have more free time, or to spend money on a snowblower and spend time and energy on snowblowing. With the increased free time, Dan Kervick, as highly-educated individual, can then devote more time to high value-added activities, such as writing comments on blogs. But there are transaction costs and scheduling inconveniences to keep in mind in connection with outsourcing. It is by no means obvious what the optimal economic solution is.
I want to add that Cliff links to an article that he says contains an argument that household outsourcing can increase per capita GDP in Germany by 40%. I don’t read German, so I can’t evaluate the argument. But 40% seems like an astonishingly large number. I would be interested to know if the argument is that there will be a 40% improvement in real economic well-being, or if most of the impact just results from a shift from the unmeasured to the measured economy described above.
I bet 40% is a very conservative number. If non-monetary economic activity were recorded at monetary price levels, major economies like Germany and the US would see massive increases in GDP. Look at the bill a hospital gives for bandaging a wound, or the bill a university gives for teaching a subject, or the bill a CPA gives for financial advice, or the bill an IT person gives for computer troubleshooting, or the bill a lawyer gives for legal advice, and so on. Then there are the recreational drugs and the sex and the music and the cooking and all the other things people do. Imagine the cost of hosting a game night or dinner party at an event center rather than your living room.
This is the very reason people do it themselves – doing it themselves is better and/or cheaper in most use cases (except for the very rich, of course, who have a different tradeoff between time and money).
Last nite on the France 24 Debate the topic was Davos, and some comments about inequality, etc. The general flavor was that the rich are parasites and capitalism is unsustainable. One panel member pointed out that GDP per capita is so skewed by the rich that it is meaningless for the 99% of us who live on a budget. For us it is just shuffling money from one debt to another. We have known this for 40 years. I remember the expense of day care when my daughter was 2. It was 75% of my paltry paycheck. We lived like paupers so we could work! What a scam. Also, on the news yessterday was a bit about Illinois moving to unionize home care workers who take care of the elderly. No doubt this is an attempt to tax the underground since Illinois is insolvent. Again, for 99% of us this “economy” is bleeding us to death on a payment plan. But the national GDP looks much better and the IMF and the Fed can say production is up and everything is just dandy, etc.
Spot on about GDP. Aggregate solutions to distributional problems are pretty funny.
You should put that on a T shirt and copywrite it.
Hey, maybe that could be an NC fundraiser?
I bet 40% is a very conservative number. If non-monetary economic activity were recorded at monetary price levels, major economies like Germany and the US would see massive increases in GDP.
I agree. But if that is all the argument for outsourcing home production consists in, then the argument is entirely bogus. It like saying that I can increase the net weight of the food in my fridge if I move my food into my neighbor’s fridge and he keeps the fridge on top of a scale.
Interesting how emphasis can be read in different ways. I was worried you were thinking that 40% is too much to adjust even nominally by tweaking calculations. I heartily agree this generates no real change; it’s just academic semantics over the definition of GDP.
If our friends in Germany are feeling inferior due to their per capita GDP being lower than the US, then that really shows how far leftist thinking has fallen in the west. The countries with the highest per capita GDP in the world are oil and financial exporters with small, homogenous populations (Qatar, Liechtenstein, Bermuda, etc.). That model can neither be scaled nor replicated from either a demographic or environmental standpoint.
But in fairness to the concept in the article, I think the case being built for moving German home production into the formal economy was based on what followed the 40% claim, not that claim itself (the education for mothers and work for low-skilled people and economies of scale and taxation and so forth).
Small yes, oil, yes, financial bs definitly, homogenous population, hell no!
Dan, sorry for linking to a document in German. The calculation the authors do is quite simple, exactly to what you allude: they use the time spent for home production, taken from time use surveys, and multiply it with an hourly wage rate.
Dan, the snowblow example is hilarious. Still, if the government can garnish taxes over a larger base of formal economic activity, tax rates could be lower to generate the same tax take. The argument about home production captures, and hopefully in part explains, two widely cited observations when comparing Germany to the US: lower per capita GDP, and higher tax rates.
Thanks Cliff. But in this case you are not talking about changing the size of the tax base or even the tax rate, right? You are talking about replacing some informal, untaxed activity with formal, taxed activity – with the universe of economic agents and the rates they pay unchanged.
There can be good arguments for outsourcing some home production that is not presently outsourced. But I don’t think relocating work so that some of the value generated is caught in the government’s existing tax nets is one of them.
It is both—recall the comparative advantage argument for outsourcing. Back in the days, Germany in particular was seen as “service desert” (Servicewueste) where it was hard to obtain paid-for simple personal services. There are cultural and personal preferences, no doubt. What I argue for is that services should be available, and regulatory and tax treatment that disadvantage them economically vis-a-vis home production are distortive and should be reconsidered, as this is in the interest of consumers, tax payers, and regulators.
There’s no comparative advantage to the householder who increases his household costs by outsourcing his lawn mowing.
If the householder doesn’t have to buy a lawnmower, it might be worth it. The savings in hours worked and capital expenditures might more than pay for the equivalent amount of lawn-mowing service.
But here we run into an incovenient issue: some people actually like getting outside in the sun and working in their yards
Yes, I agree that can be a good reason for outsourcing. There is no reason for 1000 folks to spend six hours each fumbling with the tools and plans for building a birdhouse, when 10 skilled craftspeople can make 1000 birdhouses in a fraction of the person-hours and with much less waste.
Ten skilled craftspeople?
That should read ten slave driven Chinese coolies.
You think everyone who works in a normal business is a collie? Should we all just go back to 100% do-it-yourselfism?
Dan you ought to get a lawnmower and you might make some real money. You’d need a lot of luck to make it big Snowblowing , assuming you live in New Yawk. it doesn’t snow that much here but grass grows for at least 7 months every day
Sometimes I read in the paper about a guy from Mexico (usually it’s Mexico) who comes to the U,S, on a bus and gets on a lawn crew. Then 5 years later he starts his own business, and in 5 years after that he’s mowing 1000 lawns and 29 corporate office parks with 30 guys working for him and he’s raking in (no pun intended) $3 or $4 million a year in revenue with profits probably at 20%.
That’s not bad at all, You can do a lot of good thinking mowing a lawn, Then you can go home and write it down. That’s efficiency, It’s no wonder the Germans like mowing lawns. They mow and think in their heads under the sky with the air everywhere around them and the sun maybe even shining on the trees. Then they go inside and write things down that they figured out, or else just have a beer and sausage. Some people would pay for that but they get it for free and their grass gets cut too, That’s efficiency.
I
If you can make $4 million doing that, why work?
Can you please report the name of that Mexican guy? I have a can’t miss deal for him.
May I suggest this gentleman read Juliet Schor and Marilyn Waring? Maybe he can find a time bank in Germany. Surely there are such things for people who can’t shine their own shoes. Newsflash – work at home including growing and preserving your own food, cooking, mending, cleaning and schooling barely offset the environmental so-called “externalities” that also, in our brilliantly devised (by men) economy, count for nothing. Here’s a place to begin http://essentialsharingdocs.blogspot.com/2011/01/whos-counting-marilyn-waring-on-sex.html
economy – from the Greek – household management or perhaps more broadly put, stewardship of the earth. How are we doing? Does quantifying, monetizing help?
+100
Cliff should outsource his Content Production.
This is beyond teaching to the test it is living for the spreadsheet! I would agree though that, if we can afford it, it is good to hire people who can do a far better job to do things like mow a lawn–our yard is on the largish side and the guys with the lawn service do a much better job than I can do, though our income is rather low these days, we keep them on.
But speaking to the larger issue here, problem with Western culture, it seems to me, is that we think of ourselves as economic units churning out numbers of one kind or another rather than the fully alive multi-dimensional beings we are. I think this is not the direction we ought to go in if we want a convivial society.
Lump of labour fallacy?
Jobs that one person would be doing (household) to be shared out with another?
Might as well share out the highly paid job, I’ve yet to encounter anyone anywhere who was/is as irreplaceable as he/she claimed. The act of refusing to share information on how their job is done is a good indicator that the job isn’t very complicated………
But since we’re ruled by workaholics who love their jobs and these workaholics are blissfully unaware that most people only work because they have to I’d say that shorter working hours is unlikely to happen.
How about volunteering, charity work and singing in a choir? Who told these people that it’s okay to abdicate your duty to add to the economy?
These people are enemies of GDP growth.
They will be dealt with severely.
When I grow up I want to grow per capita GDP.
And what is to be done about those who prepare meals at home instead of eating out? Women who color their own hair instead of using a professional colorist? God forbid anyone should sew a button on a shirt when the GDP imperative demands the purchase of a new one.
I dream that when I grow up I will add to the per capita GDP.
Yeah, I didn’t see a lot of takers for this argument.
“Other home activities requiring low skills, such as mowing the lawn, could provide work for the less qualified.”
I disagree with this hierarchical notion of skill and qualifications that has infected much of western educated thinking on political economy. It is a justification of the end result; not an explanation of it. Landscaping is no lesser of a task than banking or spying or whatever the people with the fancy skills and degrees are doing. This kind of thinking is inherently authoritarian – one of the key cultural differences between Prussian titles and American meritocracy.
And indeed, this is one of the tensions in American society today. How much should formal education be used to separate – to segregate – higher skilled/credentialed/qualified people from lower ones? The very act of thinking like this creates division and hierarchy and class, diminishing the worth of the lesser skilled while instilling a false sense of superior value in the ones who can pass the right tests and possess the right piece of paper.
Our society could use a lot more humility and uncertainty, a lot less CEO-knows-best.
+1000
The highest salaries should go to the people doing the most essential jobs: child and elder care, cleaning, farming, construction, etc. “Financial” people should be making minimum wage; politicians should be below the federal poverty level.
This points out the absurdity of using GDP as the Holy Grail.
Pay 1000 people a million dollars each to dig a hole, pay another 1000 people a million dollars each to fill it back in, and you’ve created $2 billion of GDP without creating anything of value.
Indeed.
We humans worship whatever we can’t fathom as gods.
First it was the moon…hard to explain the phases and one was easily awed.
Then it was thunder.
Then the Sun.
For a while now, it was quantum mechanics. A lot of New Agers will confirm that.
But it seems, with GDP being this mysterious, it is the new god.
MyLessThanPrimeBeef,
Yes. What is god?
As Islam Says: There is no God but God.
Islam essentially says that you have to be a little bit of an atheist first before you can find the one true god:
a. no it is not your genes or your race or your country or your empire or yourself or ancestors
b. no it is not your thoughts, ideas or culture or your know how
c. and of course it is not any physical thing you can see or observe with a scientific instrument
hmmm, seems kind a tough…yet he is suppose to be everywhere!
Sounds like Koan to me.
Mansoor H. Khan
We do better than that. We pay 5,000 people 500,000,000,000 to create a black hole for everyone else. The tool used is called a credit default swap.
Yikes, is this article really to be taken seriously? I thought it was satire.
Is Cliff actually suggesting that the economic way “forward” is for people to stop doing things for themselves that they CAN do for themselves and pay someone to do them instead? C’mon, it’s a joke, right?
Who was it who said that a “service” economy is like generating economic activity by taking in each other’s laundry? I can’t remember who said it but I’m sure I read it somewhere.
This plan is likely to be pretty short-lived, though. May I remind everyone that there already are robots that vacuum your house. If robotic lawn-mowers don’t already exist, I’m pretty sure they’re in the works.
People shouldn’t even have lawns anyway. I’ts a waste of space. They should have gardens. It’s called “foodscaping” and it’s already being used (although not in the US or Germany, I guess):
http://brisbanelocalfood.ning.com/forum/topics/foodscaping-in-geneva-switzerland
But my gawd, what would that do to the portion of GDP derived from groceries? Better let Monsanto handle it.
‘Yikes, is this article really to be taken seriously? I thought it was satire.’
My sentiments exactly. Tax ’em if they can’t take a joke!
You know, maybe I should reconsider. Saving the “economy” might not be so impossible after all.
Let’s just make every unemployed “worker” a waiter or bartender. On Monday, half of the population goes to work and the other half goes out to eat and drink. (We could pass a mandate. It’s against the law to cook for yourself or make yourself a cocktail.)
On Tuesday, the Monday diners go to work and the Monday workers go out to eat.
Switch again on Wednesday and so on.
GDP. Velocity of money. Economic nirvana. Problem solved. (It might also cut the enormous “education” budget–robots would make change and even the least educated will eventually comprehend “Tom Collins.”
It could work.
Oh, I forgot. JOBS. Oodles of them. As many as you want.
JOBS, JOBS, JOBS.
My job is to eat on Monday and serve on Tuesday?
It’s a deal!
Heck, I’ll even cook.
clever girl
It’s already happening here. There have been a number of law suits against home owners associations and city councils over people wanting to do or doing foodscaping.
No doubt.
The word progress tend to have a peculiar definition when translated into American
English.
All of this will not amount to a hill of beans in the not to distant future, when lights out manufacturing takes hold. Or when the construction industry becomes automated with robotics.
http://www.huffingtonpost.com/2014/01/21/3d-printer-house-mars-slums_n_4639046.html
And when computer vision is perfected to the point that they can perform the same visual tasks that humans are needed for now.
All of which will eliminate thousands of jobs.
Does Germany have a productivity problem?
if they outsource beer and sausage binges they’ll have more time to work AND mow!
Maybe they can keep up the mowing and juice the economy by paying us to eat and drink! Or pay the Greeks and Portugese! That’ll put money in their pockets and get them acclimated to a German lifestyle.
I’d hire a personal trainer if they’d do the workout for me. but they just stand there and watch. WTF? You get better results from an air conditioner and it stays out of your way. What’s the point of going to a shrink if you do all the talking? Try asking your shrink that and see what they say. I bet they just stare at you.
What if people decide to dig up their lawn and install artificial turf? That would crater the economy!
This stuff isn’t as complicated as economists make it. You just have to think clearly.
Tried to make the same point above.
See how easy it is if we just put our heads together?
funny Craazy
As the cottage industry guru, Gandhi, used to admit, “It costs a fortune to keep me in poverty.”
That’s so 19th and 20th century; the messy stuff! So the first thing you have to do in a modern economy, if you want to get rid of these pesky vestigial traces of humanity, is start with a mandate. Without that, you don’t have a pool of
suckerspeople economists can measure accurately to determine exactly how much of GDP we are talking about. Then, you form a company with multiple faces (referred to by politicians as “competition”) and finally you go bankrupt so that government will bail you out with a ton of their robots that were intended to kill children but can be used in a pinch to kill any chance money might get into the hands of needy people. Now, finally, you’re starting to approximate an economy we can call efficient!I lived with my elderly German in laws for over a year. They regarded leisure time as morally suspect, while hiring a cleaning lady or lawn service would have been a serious scandal in their little village- especially when they had three daughters and an idiot American son in law who were duty bound to perform such tasks.
Cliff’s article takes the theory of Comparative Advantage out of the macro world-trade level and puts it in the micro individual-household level. Comparative Advantage theory underlies free trade agreements and outsourcing. Germany and the Eurozone has outsourced much work.
(see http://en.wikipedia.org/wiki/Comparative_advantage )
Free trade has made some international corporations incredibly rich, but has worsened the employment opportunities for many in the EU and US. Now Cliff suggests this economic model be used at the micro household level and that householders should outsource their household work.
I can only say that since outsourcing and free trade policies have been so damaging to the household and national (as opposed to corporate) economies of Germany, the US, and the Eurozone, perhaps Cliff should consider examining the real costs of Comparative Advantage theory, free trade, and outsourcing as it is practiced. (and not as it’s described in theory)
Questioning the current economic orthodoxy may be a more fruitful line of inquiry.
Mowing the lawn,
Inputs:
Exercise, Fresh air and sunshine.
Outputs:
Improved health and a certain je ne sais quoi as you sit back and look upon your work with a pilsner.
Opportunity costs:
You could be profiting someone else to earn enough to go to the gymnasium while absorbing the enervating transaction costs.
Depends on what you value, I suppose.
Life is not a machine that we will work 24×7. There’s a word called ‘hobby’. That’s the ‘me time’ where we can spend insane time doing it. It is called priceless. There are some things in life that we can’t quantify or even want to get quantified. Mowing lawn is one such thing. I don’t think Germans should any way give up their favorite hobby.
So,
where exactly would those additional workers go? Into the low wage sector that already employs 22% of the workforce? The low wage sector that has to be supported by social security spending because it pays so much? And then those people would pay other low wagers to do their housework? Is that really the plan?
This seems to me like the solution to the care worker situation in Germany, in which the German government instead of increasing pay workers’ pay, tries to recruit Spanish, who are out of a job due to the austerity policies pushed by said government.
Indeed, the cliffs notes version of creation seems to suggest that if if a tree falls in the forest without someone being invoiced for it, it doesn’t matter.
In fact, its a waste, for goodness sake.
Where does amusing conversation come into this?
I sometimes detect a flicker of enjoyment at things I say freely, but the bastards enjoying it never offer me any money.
All I get is something similar back.
How do you pay the lawnmower with that?
faaaak I can’t help it. Seriously. Sorry Cliff and not to be harsh, but is this the dumbest post ever on NC? I posted once myself and it was pretty dumb too so I don’t consider myself superior, but frankly, I mean really. This is really really lacking in even the most elementary common sense.. What if the marginal utility function is maximized by lawn mowing such that the incremental utils are higher for German mowers than they are for lawn boy mowers even with the cash flowing. And what if the utils from preference function maximization by Germans who farm out mowing but instead spend their time indoors staring at the wall wondering what to do, what if those utils achieve negative marginal utility after only 23 minutes on average of Wall Staring and pacing around the living room looking out the window at the dude mowing the lawn. And then what if the collective social utility function actually goes negative if 492 Germans outsource their mowing. The road to hell is paved with good intentions. How would we even know what was going on with the marginal utility function at the micro and aggregate macro level at any point in time anyway? that’s when you need to guess and then you need to mow a lawn while your brain works the math in conceptual terms. Then you come home and write it down. QED
I think we should switch the subject to nail trimming.
Let the grass overgrow and watch the birds come and eat the seeds.
Cliff – I get that you are trying to generate ideas to spark more “measurable” economic activity, but there is another dimension to this aside from the “home production” issue.
Speaking only for myself as a saver (and a very risk adverse investor), the last few years have been effectively non-compounding. A way for someone with my risk profile to offset the lack in yield from savings is by eliminating expenses (sorry Ben Bernanke!). So over the last few years I have seen myself cutting down a lot of discretionary spending (less going out for beers, cabs, movies, etc – travel has really seen the brunt of the cuts).
Wouldn’t throwing savers a bone by increasing interest rates be a much bigger stimulus than any of your “home production” proposals?
I feel this “real” impact of ZIRP was summarized really well by Warren Mosler in the quote below.
“And further detail on this interest income channel shows that while income for savers dropped by nearly the full amount of the rate cuts, costs for borrowers haven’t fallen that much, with the difference going to net interest margins of lenders. And with lenders having a near zero propensity to consume from interest income, versus savers who have a much higher propensity to consume, this particular aspect of the institutional structure has caused rate reductions to be a contractionary and deflationary bias. ”
http://www.cnbc.com/id/46115110
and see also:
http://www.nakedcapitalism.com/2012/01/philip-pilkington-is-qezirp-killing-demand.html