One of my favorite economic articles written by Harry Browne was one that he wrote back in 1992. He asked the question, “Is America In Trouble for Lack of Manufacturing?” He pointed out the economic fallacies where people believe that America should be a nation of manufacturing and not a nation of services.
I thought about this article recently when I was reading an article by someone who was discussing productivity. He alluded that productivity is simply making things. Like so many people, there is a fallacy that productivity only counts when “stuff” is being made. In other words, productivity involves making cars, appliances, houses, clothes, etc. I suppose they would include food too. For some reason, these same people do not see services as productivity in the same way.
It is not as if I read this one time. I see this fallacy pop up often. It really pains me when I see it repeated by someone who claims to be a libertarian or someone with libertarian leanings. But it is simply wrong to assume that providing services does not count for productivity.
Maybe these same people (I’ll call them service critics) would point out that manufacturing goods is more important because that is meeting our basic human needs, whereas services are more of a luxury. But even most manufactured goods are not really a necessity. Food and shelter are a basic necessity for human survival, but there is not much beyond that. In that view, almost everything is a luxury.
But isn’t a car mechanic just as important as someone who builds a car? Maybe the “service critics” would still consider the car mechanic to be part of productivity because he is fixing an actual good?
What about teachers? They are not physically producing anything. Do they not count for anything?
What about a salesman? I suppose the “service critics” would say that a salesman is not really producing anything.
The reason we have so many service jobs in our economy today is because that is what consumers are choosing. I realize that there is a misallocation due to government taxes and regulations and also monetary inflation. There wouldn’t be so many lawyers if there weren’t so many laws. There would not be any tax accountants if there were no taxes to be paid. But given the hand dealt by government, the market responds.
The “service critics” probably don’t like the fact that people like Tiger Woods and Peyton Manning make millions of dollars playing sports. But this is market demand. They are providing entertainment for millions of people. They are also helping to advertise products through their endorsements.
When I use an example to illustrate an economic theme, I will usually use actual goods for the sake of simplicity and understanding. In an example of comparative advantage, I might start an example about Al who produces 10 apples per hour and Bob who produces 20 bananas per hour. These are easy concepts for people to understand. I might even just discuss “widgets”. But this isn’t to demean services. It is just for easy illustration purposes. I could just as easily point out comparative advantage by saying that Tiger Woods should still play golf even if he were the best hamburger flipper in America.
In conclusion, don’t fall into the economic trap of thinking that only making things counts as productivity. Doctors, massage therapists, real estate agents, accountants, chauffeurs, actors, athletes, musicians, therapists, and any number of professions make us more wealthy, assuming they are in demand by consumers. While government has misallocated resources on a grand scale, it is not to say that services would not exist in a free market. And in a highly civilized society, we should have luxury goods and services that make our lives easier. When less people are needed to manufacture goods, then it frees up resources to do other things that raise our overall standard of living.