Dr Daniel Sutter: The economy on the roof



Autumn brings the fall of leaves and pine needles. I recently removed the pine needles from my roof to ensure Santa had a safe landing. Economics students learn that the economy is everywhere in our lives. Including on the roof.

I made an economical choice, that of not hiring someone to clean my roof. (I also do my lawn and leaves.) Growing up in the Sutter house, we did a lot of things ourselves. I internalized this way of life.

I did not use the division of labor which, as an economist, I know, is the source of prosperity. When people specialize and do a task over and over, they learn it very well. Do-it-yourselfers take longer than specialists to complete tasks. Specialization also facilitates the invention of tools to perform tasks faster and easier.

Specialists also perform tasks more safely than do-it-yourselfers. Falls from ladders cause more than 150,000 trips to the emergency room each year. Fortunately, I did not fall. Other DIY projects come with more risk, like electrical work.

To help ensure the expertise of electricians and other professionals, states enact professional licensing laws allowing only people with specific training to legally practice. Sometimes, however, licensing boards add unnecessary requirements to limit competition, compromising security. People are more likely to do DIY if electricians cost too much or it takes too long to get one in your home.

But I saved money by cleaning my roof, didn’t I? Let’s see. Everyone’s time is precious, and the value of my time was my opportunity cost. I could have done an economist job, as a consultant, during the two hours I spent on the roof.

The principle of comparative advantage suggests that I could clean my roof faster by making money as an economist and hiring someone. But given my lack of consulting assignments, my opportunity cost was low.

My DIY probably reduced the GDP. How? ‘Or’ What? GDP is the market value of all goods and services produced in a year. We limit GDP to market transactions for two reasons: firms (generally) keep track of their sales, and the price at which the item or service sold provides an objective measure of value.

There are many tasks that people do – gardening, laundry, cleaning, cooking – that they could pay someone to do. Economists call it household production. We exclude household production from GDP for lack of statistics on quantities and prices.

The exclusion from household production is one of the many imperfections of GDP. Yet GDP is still an extremely valuable measure of economic activity: countries with higher GDP per capita (taking national currencies and prices into account) are clearly more prosperous, and we generally recognize the ongoing economic downturn. when GDP declines. GDP facilitates the study of the causes of recessions and economic growth.

Imperfect statistics, however, require careful application. Societal changes over the past seventy years have artificially inflated GDP.

The average household has grown from over 3.3 people in 1950 to 2.5 in 2020 due to many factors, including people who marry later or not at all and more divorces. Smaller households engage in less domestic production. Consider June Cleaver, the stay-at-home mom from the classic Leave It to Beaver TV series. Ms. Cleaver did not have a job, but she and millions of American women were employed, engaged in domestic production. Child care is now a nearly $ 50 billion industry and cares for millions of children. This counts for measured GDP, unlike Ms. Cleaver’s parents.

Smaller households increased their GDP per person. Normally, such an increase means more goods and services per person, the very essence of a higher standard of living. Yet America had housekeeping, cooking, and childcare 70 years ago; they were just less likely to go into GDP.

Maybe I should have increased GDP instead of climbing the ladder. But I have an idea for a column and a clean roof. But I still have a few leaves to rake. Merry Christmas to everyone!

Daniel Sutter is Charles G. Koch Professor of Economics at the Manuel H. Johnson Center for Political Economy at the University of Troy and host of Econversations on TrojanVision. The opinions expressed in this column are those of the author and do not necessarily reflect the views of the University of Troy.



About Author

Comments are closed.