Growth, Progress, and the Physical Fallacy

 

I keep hearing ignorant stuff from environmental folk about how economic progress (or "growth" as some economists insist on calling it) is somehow finite because he planet is. That we need "degrowth." That we can't just keep on producing more stuff — and there's be a tipping point some time if we do.

This is an example of what Thomas Sowell used to call "the physical fallacy" —i.e., "the view that a given physical object always has a given value, regardless of its time, location, or even to whom you are asking" — a very good example of how too many folk misunderstand that economic progress consists essentially, not in producing stuff,  but in producing more value. (Just another reason that measuring economic progress by measuring GDP leads to error*.)

Art Carden explains:

A popular and pernicious fallacy that Thomas Sowell calls “the physical fallacy” holds that you’re not creating value if you’re not turning material stuff into another kind of material stuff. In this view, you take some stuff, hit it with something enough times that it becomes other stuff, and presto! You have created wealth. And industrial policy doesn’t seem to account for any other kind of creative value, leading to the all-too-common, and clearly fallacious, claim that “Americans don’t make things anymore.”

The statement that we only create wealth by creating physical objects is wrong in both tenets. Just because you’re making something doesn’t mean you’re creating value. You could very well be destroying it, as someone does when he raises cattle on land that would be more profitably used for housing and office space. And conversely, someone creates wealth when they move assets from a lower-valued use to a higher-valued use. Everyone selling things on eBay is creating wealth — or trying to — by matching things with people who want them at prices that make the sale worthwhile to both parties. I’ve been buying a bunch of junk on eBay recently that I find very meaningful. Other people might disagree.

Or as George Carlin used to say, "my shit is stuff; your stuff is shit."

* Alasdair Macleod: "Economists confuse growth in gross domestic product with progress. Growth is the expansion of a balance sheet total, reflecting an increase in the amount of money spent in the economy between two dates. Progress, on the other hand, is the improvement in living standards we get from more efficient production and technology."