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Yes, productivity matters – but it is not everything

Economists are often accused of an obsessive preoccupation with real gross national or gross domestic product, two closely related measures of national output. These measures have their uses. They show that, among advanced industrial countries, the US has made the most impressive (but still modest) recovery from the pre-crisis peak of 2007-08. The UK remains below that peak, sharing the dunce’s cap with the euro area.

Nevertheless, promoting GDP at all costs would be an insane objective for long-term economic policy. GDP would be maximised by opening a country’s frontiers and promoting mass immigration. Maybe some of the immigrants would be unemployed or, in other ways, be a charge on social security. But, so long as there is a net addition to the labour force, the country’s GDP would almost certainly rise, however overcrowded and unbearable the country might be to inhabit.

A less bad approximation might be GDP per worker. But even that borders on the absurd – for it might be maximised by compulsory increases in working hours at the expense of leisure.

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