If you’re celebrating the May jobs report you might want to pump the brakes.
Jobs tend to be a political measure of success. They don’t necessarily reflect the economic reality we’re living in.
It’s not so much about how many jobs are being created but “what “types of jobs are. If the bulk of these new jobs are in low-wage roles in industries like healthcare or hospitality, can you really chalk that up as a win?
As this recent report in The Wall Street Journal notes, gross domestic income is down for the second quarter in a row. A recession is defined as two consecutive quarters of negative economic growth. Depending on the metric you use to measure that, we could already be in a recession.
Even though a record number of new jobs have been created those jobs aren’t necessarily contributing to America’s bottom line.
This essay is going to dive into economic productivity. Specifically, how the two most important sectors of our economy — tech and finance — are arguably the least productive. While non-productive industries are a boon for shareholders in the short term they may inevitability hollow out economic growth in the long term.
The economy is centered around non-productive industries like tech and finance.
Tech and finance are put on a pedestal in America. And it makes sense. Of the top 10 companies in the S&P 500, seven are tech companies.
Even though tech and finance are some of the most valuable companies in our economy, that doesn’t mean they are positive contributors to it.
For one, tech and finance companies don’t really produce tangible goods or services. Tech is based on algorithms that harvest data and sell it to advertisers. (Or in the case of Amazon, leverage that data for their own ecommerce purposes).
Finance is an industry that prints money. Profits are generated by lending money at interest and then slicing up those loans into derivatives that are sold on secondary financial markets.
Based on the 2008 Financial Crisis and the impact of the recent banking crisis, it’s hard to make the case that bankers are the good guys in our economy. Especially when their actions result in American workers losing their homes and small businesses struggling to make payroll.
The global economy is based on trade between countries. Countries have to find a balance between the things they import and the things they export. Like your personal finances, if you spend more than you earn you won’t be able to pay your bills.
Tech and finance companies aren’t necessarily exportable industries. They’re in the data business after all. Companies like Google and Meta can sell their advertising services to companies in foreign countries, but they’re probably not going to sell proprietary data or the algorithms they’ve built to collect that data. (Unless you’re trying to swing an election of course).
When you look at it from this perspective, you could argue that tech and finance companies are non-productive. The activities they do to generate revenue don’t necessarily contribute to growing our GDP. Sure, they generate profits, but those profits don’t necessarily lead to economic growth in the long term.
Tech and finance rob American workers of their time and attention, making them less productive in return.
Tech and finance companies are not only non-productive from an output standpoint. These companies also contribute to a workforce that is increasingly distracted. This slows down economic growth across the board.
Tech is in the eyeball business. They are profitable so long as your time and attention are fixated on the content they distribute to you. The longer you spend on their platform, the more revenue they can generate.
Companies with this business model have a vested interest in making you as unproductive as possible. Think about it: if you’re busy working you’re not spending time scrolling. And if you’re not scrolling, you’re not making these companies any money.
This idea of creating an unproductive workforce applies to finance too. Americans now hold a record $17 trillion in consumer debt. This means workers are focused on making money to pay off their debt rather than working to make America more productive.
More and more discretionary income is being siphoned off by lenders. Americans have less money to spend on things and less money to invest in more productive pursuits — like starting a business of their own.
If you look at productivity on a personal level, not just an economic one, you can see how unproductive we are. We spend the bulk of our day sitting in front of screens, scrolling through apps, and doing largely unproductive work.
AI and new forms of automation are inevitably going to reduce the amount of work we have to do altogether. But that doesn’t mean we’re going to be more productive citizens as a result. If anything, our scrolling habits would suggest we’re going to become more docile.
If we’re not contributing to output individually, it would make sense then that we’re not seeing a growth in output in the aggregate either.
Final takeaway.
By investing in short-term profitability we’ve effectively shot ourselves in the foot. We’ve stopped investing in long-term economic growth.
To understand the impact of this you have to look east.
China is the largest manufacturer of consumer goods. As a result, China is also the largest importer of American dollars.
Just like a business needs to have a product or service to sell, countries do too. By positioning itself as the world’s manufacturer, China is also establishing itself as a global economic powerhouse.
Investing in tech and finance, while lucrative in the short term, is not always a good bet for long-term growth.
That’s because tech and finance aren’t proprietary industries. It’s the data they collect that’s valuable, not the products or services themselves.
Anyone can copy what American tech and finance companies are doing. China has done that by creating its own apps that mimic the value their American competitors would otherwise provide.
WeChat, for example, is China’s super app. It does everything apps like Uber or Venmo do. If you have your own app, why would you need to import an American app and relinquish your citizens’ data in the process?
Now, one could argue that some American tech platforms are exportable. Netflix is a good example. But even Netflix isn’t immune from the reality that they’re in a sector that stymies growth. Their business model is finite because attention is finite. Even if you sell your app to everyone in the world there’s a limit to how much time they can allocate to it every day.
Tech platforms will wind up cannibalizing one another for your attention. This might be good for business but is it good for a national economy? Is it good for Meta to copy the features of its competitors or for Google to offer products no one wants?
America is unproductive because we’ve outsourced our productivity overseas. Soon we’ll be outsourcing it to AI too. All for the sake of lowering labor costs to increase profit.
The solution might be to rebalance our national economy. We need tech and finance companies, yes, but not at the expense of economic output. Instead, it might be prudent to return to our roots, producing high-quality, valuable products that the world’s consumers want to buy again.
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