Neo-classical economics and Gross Domestic Products (GDP) focus on trade values instead of the actual value to the citizen.
This systemically underestimate the value of production and scew the political focus towards what generates profits instead of what generates value to citizens and society. The consequence is Fool's Growth is where the models are claiming "growth" in GDP while the actual output value to citizens drop. This especially occur in the public sector and when something reduce or prevent competition in the private sector.
The first phase of the Digital Economy is to a large degree characterized by Fools Growth where a few cartels and monopolies accumulated power through digital infrastructure to control market processes for their short-term profits at the expense of overall growth in Citizen Profit and society progress.
What is Citizen profit?
Citizen Profit is the individual value of a product or service subtracted the cost of acquiring these.
The value of a product or service is NOT equal to the price, you pay for it - it is much higher.
If the value to you was not higher, you would vaste money and energy on acquiring the product or service and - however rational you may be from an external "expert" point of view - you do NOT vaste energy according to your own subjective evaluation.
The problem is that the value of an offering to an individual is subjective and depending on circumstances.
- The value of a cold beer bought in a supermarket on a Wednesday morning is substantially different than the value of the same cold beer a Friday evening to entertain and get in contact with a lady, you are attracted to.
- The value to another individual of the same beer in the same place at the same time is entirely different - maybe substantially different.
- The value of a computer is not the combination of elements in the computer, but what use it is to you.
- The value to you of doing charity or helping a friend or family member is not the coin value of the charity or the alternative income from the same amount of time. A good friend may be easily acquired without any real effort or unobtainable, but the value can be the difference of a life worth living and desperate solitude bordering suicide.
- The value of a job is not only the wage paid, but also colleges, sense of purpose and self-esteem. social interactions, etc. I.e. it is a more complex trade than merely an employee selling his working capacity to the employer (customer).
- Different citizens valuations of the same offering are entirely different. Anyone considering a mother to a teenager trying to get help doing the laundry would know that the teenager has an entire different perception as to what is important and "valuable" to do.
- Stability and progress as in the ability to cope with disaster, quality of learning, collaborative culture, infrastructure, jobs, reserve capacity to avoid blackouts in energy and absence of war, absence of surveillance, accountability of crimes, absence of discrimination and freedoms are all part of the bigger trades in society where citizens pay with their efforts (and taxes) receiving citizens profits from the community even though not something you can refer to any single action by any single individual.
This goes for all actions and product or services trades in daily life - the value to the citizen is complex and entirely unmeasurable.
In fact there is no inherent correlation between market price of services and the actual value to the citizen. The market prize is a function of substitution alternatives under competition to buying the services which has more to do with supply-side competition, location and resource constraints than with demand-side valuation.
It does, however, not represent at problem to citizens and markets - they merely act as they always have.
Why is Citizen Profit so important?
Citizen Profit is progress
In the end, the quality of life is Citizen profit in all its complexity and subjectivity.
If someone say that consumption is not everything or consumption is a threat to the planet, they are missing the point as both the unmeasurable values and cost of e.g. recycling is included in this understanding. Your perception of value is subjective and thus emphasize what is important to you - not what is recorded in some corporate income statement or stored as "property" in the basement of your home. And the cost is all cost including the cognitive energy invested in evaluation of alternatives and the cost of sustainable resource usage.
If someone say this is a "neo-liberal" or "socialist" perception of quality of life, they are in reality merely arguing against their own straw-man. Political questions such as whether wealth redistribution create additional value or destroy more value is not obvious and no inherent position on this topic can be derived from the definition of Citizen Profit. The approach is agnostic to such rather ideological questions.
Present macro economics is flawed biased towards the counterproductive as Citizen Profit is excluded
Neo-classical economic models (all the ones used when "experts" discuss quantitative economics) are extremely biased in the sense that it only focus on the value turned into formalized (and taxable) profit. This leads to counterproductive decisions and prevent value creation.
The main problem is that GDP not measure output, they only measure market value. Further GDP only express value in the private sector, in the public sector GDP only include cost of inputs.
This of course present macro economist based on model econometrics with a conundrum. They want to predict and explain, but without the ability to measure, what value do their models have?
The consequences is that when model economists discuss "growth" they are in essence talking nonsense as there is no correlation between the actual value to citizens and society on one side and on the other side the data and policy evaluation done by model economists.
In fact the models actually favor dysfunctional markets and ineffective public sector as market monopoly profit would in isolation create higher "value" according to the model. These models favor debt-driven consumption of products and services based on scarce resources or dysfunctional competition making them very dangerous if used to valuate alternative policies.
The jobs these models see and "assume to create" are based on higher consumption measured on market prizes. Citizens pay for the jobs with higher market prices and lowering Citizen profit just as the financing cost of politically induced spending has to be repaid later through e.g. higher taxes or devaluation of currency.
The essence - to talk about growth as anything else but increasing Citizen profit leads to counterproductive actions, in-optimal resource usage, lowering quality of life and reducing the competitiveness of the economy.
Fool's Growth problem
A key problem is what I suggest to call the Fool's Growth problem - Fool's Growth s is the effect when GDP increase, but Citizen profit decrease, citizen profit being the value to the individual customer of any process above what the citizen has to pay for the products/service.
When the public sector makes bad investments or use force to standardize services, GDP can raise at the same time as the Citizen profit decrease. E.g. when military spend a lot of money on weaponry, some new regulation restrict citizens unnecessarily or central government dictate one-size-fits-all processes that cannot - through choice - adapt to individual needs.
The same occur when e.g. monopoly or cartel structures in digital infrastructure reduce competition and introduce new powerful entities into the value chains that benefit directly from monopoly profits or indirectly from preventing alternative competition that would not give them profit. Such structures may often introduce negative externalities meaning additional costs or mis allocation of resources elsewhere in the economy.
Fool's Growth is perhaps the biggest problem in the digital age as it leads to the use of force to benefit the few where free choice in true market processes would have create a huge growth in Citizen profit as benefit of demand-driven digitalization.
Fool's growth It is the consequence of dysfunctional competition where some entity - government or commercial - are able to introduce mainly digital mechanisms. This was hard in the pre-internet world as citizens would not voluntary participate in deals that would not be seen as beneficial to them. Problem is that e.g. through regulation enforced mechanisms, cartel-standardization, hidden control-were, behavioral controls or e.g. some of the market-detrimental winner-takes-all models, players in the digital infrastructure can create structures that are seemingly creating value while destroying a lot more value elsewhere or later to the same citizen.
Free choice is the ONLY driver of Citizen profit and progress
The answer to the riddle is free choice or ensuring and allowing the citizen to act as the final judge on value.
It is the rejection that puts pressure on providers to improve Citizen profit - either through rationalization of production processes to reduce costs or through product and service developments to create services that are better suited to individual needs. This engine of free choice is the very motor in all progress. Science may invent opportunities and new insights, but the driver of progress is the change resulting from free choice and competition.
In fact, a key and unchangeable consequence of the subjective valuation is that only free choice can maximize Citizen Profit and thereby society progress.
This leads to a normative conclusion. We can and must do all to support and created the Empowering framework - bot legally, technically and otherwise (e.g. knowledge) - but in the end progress is a function of free choice and no elitist, ideological or model should be allowed to claim otherwise
This is NOT an ideological statement for laissez-faire. Especially not in world where technology is used to control actions. It is a statement that we need to be very careful to apply means that respect and support real choice. And to be strict on requirements to technology design.
This is NOT - in itself - a rejection of taxes and wealth redistribution. It merely means that the micro allocation has to be done by individual citizens to ensure value of tax money and it puts the pressure on those arguing for wealth redistribution and public choice to separate ideological arguments from economical.
The Law on Increasing Citizen Profit
Any well-functioning economy and society can thus be measured on its ability to grow Citizen profit and all actions should be seen in this light.
And the reverse statement also abide, in a well-functioning economy citizen profit will over time grow as competition and free choice will drive progress and increasingly better sustainable resource transformation into individual citizen profit.
Any well-functioning society will have Citizen profit as its primary objective. Whether the Healthcare sector is owned by the state or companies matters less compared to the question of - does it create Citizen profit or merely state control / corporate profit?