Monday, March 23, 2009

Don’t Think of It As a Depression, Think of It As Designing a Lifestyle

The 4-Hour Workweek suggests ways to streamline your life and your work so that you work just 4 hours a week instead of the conventional 40 hours a week. Tim Ferriss did not write his book with an eye toward changing the economy, but it is changing the economy. When individual workers decide to work less and produce less, it reduces the total amount of economic activity. If just 10 percent of workers followed Ferriss’s example, it could reduce the economic aggregates enough that economists would call it a depression. But it wouldn’t really be a depression. It would just be a lifestyle change.

Economists mostly use GDP, gross domestic product, as a proxy for economic activity, and the conventional thought has always been, as long as GDP has been recorded, that more is better, but that is not always true. Case in point: a year ago, motor fuel prices were shooting upward, boosting GDP numbers. It led some economists to say the economy was booming, when in reality, the high prices at the gasoline pump were not an economic benefit, but were part of the reason the economy was falling into a recession. Later in the year, when fuel prices fell, GDP showed a disastrous decline. In fact, though, the falling fuel prices were good news.

In the same way, if you hate your job and decide to work fewer hours, that might improve your life, but to those who look just at GDP, it looks like a problem.

The timing of what goes into GDP also distorts its view of the economy. If I spend two years writing a book, I don’t appear in GDP at all during those two years. I’m no different from someone who isn’t working at all. If I then publish the book and go off on an extended vacation while I collect the royalties, I show up in GDP as someone who is producing a great deal even though, in fact, I have stopped working.

If this happens on a large scale, the GDP numbers can show ups and downs that don’t exist in the economic activity that GDP attempts to measure.

I am sure millions of people have heard of The 4-Hour Workweek, although they haven’t had time to read it, and they’ve said to themselves, “Someday I should do that, figure out how to arrange my work and my personal expenses so that work doesn’t take over my life.” They may get their chance if the economic downturn takes away their job or most of their business. Others may not really want to work less, but will find a way to adjust to it. And so, if present trends continue, we may by the end of the year find ourselves with millions of high-skill, high-performance, partially employed workers, people who aren’t letting their reduced incomes slow them down. And as I will explain next, that is the main reason I believe the current recession will not develop into a depression, or if it does, the depression will not last for a long time.