The economy has never tried to produce GDP: it tries to produce happiness, or satisfaction. And there's a lot more to life than GDP.

In the information age, our economy is providing benefits beyond those easily captured by GDP. When making a list of needs and wants, most people start with food, clothing and shelter. After that, they move on to safety and security and leisure time, then perhaps to some of the "fun" aspects of life, such as entertainment, travel and cultural enrichment. Beyond that, most of us seek personal fulfillment, such as the satisfaction that comes from a worthwhile or enjoyable job. This hierarchy of needs and wants reflects the influential work of the American psychologist Abraham Maslow (1908-70). Maslow's pyramid, a staple of psychology, consists of a hierarchy of needs that motivate human behavior. At the most basic level are the physiological needs. With those met, we move up to safety, social needs, self-esteem and, at the pinnacle of the pyramid, self-actualization.

Increased Leisure. As Americans grow wealthier, our physiological needs are being increasingly met, and there's a shift in wants from basic products to ever more intangible outputs. There are plenty of examples - from personal physical fitness gurus and Internet chat rooms to ecotourism and early retirement. For example, Austrian economist Joseph Schumpeter said, "The reduction of working hours is one of the most significant 'products' of economic evolution." Hours at work have fallen for decades. The average workweek fell from 36.9 hours in 1973 to 34.5 hours in 1990. An equal percentage decline over the next 25 years would yield a 31.4-hour workweek in 2020. Many workers have flexible schedules, including regular breaks. Yet GDP gives the economy no credit for gains in leisure.

Better Working Conditions. Another of the biggest yet most overlooked examples of gains in living standards missed by GDP figures is improvement in our working conditions. For most of us, work is a major part of life. And better working conditions have routinely been a product of progress, right along with more GDP. This is evident not just from the steady decline in worker death rates but also from a comparison of our work concerns today versus yesterday. In the early 1900s, our work worries centered on safety, fatigue, long hours, excessive heat, poor ventilation, high humidity, bad lighting, exposure, disease, lack of adequate toilet facilities and rigid schedules. Today, we seek interesting and fun jobs with meaningful work, nice offices, employee activities, flexible hours, empowerment, wellness classes, communication, employee counseling and the ability to telecommute. Americans have progressed from narrow productivity concerns to "have a nice day."

Work-Time Leisure. Although measures of productivity - output per hour at work - credit time off, they generally miss leisure time taken at work. Time-diary surveys show that Americans today take up to six hours per week of leisure on the job, as compared with only one hour in 1965. ¹⁷

What are some of the ways employees use their recorded work hours other than to work?

Arrive late after dropping off the kids. Leave early to pick up the kids. Go to parent-teacher conferences. Visit the doctor or dentist. Talk on the phone to friends. Chat with coworkers. Go outside to smoke. Give blood. Play solitaire on the computer. Browse the Internet for personal stuff. Attend wellness classes. Sell cookies for the kids. Raise funds for charities. Visit with friends via the Internet. Call automated tellers. Exercise (even in employers' facilities). Call talk radio programs or contests. Read the paper, a book or a magazine. Attend parties or showers. Write personal correspondence. Leave to run errands. Make a grocery list. Perform club duties. Take long breaks. Pay bills. Nap.

A little bit here, a little bit there, we're spending our day more the way we'd like.

The point is not that American workers are cheating their companies. On the contrary, it's all a part of progress. We're not automatons, enslaved to productivity as if we were still in the fields or on an assembly line. One way we take the gains of technological progress is to simply enjoy life in an economy that, more and more, transcends measurement.

And what about work that's fun? Most folks these days seek work they enjoy. Yet the standard statistics are apt to register economic regression if we quit a job we're good at but don't like in order to take one that's more enjoyable. It just doesn't make good sense. We take our progress in ways other than GDP.

The economy today reflects our wealthier society's preferences for harder-to-measure consumption. As we grow richer still in the future, we can expect society to spend more of its time, energy and income addressing needs that are farther and farther from the physiological. Pity the poor statistician with the job of tracking our increasingly elusive economy.

It would, of course, be good to have statistics that capture all the nuances of the economy as it evolves to meet our needs. That's probably too much to expect. Expense and complexity make a daunting task of tracking an American economy centered less and less on tangible output. Our measurement technology cannot keep pace with the rest of our technological progress. Relying on our existing measures, we're going to miss a lot of what happens in the economy as it moves into the 21st century.

We are fast departing a time when progress can be measured by GDP or any other simple tally of what the economy produces. If we become fixated on the numbers and fail to imagine the possibilities, we may miss one of the greatest periods of economic advancement in history. Worse yet, if we judge 21st century progress by 20th century measures, we may infer that our system is failing and in need of repair by government.

That is the bad news.

Free enterprise is America's greatest welfare program. For more than two centuries, the system has worked to make our lives better. Whatever we've wanted - new and improved products, more leisure, better jobs, easier lives - it has provided in abundance.

The pessimists fret that our best days are behind us. They are wrong. We stand poised on the brink of a new era, one endowed with technology and teeming with opportunities. The future offers even faster economic progress.

That is the good news.

W. Michael Cox
Federal Reserve Bank of Dallas
NCPA Senior Fellow

Richard Alm
Dallas Morning News

The views in this paper are not necessarily those of the Federal Reserve Bank of Dallas or the Federal Reserve System.

NOTE: Nothing written here should be construed as necessarily reflecting the views of the National Center for Policy Analysis or as an attempt to aid or hinder the passage of any bill before Congress.