The Misery of Unproductive Consumption

We celebrate productivity increases. You do not need to be schooled in economics to understand the basic truth that productivity increases are beneficial to humanity on many levels. It’s not just that the ultimate products will be cheaper. It inherently is a saving. A saving of energy, or resources, or pollution and it always contributes to a better world for all.

Daily we are bombarded with terms such as “Productivity of Capital”, “Productivity of Labour” or “Productivity of Production”. We praise those advances and award them productivity prizes. As we should.

But what about “Productivity of Consumption”. Is that not also a laudable achievement? Let’s have a closer look. Say my household switches off unused electricity using appliances, lights and equipment to reduce the household’s consumption of electricity by 20%. That would translate into the economics of productivity of consumption. My household would have increased our productivity of electricity consumption. Now many benefits accrue to my household. We obviously saved some money and as we literally did not sacrifice utility by simply excluding waste, we are on a pure winning streak. We made in a small way a contribution to preserving our planet. We basically did good, not so?

Let’s escalate this to a macroeconomic scale. Let every household around the globe carefully review its spending patters. Evaluate every expense for maximum utility. Do we need a new car or can we increase the productivity of our utility of our existing car. Same with the house. Do we scale down and still achieve a better utility? How high is the productivity of fuel consumption when driving a huge SUV? It is sad that the world needs a global economic crisis to refocus consumers on their productivity of consumption.

When it happens it has a profound economic impact. A good example is the oil crises of the mid 1970’s. I will not dwell on the excessive political undertones to this oil crisis but want to focus on the behaviour of consumers. Governments in this case intervened in the utility of gasoline to actually encourage, sometimes with extreme regulation, an increase in the productivity of consumption by consumers. Productivity of consumption was forced upon consumers when a national maximum speed limit of 55mph (1974) was enacted. Next Corporate Average Fuel Economy standards (CAFE) were enacted (1975). Even motor car racing activity was altered to recognise the need to increase productivity of gasoline consumption. Commuting to school before sunrise was another peculiar regulation imposed to presumably improve productivity of consumption but the unpopular daylight saving time measure had a too high utility cost and only prevailed from January 1974 to February 1975. Macroeconomic substitution away from oil based energy consumption took place on a large scale.

Extreme politicising of a commodity, the excesses of the go-go years of the 1960’s and not to forget the prevalence of price controls gave rise to a Global Oil Crisis. Thus it is no surprise that extreme politicising in the monetary economy, the bubble years post 2000 and the prevalence of price controls over the price for the use of money (interest rates) gave rise to a Global Financial Economic Crisis. The structural price distortion introduced by the Oil Crisis encouraged a steep rise in the productivity of consumption of oil based products globally. This “good” economic effect was retained in the economy and even the advent of a credit boom of cheap and easy money did not alter the once burned consumers. The truth is these twice shy consumers improved on their previous performance.

View the chart from a “Productivity of Consumption” perspective while being aware of the fact that the prices were controlled and the quantities were rationed during the adjustment process.



The first Oil Crisis in this chart is the period 1973 to 1980 and it is clear how productivity of consumption improved dramatically (by about 54%). The lesson was taken to heart and consumption remained flat for most of the 1980’s and 1990’s. The excess capacity of the previous period now combined with productivity of consumption to ensure relatively stable prices for 20 years. Investing in oil did nothing for investors who preferred the hot and sexy technology sector. Increased productivity of consumption did more for stable gasoline prices than any monetary policy ever did.

Consumers did not react immediately to further improve productivity of consumption when prices started rising towards the end of the millennium. Again it took the bubble pricing of another Oil Crisis, this time brought upon via a debt bubble, to drive home the need to further improve productivity of consumption. Again the ultra high prices altered consumption behaviour in a market which has a tradition of productivity of consumption. The USA economy had experienced inflation and growth over the 20 year period in which the consumption of petroleum products remained constant. That in itself is a significant feat. To top it of with a further drop of about 26% in consumption is breathtaking. Thirty six years later and the collective residential consumer consume only about 42% of the petroleum products they collectively consumed in the early 1970’s. Are we going to scold or praise the American consumer for this tour de force?

Here is proof of the paradox of credit booms. The consumption of petroleum products decreased right through the post 2000 bubble years and accelerated at the height of the credit boom.

It is incredible to note how tenacious the lesson of productivity of consumption is applied after such a crisis. We need to ask ourselves how a general change of behaviour by consumers towards a general increase in productivity of consumption will play out as a result of the Global Financial Economic Crisis. Can it be possible that consumption be reduced by 26% or even 54% generally and remain there for the next 20 or perhaps 36 years? The 1973 Oil Crisis says that it is not only possible but actually probable.

I would assert that the increased productivity in Oil consumption was without a doubt good for all the peoples of this planet. Yes, the initial adjustments were painful and finding the right mix of consumption and utility after the crisis took a while but in the end it was worth it. I would hold it as an absolute truth that an increase in productivity of consumption is good for all the inhabitants of planet earth.

Contrary to the increase in productivity of consumption which accompanied the Oil Crisis, we see that the current political response to the Global Financial Crisis is policies encouraging a lowering of productivity of consumption. The hypocrisy of sermons on Global Warming and a bone or two in the direction of green issues in the bailout packages opposed to extreme encouragement of a culture of lowering the productivity of consumption must confuse any half intelligent person.

Whenever I access my internet news channels, open my newspaper or switch on my TV, I am bombarded with almost fanatical encouragement by “leading” economists, political leaders, Central Bank Governors, and especially from the distressed banking sector all insisting that I must spend, spend and spend. Spend to save the economy. Here is a tax refund, please spend it. We are going to unfreeze lending so we can spend our way out of this economic crisis. Credit must flow so folks can get money to buy cars and houses. Wait one moment, what’s happened to productivity of consumption? Scrap that they say, all savings are bad for the economy and all efforts must be focused on stimulating demand.

Not even a moment’s thought has gone into contemplating productivity of consumption. Spending our way out of an economic crisis is paramount to proposing that we waste our way out of an economic crisis. It just cannot be a valid proposition. Yet it is taken one step further, “Please everybody go out and borrow money so we can waste our way out of this economic crisis.” Can it be taken even further? You bet.

The next step up is that we the government will borrow money and waste our way out of the economic crisis when you clearly fail to adhere to our requests to spend more. Surely it cannot get any worse? It can. We the government will print money and waste our way out of an economic crisis.

It requires a mental paradigm shift to observe the folly of present monetary and fiscal policies against a macroeconomic test of productivity of consumption. First a credit bubble is created through excess monetary liquidity provision and artificially lowering interest rates to encourage an extreme lowering of productivity of consumption. Politicians fall in love with the policy of wasteful consumption for it generates a fantastic tax income stream albeit temporary. They want it back and they want it permanently.

The debt bubble just can’t and certainly should not return. Debt saturation collapsed the credit bubble and consumers are faced again with a requirement to increase their productivity of consumption. Any other productivity increase would be lauded, celebrated and prized. Not this one. Oh no, this productivity increase is vilified. This productivity increase is bad for the economy, so they say. This productivity increase must be attacked and corrected using the concerted full might of all the governments around the globe. Productivity of consumption is a menace to the national interest.

The saving grace of the global economy, the utility of the resources of our planet and the long term survival of our species is rooted in productivity of consumption. Productivity of consumption should be elevated to a top priority and not be warred upon. Policies of wasteful consumption for the sake of saving a financial economy built upon an extreme lowering of productivity of consumption will only extend the period of wasteful consumption.

Economics, contrary to what is currently propagated, abhors waste. Every human action has a strong bias towards productivity and maximising utility. Wasteful behaviour is unnatural to economics. The current policies aimed at minimising productivity of consumption and minimising utility in the interest of saving the global economy is hocus-pocus, snake oil economics which will do nothing to cure any economic ills. The economic patient will die of maltreatment and neglect while these policies will be preached with the fever of faith healers.

Bottom watchers, “bottom pickers, top pickers and in the end all become cotton pickers” was a refrain around trading desks, will tell you that persons will repent from increasing their productivity of consumption if only bank credit can be “unfrozen”. That is, turbo-charged-on-super-steroids bank credit distribution policies must be returned to save the global economy. Productivity of consumption had an economic lesson for OPEC and OAPEC. Perhaps the lessons of 1974 during the Oil Crisis are long forgotten and the political economists of today may have to be re-educated on the principles of scarcity and productivity of consumption. Filling the shelves with printing press funded debt products priced at zero interest rates is not going to reverse the trend to improve productivity of consumption as the burden to repay excessive capital on boom priced assets has re-taught the virtues of productivity to consumers.

Current leading global economic policies will heap more misery of unproductive consumption upon the global economy. So “caveat emptor”, let the buyer beware when the bottom pickers bear messages of debt paradise.


Sarel Oberholster
BCom (Cum Laude), CAIB (SA)
27 March 2009


© Sarel Oberholster

General information on the 1973 Oil Crisis was obtained from "1973 Oil Crisis" at Wikipedia.


Please email me at ccpt@iafrica.com with any comments. More links and essays can be found on my blog at http://sareloberholster.blogspot.com/ .