Walking the Dog – Part 1

I took my dog for a walk and ended up writing a blog post about economic productivity. Ok, so what does economics have to do with walking the dog along Prince Edward Island’s beautiful north shore? In one respect, not much – at least in that particular moment.

Allow me to explain. . .

Total Factor Productivity

First, bear with me for a moment as we need to touch on some basic economics. Trust me, it’s worth it (and we’ll get back to the beach soon). Consider the following foundational concept: the total factor productivity (TFP) function. This widely used economic model describes the relationship between basic inputs—labour and capital—and the resulting output: something of value.

Each input is called a factor. In addition to labour (“L”) and capital (“C”), there’s a third factor – essentially, a catch-all term for “novel and effective ways of deploying labour and capital.” For reasons perhaps known only to economists, this third factor is typically labelled “A.” And finally, the resulting output is typically labelled “Q” – as in the quantity or quality of value produced.

Here’s the simplified version of the equation (for the quant purists, and in honour of my late father and mathematician Ivan Dowling, logarithmically transformed and presented in additive terms):

Total Factor Productivity Function L + C + A = Q

That’s it. No more math, I promise.

Here’s the punchline:

• We generate things of value (Q) through a combination of human effort (L), investment in tools and infrastructure (C), as well as applied innovation, management, and creativity (A).
  
• Valuable outputs include not only private goods, but also public services and infrastructure.
  
• People earn income (wages or returns on investment) in exchange for generating these things of value.
  
• The more valuable our outputs, the greater our incomes tend to be.
  
• In turn, higher incomes provide greater capacity to purchase goods and services, and to fund supporting public infrastructure.
  
• And ultimately, having greater access to valuable goods, services, and infrastructure tends to raise our standard of living.
  

Okay – enough theory. Let’s get back to the dog.

Walking the Dog – Part 2

My decision to hop in the car and drive thirty minutes (with a coffee stop, naturally) from Charlottetown to the coast for a beach walk was spontaneous. It was easy and fun. It was, in many ways, a quintessential Island quality-of-life moment.

But let’s pause and consider just a few of the underlying factors which made this seemingly effortless adventure possible.

Public policy initiatives helped protect our approximate 3,000 km stretch of coastline through land use planning that prioritizes public access and environmental preservation.

My salary covered the cost of the trip, and yes, also our recent canine addition. Local contractors designed and built the roads and bridges to get me to my destination safely and efficiently.

My jacket (note to self: not enough layers for mid-May winds), my coffee, and even the dog’s leash (found a nice one online) were all purchased through businesses supported by global supply chains, modern communication technology, and competitive markets.

More generally, I am also the beneficiary of extensive investment in healthcare and education infrastructure – foundational economic development supports established through shared Canadian values – which helped accord me the physical and financial means to take the journey.

In short, the ease and self assurance with which I could enjoy a brief trip from Charlottetown to the coast was enabled through generations of strategically coordinated investment in labour and capital.

Yes, I could have just walked the dog around the block. And yes, there are legitimate critiques of our modern consumer habits – do we really need the latest high-tech outerwear, an electric car, and a latte just to walk the dog?

Fair enough.

But the truth is, I value these conveniences. Imagine for a moment life in Prince Edward Island without modern transportation, land use regulation, healthcare – or indoor plumbing for that matter (which, for the record, I was grateful to access just before leaving the house).

Without the benefit of these economic development advances, gifted through generations of investment, hard work, and applied innovation, I likely wouldn’t have made that spontaneous trip. And I think my dog and I would have missed out.

Home from the Beach

I’m home from the beach and finishing my first-ever blog post. The dog seems unimpressed. She’s not particularly interested in economic theory or total factor productivity. For her, quality of life is simple: belly rubs (not L + C + A = Q).

And she’s right, in her way.

To be sure, standard of living – and certainly quality of life – cannot be fully explained by a productivity function.

But taking the time to reflect upon the complex arc of the Island’s economic development can not only assist us to appreciate what we have, but can also help us imagination where we can go next.

And where we go next matters – because the world, I believe, needs more PEI.