Increasing economic output is not the same as increasing economic productivity

From Doing Bad by Doing Good: Why Humanitarian Action Fails by Christopher J. Coyne. Page 72.

Economic progress requires adapting to changing conditions: innovation in the form of new products or improved existing products, including production and organizational techniques, and anticipating and responding to the changing demands of consumers and the availability of inputs. This process can take place only through markets, wherein economic
calculation provides feedback regarding changing conditions and the lure of profit provides the incentive for people to adapt in response to that feedback. Indeed, the market process of adaptation is the essence of society-wide economic progress and expanding wealth. Continual innovation and resource reallocation results in greater productivity, that is, more production using fewer resources, and the saved resources can then be redirected to produce additional goods and services that people value. The result is higher standards of living, as people are able to accumulate a widening array of tangible and intangible goods they value.

So, while economic progress entails increasing output in terms of the production of a widening array of goods and services that people value, improving standards of living through wealth creation is fundamentally different than simply expanding the amount of output. This is because producing things that people do not value does increase overall output, but it does not contribute to a society’s economic development, precisely because scarce resources are wasted in producing more goods or services that no one wants. Producing more typewriters increases the output of typewriters, but this larger output does not make people better off if they actually prefer computers. This important distinction between output and economic progress often gets forgotten in discussions of humanitarian assistance and economic development. As economists David Skarbek and Peter Leeson write, “Solving the economic problem determines whether a country’s economy develops. It is strange, then, that professional economists have had trouble distinguishing the positive relationship between inputs and outputs from solving the economic problem when it comes to evaluating foreign aid.” Indeed, foreign assistance is often presented in terms of contributing to countrywide economic progress (as the title from Jeffrey Sachs’s well-known book, The End of Poverty, suggests), but in reality the best it can accomplish, owing to the planner’s problem, is to increase certain predetermined outputs.

The confusion between production and economic progress is evident throughout humanitarian action, the proponents of which typically employ rhetoric about ending a country’s poverty while relying on output measures (infrastructure built, healthcare or food delivered, money spent, children enrolled in schools, and so on) as evidence of success. The implicit, yet incorrect, assumption is that these increases in output are the same thing as economic progress. A review of almost any report or assessment of humanitarian action illustrates this point.