Red-Blooded Risk: The Secret History of Wall Street

Waste

I discussed this at the time with Fischer Black, who had similar experiences. We worked on an informal project to estimate how much of the work done in the world was wasted. The conclusion was about 95 percent. The reason most people don't notice is they consider only the waste at their level. If a truck driver carries a load of goods from a warehouse to a store 400 miles away, he figures he did work. After all, he got paid $300 for it. But how much of that is useful work? Some of the items carried are defective, others will never be sold, and still others will be sold but not provide any satisfaction to the user. Some will be sold but used in other businesses that fail. Some will end up being moved other places, perhaps back to the warehouse. Some will be sold, but could have been sold for the same price or more at the original location.

All of this is disguised by accounting rules that treat every expenditure as a creation of value. The numbers all add up as if the truck driver did $300 worth of work. But it's fantasy. If we could really measure things right, we might find out that the average value of the 100 trips the truck driver made a year was about $300, but that 5 percent of the goods carried represented the entire $30,000 of value, and for the remaining 95 percent of goods the transportation added zero net value. Of course, we couldn't do any more than guess that 5 percent was the right figure, but it seemed reasonable in light of the calculations we could do. This ...