Confessions of a Supply-Side Liberal

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What Would Economic Growth Look Like If We Properly Valued the Web?

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I love Jeremy Warner’s essay "The UK internet boom that blows apart economic gloom" in the Telegraph. Jeremy makes several important points. One is that accounting for intangible investment, as the latest US GDP revisions do, can affect GDP figures. Here is a deeper issue Jeremy raises:

But even if these changes were to be incorporated, it still wouldn’t do justice to the growth in the digital economy. This is because much internet activity is free, and therefore immeasurable.

Take the traditional music industry, which used to involve, finding, recording and marketing new acts, and then cleaning up through copyrighted CD sales.

For decades, the model worked well — at least for the record producers and a small, elite of popular artists — and made a not insignificant contribution to GDP.

Then along came digital downloads, legal or otherwise. These have destroyed the old music company stranglehold on distribution, and in so doing made previously quite pricey music either far less expensive or completely free.

The pound value of music consumption has declined, and with it the music industry’s contribution to GDP, but the volume of music consumption has risen exponentially.

Much the same thing can be said about newspapers. The traditional business model has been badly undermined by the internet, but news demand and consumption has never been higher. If only we could persuade the blighters to pay, our industry would again be booming….

Prof Brynjolfsson believes that the correct way to measure all this… is via the time people spend immersed in it.

I know Erik Brynjolfsson from his Twitter feed as an excellent commentator on the digital economy.

The growing importance of free goods is one of the many reasons we need to go beyond GDP in accounting for well-being. Looking at the amount of time people spend online to infer value makes a lot of sense. But there are also more radical ways to go beyond GDP, as discussed in "Ori Heffetz: Quantifying Happiness" and "Judging the Nations: Wealth and Happiness are Not Enough." 

For the richest countries, at the technological frontier, human progress has shifted more and more into the realm of intangibles. Services are less tangible than goods; online activities are less tangible than face-to-face services; happiness, job satisfaction and meaning are less tangible than time spent hanging out in cyberspace. If we don’t develop good ways to account for the increasingly intangible dimensions of human progress, we will miss the main story going forward.  

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