Internet GDP: The Metric that Gives More for Less

Internet GDP: The Metric that Gives More for Less


A standard trope these days is that we in the middle class have been slogging through a couple of decades of woe. Wages are stagnant. Our standard of living isn’t improving. The grand forces of our time—the Internet and globalization—are failing to better our lives, and may be making things worse.

The numbers prove it. But here’s the problem: the traditional numbers used by the government and economists measure the wrong stuff for the twenty-first century. A New Yorker piece this week argues that the Internet has failed to boost the standard of living, and lays out all the data to substantiate it. Except the data doesn’t reflect real life. 

Technology and globalization may not be a boon for measurable productivity, jobs, or wages, but these forces have had a powerful impact on the other side of the ledger: consistently and dramatically giving us more for less. If my wages have merely kept up with inflation since 1993, I should be able to live better now than I did then.

  In a piece in March, The Economist tried to get at this discrepancy in a story sub-titled, “How to quantify the gains that the Internet has brought to consumers.” It looks mostly at time saved by using the Internet. A couple of decades ago, if someone got a disease and wanted to research it, they’d have to go to a library and spend days pulling down books and following citations. Now they go on Google from a laptop at home and get far more information in a couple of hours.

“The amount of internet activity that actually shows up in GDP—Google’s ad sales, for example—significantly understates its contribution to welfare by excluding the consumer surplus that accrues to Google’s users. The hard question to answer is by how much,” the authors state. Among the experts cited by The Economist are Erik Brynjolfsson, who presented on the topic at last year’s Techonomy conference in a talk entitled “Why it Matters that the GDP Ignores Free Goods.” 
And in the Wall Street Journal earlier this year, a couple of economics professors, Donald Boudreaux and Mark Perry, also grappled with the measurement problem, concluding: “While income inequality might be rising when measured in dollars, it is falling when reckoned in what’s most important—our ability to consume.”
Leave the metrics aside for a moment and just consider all kinds of examples from day to day life. How about photographs? Twenty years ago, I carried a $100 camera that took pictures on film that had to be both bought and developed, and if I wanted to share the images with others, I’d pay for copies. Now all of that activity is essentially free, and no doubt better. I can even edit the photos myself.
Long-distance phone calls: In the 1990s, I’d have paid several dollars a minute to talk to someone overseas. On Skype, I can do it for a few cents a minute, or connect to another Skype account and do it for free—with video added.
What’s the value of friendships kept up through Facebook? A good restaurant found on Yelp? Not getting lost because of GPS on a cell phone? Jobs found or connections made on LinkedIn? No numbers can measure such gains in living standards. Yet the gains are real for a wide swath of the middle class. These are not toys for the rich.
Globalization—which is driven by the connectivity of the Internet—plays its powerful role, too. Inexpensive “fast fashion” stores like H&M and Zara exist because of the ability to source globally and cheaply. A $200 shopping spree in 1993 might’ve gotten me a couple of fashionable items at Nordstrom. Now that same amount would fill an enormous shopping bag with hip-looking clothes at H&M.
Such examples can go on and on. Sure, some products and services have remained immune to the grand forces of the past two decades—gas, real estate, airfares. But even when it comes to basics like food and furniture, we’re getting more for less. As Boudreaux and Perry point out: “According to the Bureau of Economic Analysis, spending by households on many of modern life’s basics—food at home, automobiles, clothing and footwear, household furnishings and equipment, and housing and utilities—fell from 53 percent of disposable income in 1950 to 44 percent in 1970 to 32 percent today.”
The Internet is a bust? The middle-class standard of living has flat-lined? Puh-lease.

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