Tuesday, March 8, 2011

Consumer Surplus and the Internet: Measuring the Unmeasurable?

For those of you dealing with productivity in micro or growth in macro I have something for you. And if you already passed either or both, file it for next time. Annie Lowrey has a very thought-provoking piece at Slate. (HT to Marginal Revolution.)

She asks why the internet hasn't turned out to be the great technological boost to growth and productivity that we thought it would be. She also puts it another way: if it is, why can't we measure the effect? How would you measure the computer surplus on most internet content. Can we adequately describe "willingness to pay" until there's actually a charge?  I suspect we will find out as more and more content becomes subscriber-access. But the point is there will still remain a good deal that's free.  And what is the value of that content - what is the consumer surplus for the user?

Lowrey points out that a lot of older technology had a much bigger measurable impact on GDP - things like planes, trains and automobiles.  And everyone thought computers were going to create a huge productivity boom and usher in an era of structural change.  (Oddly enough, they seem to have had the most impact in the manufacturing sector - helping us make more stuff at lower cost.) Why did those technological breakthroughs translate into workplace productivity enhancements - saving money and lowering prices?

I'm not sure what the answer is for her question.  Excuse me now…I have to get back to my game of minesweeper.


Anonymous said...

Economists do not notice Gresham's Law when applied to information. Bad information is passed around a lot more than good information. Computers are a new way to produce and spread bad information. It wastes people's time.

When do economists suggest that accounting be mandatory in the schools? That would be good information. When do economists talk about inefficient software that wastes computing power?

Could the spread of good information be bad for GDP? Would economists talk about that?

Jack Horan said...

The article is very interesting, but I have a suspicion that the author (and many of us) are in danger of falling victim to one of the biggest problems of social sciences. That problem is that we tend only to believe in what we can measure, and thus devalue what we cannot.
We give lip service in our classes to the weaknesses inherent in measuring the GDP, but then those cautions are often quickly forgotten. I don't see any mention in the article about whether information available on the Internet has enabled many of the unmeasured parts of GDP (such as housework) to be done more efficiently. Will easy availability of health information enable people to live longer and more productive lives? How will the political impact of the Internet (seen in Egypt and elsewhere recently) play out regarding government and human relations, and how will those changes, if any, affect GDP?
I think that the ultimate problem for economists here will be in the conceptual and measurement problems of GDP, rather than in trying to shoehorn the Internet into an old paradigm.