Productivity isn’t flat today in the slightest. It’s just turning up in the consumer surplus, not GDP. As with my favourite example, WhatsApp. That is in the economic statistics as a decline in productivity (no, really). It’s also giving 2 billion people free telecoms. As another (non-NL so far at least) economist, Hal Varian puts it, GDP doesn’t deal well with free.
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Samizdata quote of the day – GDP doesn’t deal well with freeSamizdata Illuminatus (Arkham, Massachusetts) · Economics, Business & Globalization · Slogans & Quotations June 16th, 2024 |
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There is a lot that GDP doesn’t measure besides “free” since it only measures price not utility. If for example in 1980 my company produces a desktop computer for $5000 and compare it to me producing a computer today for $1000, it looks like I am a lot less productive. But instead the computer that my company made is probably about a million times more useful and maybe a billion times more powerful.
I am reminded of the story of the cop who found a drunk guy searching for his keys under a street light. “What are you doing sir?”, he asked. “I dropped my car keys in the park, so I am looking for them.” he replied. “But sir, the park is over there!” says the cop. “Yeah sure, but the park is dark and there is more light here.”
Which is to say GDP is one of those things that is easy to measure but doesn’t really measure anything useful. It does however, keep a lot of economists in a job. I sincerely believe that microeconomics is an extremely powerful tool to understand the world, and macroeconomics is mostly bullshit. Though it is definitely a great tool for politicians to use to increase your taxes, pay off their lobbyists, and regulate the crap out of your business.
GDP also doesn’t typically measure the black market economy, since by definition that market doesn’t get tracked in the normal ways. Drugs, untaxed goods, illegal imports, prostitution, barter. In Washington state, I would guess that nearly every used car sale made outside a used car lot gets reported at a lower price than the actual sale price, to avoid the ridiculous sales tax.
And the more avaricious the State, the larger the black market becomes relative to the legal markets.
Uninformed question:
FB bought Whatsapp for $19B years ago. Last yearly revenue number I saw for it was two years ago, and it was generating $1 Billion per year.
So, what’s not being measured? Users might not be paying that revenue, but someone is.
I’m a rational man. I look for numbers and information about things, then try to make sense of what I learn.
I’ve done that with a lot of the economy, in regards to things like this notion of “GDP”, and the whole issue of where the hell all that “lost productivity” has gone that should have somehow appeared due to automation and computerization of damn near everything.
What I’ve concluded? We really don’t know shiite about what is going on in the economy. Why? Well, consider this: You have, on the one hand, the computer and the revolution in electronics that has put a hand-held device into everyone’s hands that can access the world’s information with the greatest of ease. You can do things in the course of daily life that would have taken you literal weeks to accomplish just twenty-thirty years ago. I’ve been on jobsites, encountered problems with something, took some pictures, consulted with an expert, and had a fix that same day. That process would have taken weeks, back in the days when we had to rely on mere “snail mail” to send off inquiries to remote industrial companies providing materials.
So… There’s that. We should be being a lot more productive, with things like that becoming commonplace wonders of the age. However…
Consider the flip side to this coin, the fact that while the computer/information age has given us a lot of things with the left hand, it has also taken away with the right hand, by virtue of enabling all these silly bastard bureaucrat types that want extraneous information and demand compliance (which they can now so easily check!!) with their silly-ass rules. You spend all the time you’ve saved with the wonders of this modern age filling the idiot needs of the power-tripping bureaucrats, who think that the world revolves around them and their TPS reports.
So… While you marvel at the seemingly insane valuations of things like FaceBook and X, riddle me this: Where are the costs these entities create being accounted? FaceBook and all the other “social media” entities may be free services for the user, but what costs are they accruing in terms of damage to the social fabric? For every good thing they enable, I suspect that there’s probably at least as much negative value created, and none of it is being accounted for.
Consider how much money is lost every year dealing with the issues of identity theft and fraud; absent FaceBook and all the rest, how easy would it be to pull some of that fraud off? Damn near impossible… But, again, where’s the entry on the balance sheet for all that time spent trying to deal with the problems created by easy identity fraud?
Consider the social costs of allowing all the freaks to connect up; time was, you had some odd paraphilia like being a furry, you were isolated and alone out in your little podunk rural town. You never went anywhere with it, never became obsessed with it, because you had nothing reinforcing that behavior as being acceptable or at all prevalent. You’d likely leave it at “Damn, that Lola Rabbit character is kinda hot…”, and that would just be a side-note in the history of your life. Today? Dear God… You get online, and you can find entire communities of furries, doing all sorts of questionable things, holding conventions, selling costumes, reinforcing behaviors that heretofore would have been the exclusive reality for only a small number of obsessives… And, you wonder why things have gotten so ‘effing weird, these days?
Where’s the accounting for cost and benefit, on any economic forecast? All of this stuff has economic effect; what is it, and how do we assess it all?
I never see any of this sort of thing discussed or even mentioned in the various economic tomes of lore I’ve read. The whole question is more-or-less left invisible, yet I know that there’s some substance there that needs to be taken into account.
You have to have a holistic view on these things; if you’re trying to figure out where all that “lost productivity” went, you have to look at everything that the modern computing and information processing revolution implies; there are costs as well as benefits, and it’d be my guess that a lot of the “productivity gains” that should have accrued got eaten up by TPS reports and people spending unproductive work hours perusing websites devoted to their own peculiar paraphelia and caressing their fursuit while in their fursona…
Presumably there has been significant growth in the furry costume industry.
It isn’t just Fraser’s computer that has drastically come down in price. Back in the nineties I paid nearly £1,000 for a pretty basic digital piano, you can buy one similar to that one for about £150 now and that doesn’t even account for inflation.
American GDP figures are distorted – both by mass immigration (ditto the United Kingdom on that) and by inflation numbers which (deliberately or accidentally) underestimate inflation.
But even if GDP figures were accurate, GDP measures spending – so it is a very bad measure of economic health, it is production (food, materials, manufactured goods) that shows the health of an economy – not consumption fuelled by borrowing.
As for “WhatsApp” its purpose appears to be to lull people into a false sense of security (as if they were having a private conversation) so that they make indiscrete statements – which can then be used against them.
The mainstream media and the state security services (which are joined at the hip) are very fond of this.
Short version – GDP is a bad measure of economic health, but for very different reasons to that which Tim Worstall gives.
Tim Worstall implies that GDP numbers underestimate economic health – in reality they dramatically overestimate the health of an economy (especially in the case of the United States – where people get poorer and poorer and more and more in debt, as “GDP” numbers say all is well).
Whatsapp isn’t free: you have to pay for the electricity used. You have to pay for the bandwidth and data used. You have to pay for a smartphone or PC to use it.
No, Whatsapp is far from free.
If I spend Saturday afternoon cutting my grass and trimming my hedge and you spend Saturday afternoon cutting your grass and trimming your hedge, neither of us has added to GDP. But if I cut my grass and pay you to trim my hedge and you trim your hedge while you’re at it and pay me to cut your grass while I’m at it, we’ve added to GDP (assuming we declare it…). Nothing additional has been achieved. So GDP can both underestimate and overestimate value added.
@Quentin
We had our computers and our smartphones and our data plans before WhatsApp even existed. The marginal cost of using WhatsApp is essentially zero.
@ATF or if I pay my accountant to prepare my taxes, or my lawyer to explain the complexities of some regulation I am forced to obey then no actual value has been added, but both the payments contribute to the GDP.
@Fraser Orr
If it allows you to stay in business and create wealth, then I don’t think you can say that no value has been added. (I know you’re making a point about taxes and regulations…)
I’m walking around Prague right now, the bandwidth is provided via WiFi in the cafe I am sitting in, the power is a plug next to table. I’m posting a comment to the blog whose contributors are mostly based in UK, the blog itself on a server in USA, all with astonishing ease. No, it’s not “free” but all things considered, it is amazingly inexpensive, quite literally a trivial expense.
Perry de Havilland (Wiltshire) said:
Trivial expense to who?
Yes, you’re paying very little for that data, but what are the actual costs across the infrastructure and across society? Where are those accounted for?
This is one of the things that’s always puzzled me about the way they do these things, working the numbers. OK, so the company selling you the eSIM card with the data access is pricing that at X dollars per GB, or whatever the local currency is; where’s the price determination factor, here? Is it how much it is costing them to buy the data access from the backbone provider? How much investment money is out there, tied up in all the radios and servers providing that access, which have basically been amortized into oblivion? How much did that WLAN cost to put into place, and who is repaying it? How much money is it making the City of Prague, and where is the cost/benefit calculation for what the negative implications are?
You start asking these questions, and it all eventually bottoms out in some “policy wonk” telling you that “…it just does, OK?…” We’ve got that going on locally with the town; they want a “Free WIFI network” for all the tourists to use, but ain’t nobody showing the numbers on costs, or what it’ll add to the bottom line once it rolls out. It’s about like the projections with green power; they tell you “Hey, this’ll be a great thing…”, but when the actual numbers come in, they can’t tell you a damn thing about what it cost, what it is going to cost to maintain, and how long it will stay in service.
I’ve got a sneaking suspicion that an awful lot of the economy is tied up in all these “phffft!!!” great ideas like municipal WIFI. Bottom line, locally? Is anyone going to chose not to come here for a day trip or a vacation, ‘cos no free WIFI?
Ask the questions when they propose these things. Note the answers, and the goggle-eyed looks on the faces of the people proposing them, when your questions about bottom lines are asked. It’ll be educational.
I strongly suspect that there’s a huge chunk of the pie chart tied up in these “things we don’t know about”, and that’s one reason the modern economy is doing things nobody understands.
I had this discussion with a friend who is in the backbone industry awhile back. I asked him about the fiber-optic network that they put in, starting back in the 1990s. If you don’t know, the US had literally thousands upon thousands of miles of what they termed “dark fiber”, stuff they put in and then never actually lit up for use. Billions of dollars were invested in that infrastructure with the idea that we’d “eventually need it”. I asked him about that, if they’d ever gotten most of that into use, and his reply was a little stunning: Due to improvements and changes in the technology, all that “provisional” dark fiber they put in on contingency? Never got used before it had to be upgraded and replaced.
What. The. F*ck? How much of the economy is layered over things like that?
As I pointed out above, Whatsapp is bringing in more than $1B a year.
“It’s free!” usually means that you are the product. Whatsapp gives free personal use to build up acceptance of its business uses, from which it makes money.
So the free product we’re getting is just a marketing tool to bring in the actual paying customers. The value of this giveaway would be measured by how much the free personal use drives business acceptance.
GDP fails to account for actual altruism, perhaps, but marketing freebies do eventually show up.
bobby b said:
Now do “forced altruism”, ie, when some do-gooder mandates that my tax dollars (taken at effective gunpoint) go to subsidize various things like drug gear for the homeless, which I’d never willingly pay for.
It’s like with the local municipal WIFI plans: The provider wants the city to pay, but… Who is actually going to be paying for this? Where is the cash coming from? Why, they’ll raise the local sales tax rate, and that’ll discourage the people they’re trying to get to come here…
There. Ain’t. No. Such. Thing. As. A. Free. Lunch.
Dudley Dogooder wants to have his church establish a feeding station for the homeless, and in so doing, causes a drastic identifiable rise in the number of homeless living in tents under the landscaping in the park… Driving down home values, and causing local businesses to go under because nobody wants to have to deal with the crazy homeless guy screaming at them and their kids and crapping on the sidewalk…
Where’s the entry for that, in the social bookkeeping?
I suspect that there’s as much fuzzy thinking and flim-flammery in most of the accounting for these things as you would find on the books of many criminal enterprises, but because it’s government and “charitable organizations”, the assholes like Dudley Dogooder never have the costs assigned to them that they should be paying. Wrecked businesses and home values, not to mention quality-of-life? Nobody sees any of that as being a part of the equation, and that’s why these calculations are mostly just empty vague figures that fail to capture the reality.
Just like with the whole “Let’s mainstream the mentally ill, and shut down those expensive and horrible mental hospitals that we incarcerate them in…”
Yeah. Great. We did that; now what are the costs accruing from having listened to the morons whose idea it was? Were we really better off, putting all those poor bastards out on the street? Are we really saving money, with our open-air mental institutions that we’re spending billions to maintain regionally? I mean, look at Seattle: Was the then-existing mental health system really costing as much as they’re spending on the homeless today?
Precisely none of the accounting that I’ve seen even begins to take all these factors into account, which explains a hell of a lot about why we keep creating these messes.
It’s like “Yeah, let the arsonist out of prison… His rights were violated…” and then failing to account for all the economic follow-on effect from that preening moralistic decision, namely that he burns down a few million dollars in both public and private property…
While the judge, DA, and the rest of the legal system stand there and say “Not our problem, folks… We’re just here for the “justice-impacted”, not society as a whole…”
The root of the problem here is that the entire paradigm is flawed; it does not account for each and every input and effect, failing to capture a lot of essential things that it should be capturing. It’s why all these “government interventions” generally go as wrong as they do; they’re based on entirely inadequate data that is also misinterpreted. It’s especially bad when you try to plan and control these things, as unamenable to those two things as any chaotic system is…
I repeat – Americans, and others, get poorer and poorer and more in debt, yet “GDP” figures say all is well.
GDP is indeed a bad measure of economic health – but for very different reasons to those that Mr Worstall gives.
With GDP data a lot can change due to forces such as working roles in families. Back when women stayed at home to care for children, that work wasn’t counted in the data. When women worked in offices and expanded into occupations of men, and hired childcare folk to look after children, it boosts GDP, but this is a qualitative thing: if you assume men and women regard the second scenario as a net plus, the data might be useful but it’s also a matter of opinion.
Jonathan Pearce said:
Now, show me the entry in the spreadsheets for what it costs society in terms of juvenile delinquency and criminal activity that stems from a lack of supervision in the home… How many kids do poorly in school, because they don’t have a fully-engaged mother monitoring their homework and reinforcing behavior after school?
Sure, a double-income family with kids can buy more goods, but what does that actually cost in terms of deleterious social effect tumbling down the years…?
All too many of these decisions are made based on things that aren’t properly valued, in the account books of society. Hell, there aren’t even any entries, for most of it. What does it cost, health-wise, when kids don’t get let out to play actively the way they used to, ‘cos mommy and daddy are too scared to let them lead independent lives? You get there because you’re too damned sensitive to either incarcerate or kill child abusers, and never make the entry for what that “mercy” costs when people become afraid to let their kids out to play by themselves…
Everything has a cost, and the problem with all too many of the calculations we make about these things is that the actual costs aren’t even considered, let alone calculated.
A few comments:
“If for example in 1980 my company produces a desktop computer for $5000 and compare it to me producing a computer today for $1000, it looks like I am a lot less productive. But instead the computer that my company made is probably about a million times more useful and maybe a billion times more powerful.”
This is included. Called “hedonic adjustment”. More of an art than a science but yes, all inflation – and so all real GDP – figures are adjusted for this improvement in quality/utility.
“GDP also doesn’t typically measure the black market economy, since by definition that market doesn’t get tracked in the normal ways. Drugs, untaxed goods, illegal imports, prostitution, barter.”
Amusingly drugs and prostitution are counted in GDP within the EU (and UK). They’re variously legal and taxable across EU countries. So, part of the standardisation – perhaps a decade back – of GDP stats was that they should be included. That the EU’s “own income” – what feeds the bureaucracy that designs these statistics – is a settled percentage of recorded GDP has nothing to do with it. No, perish the thought.
“Last yearly revenue number I saw for it was two years ago, and it was generating $1 Billion per year.”
Ah, thanks for that. I shall have to change my example.
Back when I constructed it was after the $1 a year charge had been dropped and before WhatsAppBusiness (where business pays a fee to be able to contact consumers, but it’s still free to consumers) existed. So, I spoke to Facebook and they agreed, no revenue associated with WhatsApp. They also had “a couple of hundred” engineers working on it. The engineers turn up in productivity calculations as a cost. Therre’s no price associated with the output. Prpductivity is GDP/hours worked – WhatsApp was – back then and perhaps not now – a reduction in productivity. Despite 2 billion getting their free telecoms.
As you say the issue has changed now. But that’s where my assertion came from.