Silicon Valley

Outraged Politicians and Official Statistics Miss the Benefits of Tech

Many innovations' benefits aren't captured by the GDP.

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We're in the middle of a big backlash against the internet, the kind that often appears when you start taking a technology's benefits for granted. It doesn't help that a lot of those benefits don't show up in our official statistics. 

Goldman Sachs's economic research team has found that a lot of the innovation Silicon Valley generates isn't captured by standard measurements of GDP. For example, while email, direct messaging, and Google Maps clearly make all kinds of work easier or more efficient, they're free, so GDP doesn't include the value consumers gain from using them. It's telling that a recent MIT study found that the median person would be willing to pay more than $40 a month for Facebook. Just because users don't pay for a service doesn't mean they don't value it. 

The Goldman Sachs researchers also had issues with how we measure consumer inflation. Sometimes when a good or service increases in price over time, that doesn't mean you're paying more for the same standard of living; it means the quality of the good or service has improved. A cell phone in 2000 could do a lot less than a cell phone can today. 

On the whole, the researchers estimate that these blind spots (most of which are tech-related) lead us to underestimate real GDP growth in the United States by 1 percentage point. In 2018, that would mean the economy grew almost 4 percent after adjusting for inflation instead of by almost 3 percent. And the gap has gotten larger over the past two decades: According to their estimates, GDP growth was underestimated by just .35 percentage points in 2005. 

Similarly, Amazon is often criticized for putting brick-and-mortar retailers—mostly big-box stores, but also smaller operations—out of business. But the flipside is that Amazon and other tech companies have created ways for many types of small businesses to expand their reach beyond what they could before. Amazon makes it much easier for small businesses to sell to customers around the world, and so do eBay, Google, and Facebook. Instead of just a storefront facing Main Street, these enterprises can now reach the whole internet, with very low barriers to entry

"Thanks to large online platforms, for less than $10, a small business can reach thousands of potential customers and target them more accurately than ever," Carl Szabo of NetChoice, a trade association of e-commerce businesses, testified to the House Judiciary Committee last week. Szabo highlighted the story of a woodworker in Albany, New York, who can now sell his craft to buyers around the country thanks to Etsy.

According to the Progressive Policy Institute, a center-left think tank, companies can get the same impact for $3 of digital advertising as they could with $5 of print advertising. 

Small businesses aren't the only beneficiaries here. Greater competition and lower advertising costs translate to lower prices for consumers, too. An analysis by the London-based firm Frontier Economics found that eBay helps consumers save around 24 percent of what they would otherwise spend in France, Germany, and the United Kingdom. That translates to 1.1 billion Euros in savings per year.

All this suggests that the idea of "secular stagnation"—the notion that productivity growth has slowed down dramatically and will stay low for the foreseeable future—is overblown. It also helps quantify the real but easily forgotten improvements that free technology has made in peoples' lives.

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  1. We’re in the middle of a big backlash against the internet, the kind that often appears when you start taking a technology’s benefits for granted.

    Are we in a backlash against the internet? From my estimation we’re in a backlash against freedom of speech, stemming from that there’s a backlash against the “tech oligarchy” that are the internet’s biggest content providers.

    I really don’t see this as anything new (well, the backlash against freedom of speech from those who would nominally be the most protective of it is new)– large corporations always fall into a level of distrust with the public. Remember how WalMart was the biggest threat to America? Yeah, so five minutes ago.

    1. Yeah, no one is taking any benefits for granted. What the imbecile who wrote this doesn’t get is that some want the benefits to flow exclusively to one side of the political spectrum, and actually use tech to actively disadvantage the other.

      So, as you correctly diagnose the issue, this is a free speech/free information backlash, where Big tech wants to be legally advantaged as a public utility (platform), but also actively put a thumb on the intellectual scales (publisher).

    2. stemming from that there’s a backlash against the “tech oligarchy” that are the internet’s biggest content providers.

      They don’t provide content, they’re “platforms.”

  2. All of these benefits translate to lower costs and higher revenues that ARE captured by GDP.

    1. This is the idiot who took a study that plainly said beer revenues were up, and new breweries were proliferating, as well as brewery jobs and brewer supply jobs.
      But because Amazon and Shipt and store delivery apps were eliminating stock clerk positions in grocery stores, and minimum wage laws in prog cities were eliminating waitress positions, that therefore somehow meant 40,000 “beer” jobs were eliminated by Drumpf aluminum tariffs.

  3. It’s amazing how you can reach so many conclusions by two paths: the principle that government should just butt out, and vague hand-waving pragmatic exercises in damned liesstatistics.

  4. “Amazon makes it much easier for small businesses to sell to customers around the world…”

    Somewhere around 80% of what I buy from Amazon are from real “brick and mortar” stores, albeit in large metro areas. Most of what I buy from Amazon are not “necessities,” or even common luxury items. I can get those locally.

    However, my hobbies, which are numerous, include stuff that I simply cannot get at the local level, at any price.

    The time and money I save doing all the usual things people do on the internet, be it preparing my own taxes, paying bills, communicating with family and friends, along with having access to the entire world marketplace, do not show up in my finances (call it my “personal GDP”) but they sure make a difference in my life style.

  5. “while email, direct messaging, and Google Maps clearly make all kinds of work easier or more efficient, they’re free, so GDP doesn’t include the value consumers gain from using them.”

    They’re not really free when you’re paying $700-$1,500 per year for the broadband needed to view them*, which does indeed show up in GDP. Google’s related ad services should also show up.

    *It varies according to your browsing habits, but a significant portion of your broadband bill covers the bandwidth needed to serve ads. On text-oriented pages, the ratio can be 4:1 or 10:1 in favor of ad bandwidth.

    1. This is true. It’s also true that, for that $1500 or so I pay per year for really fast internet, I get a whole ton of television channels, and, even better, access to all kinds of movies I would otherwise rent or buy. Plus I get a telephone land-line for free.

      In the “good old days,” the landline alone, with long-distance charges, would cost me in the neighborhood of $1000/year by itself, in today’s money. (I ran a small business out of my home, from a remote area. Most of my phone calls were either toll or long-distance.)

      I remember having to make a long-distance call just to connect to Compu-serve. Does that date me? 🙂

      So, you are correct, it’s not free, but it is way cheaper.

      1. $1500 or so I pay per year for really fast internet

        Ouch.

        I pay $75/mo, so $900, and it’s plenty fast, way faster than I need. It’s listed as 60 Mbps, but it is regularly faster than that and rarely slower.

        1. My phone-modem connected at 300 bps. Not “K” bytes, or “M” bytes.. just bytes.

          1. I remember the good old days when a 1200 baud modem was considered lightning fast. And great for connecting to Compuserve.

      2. Here we have a 300 Mbps fiber line for $50/Mo., and yes it’s a much better value than when the voice said “Welcome to Compuserve” a few seconds after the speaker on the modem shut up.

        But much or all of that improvement should already be factored into inflation-adjusted GDP through the “quality adjustments” that the BLS applies to the CPI and PPI. (They lower their inflation estimates to account for estimated increases in the value of goods and services, and internet services are one of the categories that receive hedonic quality adjustments.)

  6. Technology is bad, m’kay?

  7. We’re in the middle of a big backlash against the internet

    Swing and a miss; strike one.

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