
Economists Don't Understand the Information Age, So Their Claims Are a Joke - gasull
https://www.techdirt.com/articles/20140811/18134828182/economists-dont-understand-information-age-so-their-claims-about-todays-economy-are-joke.shtml
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dredmorbius
There are a huge number of problems relating to how economists account for
technology, this article touches on only one, though along with its related
criticisms, it makes a few good points.

A bit of background.

Adam Smith laid the groundwork for defining GDP in the introductory paragraphs
of _The Wealth of Nations_ , in which he defines "the real wealth, the annual
produce of the land and labour of the society."

[http://www.gutenberg.org/files/3300/3300-h/3300-h.htm#link2H...](http://www.gutenberg.org/files/3300/3300-h/3300-h.htm#link2H_INTR)

I don't know if that's specifically what Simon Kuznets had in mind when he
devised GDP, though I don't find a mention of it in the first few pages of his
"letter" (some 290+ pages long) in which the scope of it is laid out in 1934:

[http://search.stlouisfed.org/search?&site=Fraser&output=xml_...](http://search.stlouisfed.org/search?&site=Fraser&output=xml_no_dtd&proxystylesheet=Fraser&ie=UTF-8&oe=UTF-8&getfields=%2A&filter=0&client=Fraser&q=19340104_nationalinc.pdf)

But if you read that work, you'll find that accounting for GDP includes all
manner of compromises -- the omission of services from housewives and family
members, of the services of owned durable goods, of odd jobs ("under the
table") labor, of charity and relief, of changes in asset value, and of
illegal activities (Kuznets was writing one year after the repeal of
prohibition -- Al Capone's income would have made him a billionaire in current
dollars).

So missing out on the value of information goods is a fairly modest portion of
the economy. Using my preferred money reference, xkcd's excellent "Money"
infographic, arts & entertainment and information services _combined_ are
still just over $1 billion, of a total economic output of $14.5 billion. Call
it 7%.

The more philosophical question gets down to just what "value" and "price"
are, and how they're related. This isn't a trivial question, a large number of
economic texts and papers _still_ begin with this discussion, and it's been at
the heart of economic thought for well over 2,000 years (see for example,
Roger E. Backhouse, _The Ordinary Business of Life_ , which covers, in an
exceptionally dry fashion, much of this history).

The question of how to value GDP over time isn't a trivial one, though I'll
note that for most of history it's actually _not_ particularly much in
question: human outputs and activities were fairly constant, as were
occupations, and there was very little long-term growth (a fraction of a
percent for most of history). It's the period since the Industrial Revolution
that's the anomaly, with an accelerating trend through much of the 20th
century (some now see that acceleration ending or at the very least slowing,
with a divergence of views on what will follow).

The other salient question is: what does all that technology actually get you?
Arnold Toynbee in his _Lectures on the Industrial Revolution_ notes that there
are very few universal laws in economics, but that that the law of diminishing
returns is certainly central. And that's true of information and computing
technology as well. Man landed on the Moon with computing power you'd find in
a musical greeting card today, while the five computers of the Space Shuttle
never left low Earth orbit -- falling short of the earlier mark by nearly a
quarter million miles. Automobile control systems increase fuel efficiency,
but it's difficult to get beyond about 50 MPG without heroic measures (and
that's only a doubling of a 25 MPG vehicle's efficiency, as it is of a 12 MPG
vehicle).

Randall Lee Reetz makes a really good argument for this in many of his Google
Plus posts and comments, he's a prickly bastard, but is spot on in this
regard.

My conclusion: GDP is tremendously flawed, information goods are only a small
part of its mismeasure. If you're focused there, you're missing the forest for
the pine needles.

[http://xkcd.com/980/huge/#x=-8418&y=-4470&z=5](http://xkcd.com/980/huge/#x=-8418&y=-4470&z=5)

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lazylizard
i thought its one of the reasons why developed countries are expected to have
low growth?

