what is the contribution of more timely information to economic productivity? Seems like many gains are not measured. If they are, where do those gains show up in national statistics? In which industries?
In fact, I can think of one way in which more timely information reduces GDP. If firms can monitor sales more carefully in real time, then they will hold less inventory. Inventory investment is a component of GDP.
Read the entire post. It lists many benefits of the Internet that do not necessarily make it into measured GDP.
This is all true on GDP measurement and impact of falling inventories has been huge the last three decades. With this evidence, doesn’t it make sense the inflation rate is sub 2% and with falling birth rates, that we are in a long term low interest rate environment?
Basically every nation is going their own version of turning Japanese of the 1990s.
Let’s say some ideal policy analyst / maker is trying to ‘optimize welfare’, but needs some quantitative metric. A measure of the ‘aggregate nominal exchanges and claims economy’ is a bad proxy for many reasons. But what’s better?
If the author of the article were being complete in his analysis he’d have to answer the following questions:
1). If the internet and IT are saving people so much time and money why is it not showing up either in higher savings/investment or increased spending elsewhere? It doesn’t seem like it is.
2). Many innovations in IT save time, but quite a few others induce people to waste time and what matters is the net effect.
3). Almost all of the free web monetizes itself through advertising. Presumably the point of this advertising is to induce people to buy stuff offline. Yet those numbers aren’t moving.
In fact, a lot of the rationale behind web based productivity enhancements is that they turbocharge the capabilities of businesses who’s main business isn’t the web, allowing them to do much more at ever-lower costs. But it seems most of these businesses are stuck in a stagnation of sorts.
4). Pointing out that things like photo-sharing services are ‘free’ doesn’t take into account the wide variety of hardware and infrastructure that’s paid for to provide access to these services such as mobile phones, computers, landlines, data plans, etc. A big reason why people want these things is because it gives them access to their favorite photo sharing apps and free GPS.
So many of these costless services are in-fact much better monetized than they initially appear to be.
5). Any discussion of the unmeasured benefits of the IT sector would need to be done as a comparison to the unmeasured benefits of the scientific innovations of the last century, why the unmeasured benefits today are so much greater than the unmeasured benefits of yesterday.
We get free photos and 24 hour newsfeeds today which provides a lot of subjective enjoyment, but how does that compare to the subjective convenience of a new built out interstate transportation of the mass production of antibiotics that allowed many important diseases to be eradicated.
Indeed, if you measure the impact of different developments on physical wellbeing, would you rather have the impact of Big Data on human health or the arc of the pharmaceutical industry in its nascent years when it was able to commercialize drugs like penicillin and bring them to the masses?
The one seems pretty trivial compared to the other.
“If the internet and IT are saving people so much time and money why is it not showing up either in higher savings/investment or increased spending elsewhere? It doesn’t seem like it is.”
Actually, I believe the answer – rents of various kinds – forms the basis for what might be a meta-contrarian critique of various contrarian reform proposals.
Currently, we have big problems with escalating prices of rat-race, zero or negativen sum games over scarce (or effectively highly inelastic) resources. Good central real estate, elite education credentials, etc.
If a reform were to make everyone richer, then they would just use a good portion of the windfall to bid up the prices of these resources, which doesn’t leave people nearly as better off at the ‘first order approximations’ of the estimates of the befits of various reforms tend to indicate.
So, for example, if IT / the Internet frees up a lot of time and money, then that’s just more time to work for more income, and more surplus cash with which to pay rent. Some people are going to use these windfalls to bid up desirable property to the edge of their new, higher limit of affordability, and the rat race nature of that market ensures that, in the new equilibrium, the overall pattern of living doesn’t much change for most people.
+1
So long as critical meatspace goods are restricted in supply (real estate, education, healthcare) it doesn’t much matter how fast computers get.
Isn’t the inventory effect just about shifting production across time? Less inventory today means more of tomorrow’s demand satisfied by new tomorrow-output (which counts toward’s tomorrow’s GDP) and not by running down inventories.
I’ll buy that better info will mean less “excess” production in some time-averaged sense (since firms need less of a buffer against uncertain demand), but this production is overvalued in GDP numbers, almost by definition.
How to reconcile the recent uptick in inventories to sales?
https://fred.stlouisfed.org/series/ISRATIO
Jonathan Bechtel asks the right questions, especially question (5) about similar effects of the last century and more that likely added just as much proportionately to welfare then as IT has done in the last 20 years. Much about the Internet is not new in a certain sense, but rather merely a faster, cheaper version of older technologies. Some examples:
+ “Free” information available by electrical devices owned by the user – actually not free information, but paid for by advertising – commercial radio provided similar benefits beginning in the 1920s, and television in the 1950s.
+ Ability to communicate with people at long distances at ever decreasing costs began with the telegraph in the 19th century and continued with landline telephones in the 20th century (or much, much earlier if one considers smoke signals and drum beats) then thru to today. Even Skype requires users to pay the cost of an ISP before being able to connect to the Web. There is a fixed cost to subscribers using the Internet even if the marginal cost is shrinking.
+ Improved methods of inventory control ramped up with the discovery of “S,s” methods, I believe in a paper by Paul Samuelson and other operations analysts in the early 1960s before the widespread use of even mainframe computers by large corporations. The Japanese also perfected the methods of “just-in-time” inventory control during the 1980s. The phenomenon of lower inventory investment is clearly visible in the 50 to 60 year trend of declining and more stable inventory-sales ratios in the United States. Again, the Internet continues the history of inventory process improvement but does not necessarily accelerate it indefinitely. By construction, one cannot reduce inventories below zero so there is a limit to this particular area of innovation.
Ah! Bastiat would disagree with your premise that the need for less inventory would decrease GDP. Inventories are a necessary frictional expense, which in itself does not add to welfare. Lessening that friction can only help raise GDP, similar to experiencing fewer broken windows.