Timothy Taylor reports on a symposium on productivity trends. He quotes Robert Gordon,
I have often posed the following set of choices. Option A is to keep everything invented up until ten years ago, including laptops, Google, Amazon, and Wikipedia, while also keeping running water and indoor toilets. Option B is to keep everything invented up until yesterday, including Facebook, iphones, and ipads, but give up running water and indoor toilets; one must go outside to take care of one’s needs; one must carry all the water for cooking, cleaning, and bathing in buckets and pails. Often audiences laugh when confronted with the choice between A and B, because the answer seems so obvious.
I think that what this anecdote indicates is that measured productivity is bunk. Gordon’s anecdote suggests that people derive a lot of consumers’ surplus from modern water systems. But this consumers’ surplus does not show up in measures of productivity, either for one hundred years ago or for today.
I am becoming a productivity measurement pessimist. That is, I am becoming pessimistic that what we call “productivity” is anything more than a crude indicator of trends in living standards.
I can imagine coming up with an accurate measure of productivity in soybean output. However, it is difficult to imagine coming up with anything accurate for health care, where we have little idea about what generates value at the margin, or for education, we where have almost no idea at all.
Moreover, the value of many goods and services, including the Internet and modern water systems, is under-estimated because we do not measure consumers’ surplus. Going forward, suppose that researchers come up with a way to prevent or cure Alzheimer’s. The effect on consumers’ surplus would be quite large. The effect on measured productivity? To a first approximation, nil.
In assessing economic progress, productivity may be the best indicator we have. However, we take small differences in measured productivity growth rates way too seriously. On the one hand, it is correct to say that if you extrapolate a difference in productivity growth of 1 or 2 percentage points over thirty years, it accumulates to a big number. But I fear that it is quite possible that the error in measuring productivity growth can exceed 1 or 2 percentage points for thirty years or more. That is, I think it is quite possible to take two thirty-year periods and arrive at a very large estimate of the difference in the rate of growth of living standards that is entirely due to mis-measurement.
In most parts of e.g. Africa or rural Southeast Asia, most people opt for cell phones and some sort of cheap laptops way before considering running water or toilets:
http://www.ipsnews.net/2013/04/cell-phones-yes-toilets-no-world-body-laments/
The cell phones cost less. In “The boy who harvested the wind” the author was able to get his windmill to generate electricity for lights, a radio and charge cell phones, but pumping water was a much harder task.
Gordon’s anecdote is idiotic. Yes, let’s cherry pick some random inventions from decades apart a century ago and compare it to the last decade. Why is that the standard? Let’s say he asked the same question in 2003: would you rather have the web, google, amazon, wikipedia, laptops, everything commercialized after 1993, but without toilets and running water, or have to go back to Compuserve and Prodigy and brick-sized mobile phones with toilets and running water? Since most would choose the latter, does that mean the technological innovations of the ’90s also weren’t impressive? Which decade would pass that test? Almost none, since most people consider running water and toilets to be basic necessities these days.
Another aspect is that laptops a decade ago were incredibly bulky compared to ultrabooks today, google search was nowhere near as usable, Amazon sold a fraction of the goods, and wikipedia was much smaller. I’m sure he’ll claim that these were incremental improvements on the initial “invention,” but at least in the case of the first two, likely not. Computer manufacturers and google likely had to come up with completely new fabrication technologies and algorithms to make their products so much better today.
Gordon is peddling an idiotic case, currently getting attention because of the recession, when people are prone to bathing in negative stories. Your point about error is a great one, partially because of the difficulty of measuring “productivity” in the information services of medicine and education. Another large source of measurement error I often point out is all the free information services most people now consume, from online video to pirated music to free news and social media. Just because this stuff isn’t monetized well, doesn’t mean there isn’t great consumer surplus. I think all these online services will start getting monetized soon and Gordon and his ilk will all of a sudden discover a productivity “miracle,” when all that happened is that existing services and consumer surplus finally got monetized.
It probably shows up more in population and life expectancy and since there is one more in the denominator as well as the numerator it won’t show up there, but population growth is the least expensive growth and adds to the scale of market and specialization as well as total product.