We might have an answer to where (some) of that missing growth is


It's a commonplace these days to shout about how growth rates are lower than when we had strong unions, nationalised companies and stinging tax rates. Therefore we should bring back unions, stinging tax rates and nationalised companies in order to have higher growth rates. The perceptive will note that there's a fallacy of composition in that argument: I once met a very pretty girl on a day that I had a cold. My getting a cold today will not make me meet a very pretty girl (nor would it please the pretty girl I am still with if I did). However, leave that aside and we do still have this point that growth rates these days are lower than that post-WWII heyday. One explanation is that there was pretty much no economic growth 1933-1945 but technology still marched on and thus there was some catch up after the unpleasantness was over. In conversation over the past couple of days another idea has popped up.

Take the contributions of Google and Facebook to the economy, to GDP. As we measure them those contributions are simply the value of the advertising they sell (or, the wages they pay and profits they make). That's just how we calculate GDP. That portion of whatever it is that is monetised. But this is near insane, to value having the world's knowledge at our fingertips (or, in Facebook's case, all the people you never want to meet again at hand) at only the value of the ads presented with it. we're simply not measuring the true contribution of the new technologies to our actual standard of living. At which point, Brad Delong:

 The key difference is between “Smithian” commodities–where it is a safe rule of thumb that the consumer surplus generated is about equal to the producer cost, so that GDP accounts that value goods and services at real producer cost will capture a more-or-less stable fraction equal to half of true standards of living–and… I might as well call them “Andreessenian” commodities, where consumer surplus is a much larger proportion of monetized value because what is monetized is merely an ancillary good or service to what actually promotes societal welfare. What is the proportion? 5-1? 10-1? Somewhere in that range, I think–at least.

It would be safe to argue that there's definitely some of this going on. The difficulty is quite how much. But it wouldn't surprise at all to find that our traditional measure of GDP is increasingly failing to measure economic progress.