Over at Project Syndicate: Last month in this space we reviewed the pulling-apart of America as it has become a vastly more unequal place since 1979: top 1% incomes grew at 3.6%/year, rest of the top fifth grew at 1.6%/year, middle three-fifths grew at 0.9%/year, bottom fifth at 0.5%/year-—with the proviso that improved access to medical care was worth a good deal more than its market cost. But the past generation has seen a third industrial revolution, a worthy information-age successor to the first of steam, iron, cotton, and machines and to the second of internal combustion, electricity, steel, and chemicals. Not everyone, but almost everyone in the North Atlantic and many and soon most in the world, can now if they wish have a smartphone–and so gain cheap access to the universe of human knowledge and entertainment to a degree that was far beyond the reach of all but the richest of a generation ago.
How much does this matter? How much does this mean that conventional measures of real income and real standard of living understate how much we, even the relatively poor of we, have progressed toward utopia?
The conventional economic growth accounting tells us that consumption expenditures on telecommunications, information processing, and audiovisual entertainment are 2% and net investment in information processing equipment and software 3% of output. That means that a price fall of 10%/year in that category of high-tech goods contributes 0.2%+0.3%=0.5%/year to economic growth in standards of living. The problem is that the bulk of that increase is already in the estimates. The share of spending has to signficantly underestimate the marginal salience of information-age goods and services in human well-being in order to make the argument that this third industrial revolution is a boost above rather than an important component of measured modern economic growth.
Now it is plausible that this is the case. Human well-being requires not just the expenditure of money purchasing goods and services but the use of the time that is the stuff of our lives to utilize those goods and services properly, and time is along with money a very scarce resource. And information-age goods and services, because they require our attention, are time-intensive. Suppose—a reasonable guess–the coming of the broadband internet since 1999 has doubled the utility that humans get out of the two hours a day that those of us in the North Atlantic typically spend interacting with our audio-visual technologies. Those two hours are one-fifth of the time we spend awake that is our own, and not our bosses’. That’s an extra 0.6%/year in growth of standards of living since 1990—much bigger than the 0.2%/year that the growth-accounting cost-based literature leads us to.
However, such a calculation requires that we be or become the type of people whose lives are truly enriched by our kindles and our tablets and our computers and our smartphones—that we value Netflix and Youtube and Google’s window into the online library of humanity and Facebook and the rest as massively superior to the ways we previously learned, gossiped, listened, and watched. It is certainly true that we today have information-age capabilities that are literally those of kings in the past: if in the seventeenth century you wanted to watch “MacBeth” in your house, you had better be named James Stuart, have William Shakespeare and his acting company on retainer, and be King of England and Scotland so that you could have a full-sized theater in your palace of Whitehall. And ever since Homer chanted his “Iliad” around the campfire after dark we have been willing to pay through the nose for our culture of stories and information.
Yet not all of us are all that devoted to our FaceBook friends. And much of what many of us desire goods and services for is as indicia of relative status. Perhaps the right way to view the situation is that before the information age began our estimates of economic growth overstated true reality by perhaps 0.5%/year as the extra well-being we got from increased real wealth and income was offset by our noticing that the Jones’s next door had more, better, and newer than we did? Perhaps the right way to view the situation is that those parts of the information age that escape conventional growth-accounting calculations simply neutralize those forces of envy and spite that were never included in the calculations in the first place? That is my tentative judgment–or rather guess–today.