Must-read: Tim Worstall: “Brookings Is Wrong On The Productivity Slowdown”

Must-Read: Tim Worstall: Brookings Is Wrong On The Productivity Slowdown: “My own favoured example being that in our current GDP numbers globally…

…we have Facebook marked down as providing some $18 billion of economic value, that should then translate into perhaps $36 billion of consumer surplus, which is the true measure of how we’ll we’re doing as humans. And yet that’s obviously ridiculous: something that 1 billion people do for an average 20 minutes a day simply cannot be valued at such a low number. If we measured that time at US minimum wage (maybe not right, but indicative) then we’d have $800 billion or so of time value. Or, alternatively, we should be valuing the time people spend on Facebook at 10 cents or whatever an hour….

Brookings has a new paper out:

We find little evidence that the slowdown arises from growing mismeasurement of the gains from innovation in IT-related goods and services…. Many of the tremendous consumer benefits… are, conceptually, non-market…. These benefits do not mean that market-sector production functions are shifting out more rapidly than measured, even if consumer welfare is rising.

And that’s a horrible assumption, a terrible line of reasoning. As Delong says:

Isn’t ‘measuring consumer welfare’ the point? We (a) arrange atoms (b) in forms we find pleasing and convenient, and then use them in combination with (c) information and (d) communication to accomplish our purposes. That our measures of economic growth are overwhelmingly ‘market’ measures that capture the value of (a), much of the value of (b), and little of the value of (c) and (d) is an indictment of those measures, and not an excuse for laziness by shrugging them off as ‘non-market’ and claiming that measuring the shifting-out of market-sector production functions is our proper business….

Consumer welfare… is the thing…. Market economic activity… are only a proxy… because we want to be able to calculate it in something close to real time… [and] to have objective rather than highly subjective numbers…. But we must never forget that it is only a proxy…. Consider WhatsApp. Currently it charges no fee… and… carries no advertising…. Anyone want to claim that WhatsApp adds nothing?… Thus we know absolutely that we’ve got a measurement problem here. Our only question is how bad is it?… And yes, obviously, this spills over into public policy…. We do indeed have 1 billion of those guys’n’gals getting their telecoms for free: what do you mean this isn’t making people richer?