Outraged Politicians and Official Statistics Miss the Benefits of Tech

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We’re in the middle of a big backlash against the internet, the kind that often appears when you start taking a technology’s benefits for granted. It doesn’t help that a lot of those benefits don’t show up in our official statistics. 

Goldman Sachs’s economic research team has found that a lot of the innovation Silicon Valley generates isn’t captured by standard measurements of GDP. For example, while email, direct messaging, and Google Maps clearly make all kinds of work easier or more efficient, they’re free, so GDP doesn’t include the value consumers gain from using them. It’s telling that a recent MIT study found that the median person would be willing to pay more than $40 a month for Facebook. Just because users don’t pay for a service doesn’t mean they don’t value it. 

The Goldman Sachs researchers also had issues with how we measure consumer inflation. Sometimes when a good or service increases in price over time, that doesn’t mean you’re paying more for the same standard of living; it means the quality of the good or service has improved. A cell phone in 2000 could do a lot less than a cell phone can today. 

On the whole, the researchers estimate that these blind spots (most of which are tech-related) lead us to underestimate real GDP growth in the United States by 1 percentage point. In 2018, that would mean the economy grew almost 4 percent after adjusting for inflation instead of by almost 3 percent. And the gap has gotten larger over the past two decades: According to their estimates, GDP growth was underestimated by just .35 percentage points in 2005. 

Similarly, Amazon is often criticized for putting brick-and-mortar retailers—mostly big-box stores, but also smaller operations—out of business. But the flipside is that Amazon and other tech companies have created ways for many types of small businesses to expand their reach beyond what they could before. Amazon makes it much easier for small businesses to sell to customers around the world, and so do eBay, Google, and Facebook. Instead of just a storefront facing Main Street, these enterprises can now reach the whole internet, with very low barriers to entry

“Thanks to large online platforms, for less than $10, a small business can reach thousands of potential customers and target them more accurately than ever,” Carl Szabo of NetChoice, a trade association of e-commerce businesses, testified to the House Judiciary Committee last week. Szabo highlighted the story of a woodworker in Albany, New York, who can now sell his craft to buyers around the country thanks to Etsy.

According to the Progressive Policy Institute, a center-left think tank, companies can get the same impact for $3 of digital advertising as they could with $5 of print advertising. 

Small businesses aren’t the only beneficiaries here. Greater competition and lower advertising costs translate to lower prices for consumers, too. An analysis by the London-based firm Frontier Economics found that eBay helps consumers save around 24 percent of what they would otherwise spend in France, Germany, and the United Kingdom. That translates to 1.1 billion Euros in savings per year.

All this suggests that the idea of “secular stagnation“—the notion that productivity growth has slowed down dramatically and will stay low for the foreseeable future—is overblown. It also helps quantify the real but easily forgotten improvements that free technology has made in peoples’ lives.


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