Why one lesson of this economic crisis may be that we have to change how we measure growth, production and success. By Tyler Cowen | 2009
More and more, "production" -- that word my fellow economists have worked over for generations -- has become interior to the human mind rather than set on a factory floor. A tweet may not look like much, but its value lies in the mental dimension. You use Twitter, Facebook, MySpace, and other Web services to construct a complex meld of stories, images, and feelings in your mind. No single bit seems weighty on its own, but the resulting blend is rich in joy, emotion, and suspense. This is a new form of drama, and it plays out inside us -- with technological assistance -- rather than on a public stage.
Online, you can literally create your own economy. By that, I mean you can build an ordered set of opportunities for prosperity and pleasure, analogous to a traditional economy but held in your head. There is no obvious monetary transaction, but you're using your limited resources to get a better deal -- the very essence of economics. In fact, "economics" comes from oikonomia, the ancient Greek word for household management, and the modern practice of economics is returning to that idea.
The traditional gauge of economic success is profit, but over time we'll find that such statistics as measures of GDP tell us less and less about broader efforts to improve human well-being. Much of the Web's value is experienced at the personal level and does not show up in productivity numbers. Buying $2 worth of bananas boosts GDP; having $20 worth of fun on the Web does not. And this effect is a big one. Each day more enjoyment, more social connection, and, indeed, more contemplation are produced on the Web than had been imagined even 10 years ago.
But how do we measure those things?
That question -- and I don't yet have a full answer -- reflects the state of flux we're in today. We're going through a lot of adjustments, and not just in real estate and finance. Free stuff on the Web has made this economic downturn more severe. For many of us, the Web really is more fun than a trip to the store, which makes it easier for us to cut our spending. Although the iPhone has been earning lots for Apple, our spending on high-tech goodies does not make up for falling demand elsewhere. A PC and broadband cost something, but for those millions who have paid up, further exploration is essentially free.
Billions of people are rapidly becoming more knowledgeable and better connected to one another. Self-education has never been more fun, and that is because we are in control of that process like never before.
Someday we'll gain the tools to measure these new benefits. Twitter's value will lie not in its eventual market cap but in the human connections it creates. My Twitter feed is a virtual meeting room with economists, aid workers, entrepreneurs, housewives, celebrities, and plain old friends. The Web unites millions of diverse individuals, who interact and sometimes even meet up or marry. The world has a lot more of these connections, even if we've yet to see all of their implications -- including the traditional financial ones of new businesses, employment, and revenue. And it may sound counterintuitive, but the more time you spend staring at your screen, the bigger that human capital dividend will be.
Vocabulary and Notes
meld n.
the act of combining various objects into one
analogous adj.
making a comparison between things which have similar features, often used to help explain a principle or idea
essence n.
the basic meaning or importance of something
gauge n.
the process of measuring or making a judgement about something.
contemplation n.
spending time thinking about something in a serious and quiet way
flux n.
continuous change
counterintutive adj.
describes somethings that does not happen in the way you would expect it to
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