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As others are saying, there is a lot of innovation going on. However, I propose that the "digital economy" is quite different from anything we are used to. The

As others are saying, there is a lot of innovation going on. However, I propose that the "digital economy" is quite different from anything we are used to. The productivity gains are not necessarily such that they contribute to growth -- at least, not they way we are used to measure it. It seems that two of the big effects of the Internet is removing rentiers and middlemen, and lowering costs across the board, the first because, well, connecting people, the second because of multiplicative efficiency increases. This enables smaller organizations to capture a bigger part of a smaller pie. This is most visible in strictly informational sectors, such as free software, music and publishing, but I don't think it's constrained to that but rather the effect of adding "intelligence". The end game of a company like AirBnB for instance, is to replace (all) hotels, for a fraction of the turnover (but higher profit margin). The same could be true of self driving cars -- we believe it will let us make do with fewer cars, because they are easier to share. Indeed, Google is perhaps the foremost example, incessantly cutting away at the advertising sector (along with related industries), filling the same purpose but better and an order of magnitude cheaper. This is not growth, but degrowth. The thing is, it is still good and valuable -- it's just that it's not reflected in GDP. I would say that this has been going on for a few decades, which is why we've seen the rise of the financial sector, which seems, to me, to be a kind of "manufactured growth" -- all of our politics and policies expect, indeed, demands growth in order to work. So when it slows, or rather changes it's nature if you will, we invent fake growth. In summary, I agree with some of the "pessimists" in the article, but I'm optimistic and hopeful about it. I think we can really live abundant.

brianchu 14y ago
No, what you have just described is the epitome of increased productivity and therefore increased GDP. In fact, productivity gains are the primary contributor to rising standards of living (higher GDP per capita). Take self-driving cars. Sure, one might fixate on the fact that car manufacturers will lay off workers and that cab/truck drivers will lose their jobs. But that's a very narrow way of viewing things. If self-driving cars save 20 minutes in each American's day (commute, going out, filling up the tank), we're looking at more than 11,900 human years saved each day, just in the US. This figure doesn't even include the fact that when you are in the car you can do work or read while the car is driving itself. And we haven't even looked at: 1) health benefits from lower air pollution, 2) cheaper and more efficient transport of goods everywhere (lower costs for every type of good), 3) more efficient allocation of real-estate (no parking garages in the middle of the city), and 4) numerous other effects I am probably leaving out.
- yesbabyyes 14y ago
  You mention improvements such as lower air pollution. We don't measure that in GDP today. That's kind of my point. If we internalize externalities, then all of the effects I am talking about will also contribute to GDP. But the way we measure GDP today, it looks like growth is slowing. Indeed, some people, even in this community, feel we are working too many hours for little reason. If we are to make truth of that, and work less with more meaningful things, then that too would decrease GDP. But it would presumably increase well-being. So what I propose is that we start measuring external costs, add them to the price of goods (so the price better reflects the real cost), and we won't need to fill every space with advertising to keep up consumption. If you want to read more about these ideas, and others perhaps more radical, I can recommend this book of all my heart: http://sacred-economics.com/ http://sacred-economics.com/ Edit: Perhaps the self driving cars were my weakest example. In my mind, the most clear example is that of the free software movement. It's just a massive gain for everybody, built collaboratively. And it took off just as Bill Gates became the world's richest man off software. In a free software economy, that kind of market capture is radically different.
  - brianchu 14y ago
    Again, things are not as clear as you try to paint them. Better health leads to more productivity and higher GDP because instead of sitting in a hospital, being miserable at home due to disability, or dying prematurely, you are productive, working, and consuming. Working less does not necessarily drop GDP if it is offset by an increase in productivity. If I work 8 hours with 1 unit of GDP/hour, that is the same as working 4 hours with 2 units of GDP/hour. Are you saying that free software lowers GDP? That connection is by no means clear cut. Again, we can potentially see productivity gains in terms of lower costs across the board. I do not (and never did) disagree with you that GDP doesn't cover every metric that ought to be measured (i.e. happiness). I'm correcting you because I think your economic reasoning is flawed for most of your examples. And as it stands, trying to measure "well-being" and quantify that value in terms of prices is so utterly nebulous as a concept as to be nearly impractical. Who would set and enforce the price? How would you even begin to convert happiness to money? EDIT (reply to below): First, there is no question that premature death will negatively impact GDP. Furthermore, health problems that don't lead to a hospital stay but lead to general disability will drag down productivity. Furthermore, while in the short term a hospital stay in of itself (lets say, a $100,000 bill for lung cancer) will increase GDP by the bill ($100,000), that money partly comes out of savings that would be spent anyway in the long term. And the ability for someone to create value as a productive worker/consumer is still severely curtailed as a result. And while I'll concede that reducing hospital stays in of itself has a negative effect to GDP, improvements in health end up being net positive for GDP. As for the larger philosophical question of GDP. Who is "we"? The economy will optimize for itself (higher GDP) because that is how a market economy is set up. And a market economy is not set up to optimize for anything other than growth/money (money representing economic value). As for "people," people, society, and governments routinely already optimize for other things.
milfot 14y ago
This is really insightful. Productivity is usually a relative measure to gauge the profit margin of a nation / company ie. hours worked against earnings. But as you say, a relative measure will not catch any across the board increase. The corollary of this is that almost the entirety of the worth is ascribed to the comparatively minor differences which produce relative gains. Anything which does not produce relative gains, but which 'simply' helps the human race at large is ignored or disparaged by the market. ie. if it don't make dollars, it don't make sense. While I can kind of see the thinking behind your argument about the rise of the financial sector being driven by demands of growth from politics and policies.. i think this is very much the wrong way of looking at it. The rise of the financial sector was a power grab.. a con, pure and simple. They bought up all our debt, devalued it and then sold us more. That is to say, they bought all our shares in the future and with a bit of hocus-pocus, pulled a bunch more out of thin air and diluted our stake.

brianchu 14y ago

No, what you have just described is the epitome of increased productivity and therefore increased GDP. In fact, productivity gains are the primary contributor to rising standards of living (higher GDP per capita). Take self-driving cars. Sure, one might fixate on the fact that car manufacturers will lay off workers and that cab/truck drivers will lose their jobs. But that's a very narrow way of viewing things. If self-driving cars save 20 minutes in each American's day (commute, going out, filling up the tank), we're looking at more than 11,900 human years saved each day, just in the US. This figure doesn't even include the fact that when you are in the car you can do work or read while the car is driving itself. And we haven't even looked at: 1) health benefits from lower air pollution, 2) cheaper and more efficient transport of goods everywhere (lower costs for every type of good), 3) more efficient allocation of real-estate (no parking garages in the middle of the city), and 4) numerous other effects I am probably leaving out.

yesbabyyes 14y ago
You mention improvements such as lower air pollution. We don't measure that in GDP today. That's kind of my point. If we internalize externalities, then all of the effects I am talking about will also contribute to GDP. But the way we measure GDP today, it looks like growth is slowing. Indeed, some people, even in this community, feel we are working too many hours for little reason. If we are to make truth of that, and work less with more meaningful things, then that too would decrease GDP. But it would presumably increase well-being. So what I propose is that we start measuring external costs, add them to the price of goods (so the price better reflects the real cost), and we won't need to fill every space with advertising to keep up consumption. If you want to read more about these ideas, and others perhaps more radical, I can recommend this book of all my heart: http://sacred-economics.com/ http://sacred-economics.com/ Edit: Perhaps the self driving cars were my weakest example. In my mind, the most clear example is that of the free software movement. It's just a massive gain for everybody, built collaboratively. And it took off just as Bill Gates became the world's richest man off software. In a free software economy, that kind of market capture is radically different.
- brianchu 14y ago
  Again, things are not as clear as you try to paint them. Better health leads to more productivity and higher GDP because instead of sitting in a hospital, being miserable at home due to disability, or dying prematurely, you are productive, working, and consuming. Working less does not necessarily drop GDP if it is offset by an increase in productivity. If I work 8 hours with 1 unit of GDP/hour, that is the same as working 4 hours with 2 units of GDP/hour. Are you saying that free software lowers GDP? That connection is by no means clear cut. Again, we can potentially see productivity gains in terms of lower costs across the board. I do not (and never did) disagree with you that GDP doesn't cover every metric that ought to be measured (i.e. happiness). I'm correcting you because I think your economic reasoning is flawed for most of your examples. And as it stands, trying to measure "well-being" and quantify that value in terms of prices is so utterly nebulous as a concept as to be nearly impractical. Who would set and enforce the price? How would you even begin to convert happiness to money? EDIT (reply to below): First, there is no question that premature death will negatively impact GDP. Furthermore, health problems that don't lead to a hospital stay but lead to general disability will drag down productivity. Furthermore, while in the short term a hospital stay in of itself (lets say, a $100,000 bill for lung cancer) will increase GDP by the bill ($100,000), that money partly comes out of savings that would be spent anyway in the long term. And the ability for someone to create value as a productive worker/consumer is still severely curtailed as a result. And while I'll concede that reducing hospital stays in of itself has a negative effect to GDP, improvements in health end up being net positive for GDP. As for the larger philosophical question of GDP. Who is "we"? The economy will optimize for itself (higher GDP) because that is how a market economy is set up. And a market economy is not set up to optimize for anything other than growth/money (money representing economic value). As for "people," people, society, and governments routinely already optimize for other things.

milfot 14y ago

This is really insightful. Productivity is usually a relative measure to gauge the profit margin of a nation / company ie. hours worked against earnings. But as you say, a relative measure will not catch any across the board increase. The corollary of this is that almost the entirety of the worth is ascribed to the comparatively minor differences which produce relative gains. Anything which does not produce relative gains, but which 'simply' helps the human race at large is ignored or disparaged by the market. ie. if it don't make dollars, it don't make sense. While I can kind of see the thinking behind your argument about the rise of the financial sector being driven by demands of growth from politics and policies.. i think this is very much the wrong way of looking at it. The rise of the financial sector was a power grab.. a con, pure and simple. They bought up all our debt, devalued it and then sold us more. That is to say, they bought all our shares in the future and with a bit of hocus-pocus, pulled a bunch more out of thin air and diluted our stake.