3 ms·

Economists Don't Understand the Information Age, So Their Claims Are a Joke

3 points by gasull 12y ago

lazylizard 12y ago
i thought its one of the reasons why developed countries are expected to have low growth?
dredmorbius 12y ago
There are a huge number of problems relating to how economists account for technology, this article touches on only one, though along with its related criticisms, it makes a few good points. A bit of background. Adam Smith laid the groundwork for defining GDP in the introductory paragraphs of The Wealth of Nations, in which he defines "the real wealth, the annual produce of the land and labour of the society." http://www.gutenberg.org/files/3300/3300-h/3300-h.htm#link2H_INTR http://www.gutenberg.org/files/3300/3300-h/3300-h.htm#link2H... I don't know if that's specifically what Simon Kuznets had in mind when he devised GDP, though I don't find a mention of it in the first few pages of his "letter" (some 290+ pages long) in which the scope of it is laid out in 1934: http://search.stlouisfed.org/search?&site=Fraser&output=xml_no_dtd&proxystylesheet=Fraser&ie=UTF-8&oe=UTF-8&getfields=%2A&filter=0&client=Fraser&q=19340104_nationalinc.pdf http://search.stlouisfed.org/search?&site=Fraser&output=xml_... But if you read that work, you'll find that accounting for GDP includes all manner of compromises -- the omission of services from housewives and family members, of the services of owned durable goods, of odd jobs ("under the table") labor, of charity and relief, of changes in asset value, and of illegal activities (Kuznets was writing one year after the repeal of prohibition -- Al Capone's income would have made him a billionaire in current dollars). So missing out on the value of information goods is a fairly modest portion of the economy. Using my preferred money reference, xkcd's excellent "Money" infographic, arts & entertainment and information services combined are still just over $1 billion, of a total economic output of $14.5 billion. Call it 7%. The more philosophical question gets down to just what "value" and "price" are, and how they're related. This isn't a trivial question, a large number of economic texts and papers still begin with this discussion, and it's been at the heart of economic thought for well over 2,000 years (see for example, Roger E. Backhouse, The Ordinary Business of Life, which covers, in an exceptionally dry fashion, much of this history). The question of how to value GDP over time isn't a trivial one, though I'll note that for most of history it's actually not particularly much in question: human outputs and activities were fairly constant, as were occupations, and there was very little long-term growth (a fraction of a percent for most of history). It's the period since the Industrial Revolution that's the anomaly, with an accelerating trend through much of the 20th century (some now see that acceleration ending or at the very least slowing, with a divergence of views on what will follow). The other salient question is: what does all that technology actually get you? Arnold Toynbee in his Lectures on the Industrial Revolution notes that there are very few universal laws in economics, but that that the law of diminishing returns is certainly central. And that's true of information and computing technology as well. Man landed on the Moon with computing power you'd find in a musical greeting card today, while the five computers of the Space Shuttle never left low Earth orbit -- falling short of the earlier mark by nearly a quarter million miles. Automobile control systems increase fuel efficiency, but it's difficult to get beyond about 50 MPG without heroic measures (and that's only a doubling of a 25 MPG vehicle's efficiency, as it is of a 12 MPG vehicle). Randall Lee Reetz makes a really good argument for this in many of his Google Plus posts and comments, he's a prickly bastard, but is spot on in this regard. My conclusion: GDP is tremendously flawed, information goods are only a small part of its mismeasure. If you're focused there, you're missing the forest for the pine needles. http://xkcd.com/980/huge/#x=-8418&y=-4470&z=5 http://xkcd.com/980/huge/#x=-8418&y=-4470&z=5

3 points by gasull 12y ago

i thought its one of the reasons why developed countries are expected to have low growth?

There are a huge number of problems relating to how economists account for technology, this article touches on only one, though along with its related criticisms, it makes a few good points. A bit of background. Adam Smith laid the groundwork for defining GDP in the introductory paragraphs of The Wealth of Nations, in which he defines "the real wealth, the annual produce of the land and labour of the society." http://www.gutenberg.org/files/3300/3300-h/3300-h.htm#link2H_INTR http://www.gutenberg.org/files/3300/3300-h/3300-h.htm#link2H... I don't know if that's specifically what Simon Kuznets had in mind when he devised GDP, though I don't find a mention of it in the first few pages of his "letter" (some 290+ pages long) in which the scope of it is laid out in 1934: http://search.stlouisfed.org/search?&site=Fraser&output=xml_no_dtd&proxystylesheet=Fraser&ie=UTF-8&oe=UTF-8&getfields=%2A&filter=0&client=Fraser&q=19340104_nationalinc.pdf http://search.stlouisfed.org/search?&site=Fraser&output=xml_... But if you read that work, you'll find that accounting for GDP includes all manner of compromises -- the omission of services from housewives and family members, of the services of owned durable goods, of odd jobs ("under the table") labor, of charity and relief, of changes in asset value, and of illegal activities (Kuznets was writing one year after the repeal of prohibition -- Al Capone's income would have made him a billionaire in current dollars). So missing out on the value of information goods is a fairly modest portion of the economy. Using my preferred money reference, xkcd's excellent "Money" infographic, arts & entertainment and information services combined are still just over $1 billion, of a total economic output of $14.5 billion. Call it 7%. The more philosophical question gets down to just what "value" and "price" are, and how they're related. This isn't a trivial question, a large number of economic texts and papers still begin with this discussion, and it's been at the heart of economic thought for well over 2,000 years (see for example, Roger E. Backhouse, The Ordinary Business of Life, which covers, in an exceptionally dry fashion, much of this history). The question of how to value GDP over time isn't a trivial one, though I'll note that for most of history it's actually not particularly much in question: human outputs and activities were fairly constant, as were occupations, and there was very little long-term growth (a fraction of a percent for most of history). It's the period since the Industrial Revolution that's the anomaly, with an accelerating trend through much of the 20th century (some now see that acceleration ending or at the very least slowing, with a divergence of views on what will follow). The other salient question is: what does all that technology actually get you? Arnold Toynbee in his Lectures on the Industrial Revolution notes that there are very few universal laws in economics, but that that the law of diminishing returns is certainly central. And that's true of information and computing technology as well. Man landed on the Moon with computing power you'd find in a musical greeting card today, while the five computers of the Space Shuttle never left low Earth orbit -- falling short of the earlier mark by nearly a quarter million miles. Automobile control systems increase fuel efficiency, but it's difficult to get beyond about 50 MPG without heroic measures (and that's only a doubling of a 25 MPG vehicle's efficiency, as it is of a 12 MPG vehicle). Randall Lee Reetz makes a really good argument for this in many of his Google Plus posts and comments, he's a prickly bastard, but is spot on in this regard. My conclusion: GDP is tremendously flawed, information goods are only a small part of its mismeasure. If you're focused there, you're missing the forest for the pine needles. http://xkcd.com/980/huge/#x=-8418&y=-4470&z=5 http://xkcd.com/980/huge/#x=-8418&y=-4470&z=5