The end of the GDP mismeasurement debate
There’s a raging debate from the blogosphere to policymakers about “GDP mismeasurement”, but I’m ending it once and for all: Economic data does *not* fail to capture benefits of tech. Period.
I’ve read all the white papers, studies, and opinions… and happy to share my notes and experience. In sum, sorry, but the intrinsic benefit of Tech 2.0 in aggregate is more savings (i.e. time & money) — the economic benefit of which is derived from the realizations from reallocating that savings.
Whether it’s Skype saving you a cross country trip for a meeting, your iPhone aggregating devices and services, or knowledge being free and open, those are all net-net disinflationary — or opportunity costs. It’s creative destruction, so you need to displace that subsumed or forgone output by reinvesting your associated savings with some positive ROI.
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That savings is more like potential energy than kinetic: it makes no difference economically unless it’s redeployed. In aggregate, we haven’t realized ROI from that savings reinvestment yet, so it’s not GDP mismeasurement — it’s just potential growth! Most of that potential has not been redeployed, so there’s no need to account for it. In fact, technically, it’s the time savings that we’re not reinvesting, because capital savings equals investment [S = I] per the “savings identity”, although I can make a persuasive case that both time and capital savings is being reinvested into low-risk/low-return projects, thereby lowering future expected growth.
Government can help with the reallocation of time savings. The biggest store of this savings glut is embedded in the unemployed, underemployed, and part-time labor who are threatened by obsolescence. This labor needs retraining for new skills that can be redeployed toward today’s and tomorrow’s businesses. (There’s also a case to be made that governments’ overindexing to unemployment rates as key performance indicators has eschewed quality-of-employment in favor of quantity-of-employment. As a result, we have an increasing excess of labor producing a relatively fixed level of output — and hence stagnant productivity.)
While we can’t expect the government to have better foresight than VCs or business leaders (who themselves don’t have clairvoyance), the government can incentivize businesses to apply the US’s competitive advantage with tech by supporting entrepreneurship and education — the only things that can leverage the creative destruction.
Finally, the social progress from Tech 2.0 is not economic progress… that too is a potential benefit — albeit virtuous, necessary, and likely to translate into economic growth.
To clarify, the economy is not “bad.” It’s actually good and performing in-line with organic demographics. However, the economy is bad for some Americans. That’s who I’m talking about helping here. That would help the aggregate too.
Does the Trump Administration understand all of this? It’s crucial subject matter if Mr. Trump wants to sustainably Make America Great Again.
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