American economic productivity is stagnating, or even falling—unless, that is, you’re in Silicon Valley. The Wall Street Journal has an article on Silicon Valley’s rejection of conventional wisdom about a productivity crisis:
Stanford economist Nicholas Bloom, who studies differences in productivity across companies and countries, says the idea of a productivity slowdown seems ridiculous to technologists [in Silicon Valley.]
“You can’t be in the Valley without thinking we’re in the middle of a productivity explosion,” Mr. Bloom says. […]
In fact, Silicon Valley seems the exception to the larger U.S. economy. Its businesses are largely defined by their ability to produce impressive output with far fewer people than traditional companies. That means their productivity numbers—output per hour worked—are as sky high as their stock valuations.
Beyond the particular debate over productivity highlighted here, this article points to a crucial fact: Right now, we are trying to measure a 21st-century economy with 20th-century tools. Technology makes life easier and more convenient in all sorts of ways, most of which simply aren’t captured by tools that were developed to measure things like pig iron output. Many and perhaps most of the ways that technology makes our lives better escape the statisticians, and this means that our economic discussions are increasingly removed from reality. How, for example, does one measure the economic benefits of rural residents having access to a world of information online?
We don’t put a price on these things because the Internet doesn’t. There’s been a radical price deflation in the cost of information—down, in many cases, to zero. That can mean that both productivity and GDP can be going down on paper even as both increase in the real but unmeasured world.
More, think of the convenience of online shopping. If a consumer sits on the couch and orders books from Amazon, movies from Netflix, and clothes from dozens of different brands and outlets, and does some comparison shopping at Consumer Reports and looks at reviews from scores of consumers—none of that shows up as a GDP gain. In fact, since she doesn’t have to gas up her car and spend hours of her life driving from mall to mall to do the same amount of shopping, perhaps spending less money because she is getting better deals, GDP figures might very well go down even as someone is getting more of her business done faster and better.
There are other ways that the information revolution reduces inequality and increases opportunity. It is much, much easier for poor people to access a world of information and entertainment than it used to be. If you live in a bad neighborhood in a place where the economy is depressed, you can get information about better jobs, living costs, and rental markets all over the country. You can read, free or for very little money, the world’s best books. You can access more music than ever before. You can call your friends and family essentially for nothing using services like Skype. If you want to go somewhere, you aren’t dependent on local travel agents; you can hunt for the best fares on the Internet. You can rent out an extra bedroom with AirBnB. Your costs of starting up a business have dropped dramatically, thanks to Ebay, Amazon, and Craigslist—and you can sell in a national market.
This doesn’t mean America doesn’t have real problems and challenges, but our economic discussion seems to be getting farther and farther away from the facts.