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information revolution
We Don’t Have the Tools to Measure the New Economy
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  • QET

    Perhaps the concept of “techniques to measure social indicators with precision,” itself a fairly recent concept (no older than the late 18th century) originating out of the very socio-economic organization that also is passing from the stage of world history, is itself no longer meaningful. Perhaps the clinging by legions of professional economists and quasi-economists to the historical concepts and methods they invested so much time in mastering in order to climb to the topmost rungs of the career ladder is what is obscuring their, and our, understanding of our own actual present. Perhaps there is no further utility to be had from measuring social indicators with precision. Just a thought.

  • Andrew Allison

    Maybe we should give some thought to what we mean by “the economy”, specifically, whether a distinction should be drawn between, for example, the disposable income arising from owning a personal computer versus that from the astonishing decline in the cost of telephony. Just a thought.

  • Greg Olsen

    Nothing to see here. This debate has raged for decades: GDP does not capture improvements in quality, the value of information, etc. Prosperity is imperfectly measured by per capita GDP. Inequality is imperfectly measured by the imputed relationship between national income and GDP used to derive ratios like the 20:20 ratio. It doesn’t change the fact that labor markets have changed radically. The younger generation will likely be less well off than their parents, more than half the jobs in the developed world are subject to automation in the near term which will destroy the fabric of a society built on a foundation of “ascetic Protestantism” (Weber). Work is core to identity. Without work, Western Civilization will further erode.

  • Pait

    The GDP is meant to quantify economic activity. It is a variable of interest for macroeconomic theory.

    It is not meant to measure happiness, or the true value of the goods produced. That is an unfortunately common fallacy of the enthusiasts of economic development at all costs, which is attacked by socialists and other skeptics of market economies, in an , equally unfortunate manner.

    I see that this attack against a straw man has now moved from the socialists to AEI. Interesting, but not totally surprising.

    • Pait

      A similar phenomenon happens with unemployment, which is also a measurable quantity of macroeconomic significance which can be used to formulate theories and policies.

      It does not measure whether people are satisfied with the work they can get, or if they are able and willing to do the jobs of the future, or anything like that. It used to be that socialists attacked whoever disagreed with their theory about a reserve army of unemployed by questioning the science and profession of economics. The line of argument went along “the real unemployment is not what has macroeconomic significance, it is something else that cannot be measured and whose value only we know.” (This argument has recently been appropriated by some members of the so-called presidents’s right-wing Bannonite regime.)

    • Anthony

      What’s overlooked and perhaps taken for granted beyond the metric argument is that “effective government” has always lain behind modern GDP growth, no matter the technological changes. I would suggests more so than the famous American Protestant work ethic, which as you imply remains among the variables hard to measure no matter the revolution.

      • Pait

        There is something to the argument about work ethics, but good government is indeed a crucial factor. I know many entrepreneurs and would be entrepreneurs in Brazil, people who work for large corporations or in small businesses, and the lower quality and predictability of government appears prominently in their difficulties, and among the reasons many transfer operations to the US. The Brazilian entrepreneur’s dream is that the quality of Brazil’s government becomes like that in the US.

        Are they getting their wish fulfilled sooner than they thought…. and how they’ll regret it!

        • Anthony

          Yes, work ethic as well as proprietary laws, available capital and opportunity remain integral to growing economy. The taking for granted the real governmental backdrop (the effectiveness of a mixed economy) to our century and a half of success (economically) is nonchalantly discounted by our government is in the way assailants. They cannot get there wish, Pait, as long as citizens like your stay engaged and civilly active – consequently we’ll prevent their regret despite their best efforts to the contrary.

          • Pait

            (I meant to say they’ll regret that quality of government in the US and Brazil will become closer, but not because Brazil will improve by adopting successful American practices, but because the US will adopt practices that failed in Brazil – corruption, protectionism, the government picking favorites to distribute patronage, irresponsible fiscal practices, lack of prudential regulations, and so on.)

          • Anthony

            You give the typical too much credit – they are oblivious to the similarities you so easily describe happening by civic indifference combined with blinded perceived self-interest. But we’re resilient (both as a nation and people) and must resolve to insure America continues to exemplify (despite our occasionally being side-tracked) that which institutionally welcomes all comers – The American Creed.

    • charlesrwilliams

      Gdp measures the above board market economy. There is a household economy and there is the cash economy and there is the illegal economy. GDP makes a half-hearted attempt to measure the last three components of economic activity. I think that these components of economic activity are growing at the expense of what GDP measures but I can’t imagine how anyone could prove or disprove this assertion.

      Now, who really cares. If you believe that macroeconomics is a pseudo-science based on phony measurements of vague abstractions then you only care because other people take the pseudo-science seriously and act based on it.

      • Pait

        Definitely not my case. I find that macroeconomics is a science of impressive explanatory success. As a science, it needs to make statements about observable quantities. such as GDP or unemployment rate.

        • charlesrwilliams

          We have nothing but crude estimates based on simplifying assumptions. And then people try to measure the parameters on crude, hypothesized mathematical relationships and proceed to assume that relationships hold into the future and hold even when an endogenous variable is tweaked by policy makers.

          If I marry my housekeeper, measured GDP falls, if the government borrows money to dig holes in the desert, measured GDP goes up. I will concede that large changes in GDP over short periods of time do suggest that something is happening of significance.

          • Pait

            The GDP does not measure quality of life or anything like that.

            It is a variable of interest in models that explain recessions, growth, unemployment, inflation, and other phenomena of economic significance, which have direct impact in society and politics. The mainstream academic macroeconomic models have had astonishing success in explaining such diverse events as the impact of the 2008 real estate bubble burst in the United States, austerity in Europe, and supposedly pro-growth government policies in Brazil. It is not capable of offering timing predictions, stock picks, a path to success, or moral advice.

  • rheddles

    Don’t be fooled people! This is a take home exam question from PHIL 121, Informal Logic: The Art of Reasoning at Bard College. The assignment is to identify at least 3 examples of fallacious reasoning in the article. Do not do this intern’s work for them.

  • FriendlyGoat

    So what would you rather have in standard of living? A corporate business community which actually wants to hire you, your family members and your friends and keep you up to the proverbial gold watch because they value you, your loyalty, your work ethic and your experience? Or your teenage kids (and maybe even yourself) being addicted to cell phones and Facebook?

  • lukelea

    To say nothing of normal measurement error which no one ever talks about. Without error bars most economic statistics are meaningless, but the bars are so large relative to slight changes in the data (changes in GDP, employment, and the like) that the data are meaningless anyway. See Morgenstern On the Accuracy of Economic Observations. Just one more reason why economics is not really a science.

    • f1b0nacc1

      Hayek on line one for you….

  • Jacksonian_Libertarian

    Can we acknowledge that the growth destroying ‘burden’ of Big Government has been rising faster than technology. Compounding Growth is the greatest force in the Universe, and any growth not realized is lost forever. Lost growth is a crime against the entire country, and humanity. This is what I think we need a tool to measure.

  • Disappeared4x

    Most macro-economic indicators, e.g., GDP, are generated by quantitative models, not real-time data collection. As real-time data is collected, eventually some of it is factored in, hence, revisions long after the initial number has had it’s impact.

    “…Here’s the big picture we should never allow ourselves to forget: Our world and our economy are going through a phase change more profound, more sweeping and harder to assess than the Industrial Revolution, as disruptive and transformative as anything perhaps since the Neolithic Revolution when wandering bands of hunter gatherers settled down in villages to farm and began to develop written language. …”

    I disagree Mr. Mead. In the 1990’s, application of the Information Revolution created genuine productivity leaps, especially in supply-chain management, inventory management. In the 1920’s, it was expansion of electricity and access to the personal auto.

    in the 1820’s: “… the Erie Canal initiated a new era of growth for inland freight transportation for East Coast ports. It reduced the cost of moving a ton of flour from Buffalo to New York from $120 to $6. It also reduced the transit time from three weeks to six days. …”
    https://people.hofstra.edu/geotrans/eng/ch2en/conc2en/eriecanal.html

    The world has yet to fully deploy the growth benefits of all of these (and other) technological changes of the Industrial Revolution.

    Perhaps a few tweaks to the thermal efficiency of the internal combustion engine will be the next leap forward. Very stubborn problem to solve.

    It is estimated that one third of vegetable, fruit, and cereal crops are lost: “…In developing countries food waste and losses occur mainly at early stages of the food value chain and can be traced back to financial, managerial and technical constraints in harvesting techniques as well as storage –and cooling facilities. Thus, a strengthening of the supply chain through the support farmers and investments in infrastructure, transportation, as well as in an expansion of the food –and packaging industry could help to reduce the amount of food loss and waste. …” http://www.unep.org/wed/2013/quickfacts/

    or maybe, we just need to start eating ugly fruit: “…About a third of the planet’s food goes to waste, often because of its looks. That’s enough to feed two billion people. ” http://www.nationalgeographic.com/magazine/2016/03/global-food-waste-statistics/
    A 3-D printer in every kitchen is not (yet) the solution. Nor is mapping the genome of quinoa.
    Deploying Del Monte’s model of canning factories in developing countries would be yuge!

  • Jim__L

    “When the average tenth grader with a laptop has more computing power
    than the NATO alliance in 1965, how do you measure that? When you can
    watch movies on a device smaller than a pack of cards, when a month’s
    unlimited calling all over the United States and Canada can cost less
    (in constant dollars) than a ten minute call from New York to Los
    Angeles in 1960, when a free utility like Facebook allows you to connect
    with distant friends and relatives in a way never before possible, when
    Skype lets you have video calls for free all over the world—how exactly
    can we compare living standards across time?”

    So information and communication has gotten as cheap and plentiful as food. Let’s run with that for a bit.

    The 18th-century French physiocrats believed that all economics was based on the production of food (which France was particularly good at, back in the day, and accounted for the vast bulk of the economy.) Have any of our agricultural revolutions ever made economics a solved problem? No, but they did make an agrarian view of economics obsolete. Other sectors became far, far more important.

    I would posit that the same is likely to happen with the information sector — because information has gotten so cheap and plentiful, it will become LESS important overall. The economy just isn’t a solved problem because one sector has advanced by leaps and bounds.

    Cheap food is great, but it doesn’t keep you warm, housed, cured of diseases, politically free, and everything else human beings need. Same with information. It may help with everything a bit around the edges, but it’s far from a cure-all.

    Cheap “wholesale” information is great, but information distribution (“retail” information) is not by any means a solved problem yet, in spite of great advances in communications. Search is powerful, but beholden to special interests (advertisers, market share concerns, political activists, etc.) Getting ahold of academic information is still subject to outrageously overpriced paywalls, unless you happen to be fine with trusting stuff downloaded from Russian websites.

    Education is still a mess. Coursera is phenomenal, but still hasn’t solved the human nature problem of motivation. This is another case where the spew of information comes up against its natural limits unrelated to the advances we’ve seen in information technology.

    Just as food distribution was revolutionized by advances in refrigeration and transportation, information distribution still has supporting technologies (and social institutions) that have not yet been developed.

    Just because information (like food) is widely available doesn’t mean people use it properly. We now have brightly-packaged, tasty, superficially satisfying information — the junk food of information — in heavily biased and “fake” news.

    Liking veggies (sites like this, for example — we’re essentially the “foodies” of information) isn’t really any more common than it was in the past. When TAI is linked by another site, a wave of commenters washes in, only to recede again.

    It gets worse. Some of the brightly-packaged, tasty, superficially satisfying information gets shaped into completely useless forms — computer games and cosmetically-enhanced social media. I have to wonder — for every minute saved from an economically useful activity, how many minutes have been wasted in those pursuits?

    Also, think about the paperwork and “metrics” that are now possible to gather. How much effort goes into that, how much aggravation is visited upon non-decision-makers, so that decision-makers can fail to make a meaningful difference?

    Compare it to how many calories are used to keep an average person alive, versus how many calories are used hauling around excess weight on a daily basis, the energy consumed to support the aggregate obesity of humanity.

    And the solutions feed back into the earlier problems — Taylorist technocrats bent on eliminating freedom, flexibility, and individual initiative; “curation” of news; the declaration that other industries are obsolete, even as the information industry really needs less and less time, attention from talented people, and to be blunt, financial support. (Did an increase in food production ever cause this kind of grief?)

    But honestly — these problems are *decisions*, on the part of our current elites. They are not set in stone.

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