Technology in our time is moving at a pace so fast it seems that only children have the time to stay current. This dizzying pace of progress is bringing wonder after wonder, so why is economic growth so sluggish?
Economic growth, as measured in terms of GDP, has been on a long slow decline in the West since the 1960’s. The authors of The Second Machine Age point out that digital age economic progress looks like stagnation when measured by traditional means.
We measure economic growth in terms of production and consumption. There is nothing in our economic calculus that measures improvements in well-being, happiness, health or satisfaction. Whatever increases productivity or units of consumption is good. Anything that decreases consumption or production is bad.
While economic “growth” in the Western world has looked relatively flat, our quality of life has improved by nearly every measure. Most of the benefit of the computer age escapes our traditional economic measures entirely. In fact, on paper much of it looks like economic contraction
Take the music industry as an example. Once again, from The Second Machine Age:
Music is hiding itself from our traditional economic statistics. Sales of music on physical media declined from 800 million units in 2004 to less than 400 million units in 2008…Before the rise of the MP3, even the most fanatical music fan, with a basement stacked high was LP’s, tapes, and CD’s, wouldn’t have had a fraction of the twenty millions songs available on a child’s smartphone via services like Spotify or Rhapsody…If you’re like most people, you are listening to more and better music than ever before.
What has been the impact of this spectacular improvement in lifestyle? By traditional metrics, the introduction of digital music has been economic catastrophe.
The value of music has not changed, only the price. From 2004 to 2008, the combined revenue from sale of music dropped from $12.3 billion to $7.4 billion – that’s a decline of 40%. Even when we include all digital sales, throwing in ringtones on mobile phones for good measure, the total revenues to record companies are still down 30%. Similar economics apply when you read the New York Times, Bloomberg Businessweek, or MIT Sloan Management Review online at a reduced price or for free instead of buying a physical copy at the newsstand…Analog dollars are becoming digitial pennies.
Overall, what has been the value of making dictionaries, news, music, encyclopedias, health information, and other formerly expensive products free or virtually free? Our lives have been meaningfully enriched and our productivity in a sense improved. Yet the impact to economic growth in traditional consumption-oriented terms has been almost entirely negative. Again from the book:
A simple switch to using a free texting service like Apple’s iChat instead of SMS, free classifieds like Craigslist instead of newspaper ads, or free calls like Skype instead of a traditional telephone service can make billions of dollars disappear from companies’ revenues and the GDP statistics.
It is extremely difficult to reduce the lifestyle improvement delivered by the iPhone or improved medical imaging technology or the self-driving car to a metric. What this means is that the most radically concentrated improvement in human life and happiness which has ever occurred in our history is happening with remarkably little notice. By failing to note this transformation, we are missing many of the opportunities presented by this era to improve our lives even further.
Another example of what economic progress looks like in our time, and why we do not recognize it, comes from an earlier GOPLifer piece on social capital:
In 1985, a top of the line Ford Mustang GT carried a sticker price of $14,000 which, adjusted for inflation, equals roughly $30,000 today. That car featured an AM/FM radio with an optional cassette deck. The finest Mustang you could buy in 1985 had no air bags, no anti-lock brakes, no remote electronic door locks, no CD player, USB port, or heated seats.
It had no cup holders.
Visit a Ford showroom today and you can drive away with their finest Mustang GT tricked out with advanced safety features, every imaginable gadget, excellent engineering and reliability, a spectacular warranty, and even cup holders for about $30,000.
We are living longer, healthier lives with better access to quality food, information, transportation, art, literature, entertainment and almost anything else we desire. Those advantages are compounding at a fantastic rate, changing what it means to be rich, poor and everything in between. Virtually none of this shows up in our traditional calculations of economic growth or progress, and much of it is actually depressing our growth metrics.
Distortions we experience in our measurement of economic growth provide a clue to wider difficulties. As we struggle to adapt to the second machine age, the very definitions we use to describe what’s “good” and “bad” in policy terms are becoming cloudy.
By failing to recognize our changing circumstances we are tangling ourselves in pointless debates over policy issues that in many cases no longer matter. Along the way we fail to recognize the critical waypoints that will determine whether the benefits of this new age will outweigh its burdens. Understanding the second machine age isn’t about appreciating the cool new gadgets around us. Our ability to recognize our changing landscape will determine who will prosper in this time and how much.