4. Recalibrating GDP
When GDP became the dominant measure of economies in the 1940s, wide adoption of the internet was still a half-century away. Today, the internet is responsible for a major chunk of economic activity, but GDP misses much of it. This has widened the gap between the closely watched metric and actual economic health, Axios' Kaveh Waddell writes.
A global effort reaching back decades is picking up steam to either change or supplement GDP as the go-to gauge for understanding a country's — and the world's — level of prosperity.
- The efforts seek to account for relatively new industries, plus intangibles like income inequality, clean air and water.
- But the dizzying pace of technological advances may be enlarging the gap even as researchers work to close it.
Why it matters: The problem with GDP is not merely academic — reliance on the economic benchmark deserves part of the blame for the 2008 financial crisis, according to a 2009 report from a commission led by Nobel laureate Joseph Stiglitz. If economists had been watching other metrics, too, like indebtedness, they would have had an earlier warning of trouble ahead, the commission wrote.
The latest proposal comes from a group of economists led by MIT's Erik Brynjolfsson. In a forthcoming working paper, they propose a measure called GDP-B, adding in the benefits of free digital goods and new technology.
They estimate that hidden benefits from Facebook alone have added 0.05–0.11 percentage points to GDP every year since its 2004 launch. That would have totaled 1.54 percentage points from 2003 to 2017 — a result "too large to be ignored," according to University of Maryland's Charles Hulten, who was not involved in this research.
- Right now, when an old-school product gives way to a digital substitute, only half of the trade-off shows up in GDP, says Avinash Collis, an MIT researcher who co-authored the GDP-B paper. The decline of landlines is captured, for example, but the rise of its replacement — social media and free messaging apps — is not.
What's next: GDP has solidly remained ubiquitous despite its critics, but Hulten, who advises the Bureau of Economic Analysis, says the body is again considering alternatives. "Agencies are very aware of the need to change," he says, but are burdened with a busy schedule — plus many decades of inertia.