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Invisible technology

There is an interesting chart at AEI showing recorded music sales over time by distribution media [Mark Perry: Another limitation of GDP accounting – it may fail to capture improvements in economic well-being in the Information Age]. It runs from the peak of the 8 track era to the decline of CD’s and the rise of downloads at the current time. The post is about GDP (gross domestic product) and some of its issues such as it being based on income accounting procedures from the 1920’s. Besides the ‘invisible technology advances’ in accounting practices, there is the influence of imports on GDP and the fact that technology advances can provide similar hidden income.

In addition to the fact that rising imports “create a drag” on the economy using GDP to measure economic performance, there’s another possible limitation of traditional GDP accounting to measure economic output, well-being and performance in the Information/Digital Age — many goods and services that used to be added to GDP as market-based final sales are now available for free, almost free, or at a significant reduction in price.

[examples provided]

In all of the cases above, we now get for free (or nearly free or at a much lower cost) what we used to have to pay for. Because GDP only considers market-based transactions, it fails to capture the many services that are now available for free or nearly free. Therefore, it could look like the economy is stagnating and experiencing very low rates of growth using GDP as the measure of economic performance, even though our standard of living could be improving significantly. That is, if we are using GDP to measure economic well-being, it now has a significant downward bias because it doesn’t count non-market production in a new era where the provision of non-market production is expanding greatly.

The impact of technology is in multiple dimensions. Not only can you do many things you could never do before but a lot of things that you have always been able to do become less expensive. This applies not only to information technology but also to energy and even kitchen tools. The new capabilities bring out the Luddites. The new tools are usually just considered a normal part of life’s journey of personal discoveries. The invisible technology is mostly in that category of same ol’ task but now cheaper.  We don’t often pay much attention to paying less and getting more and even sometimes talk about how much better things were back in ‘the good old days’ despite any rational comparisons.

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