How important is technology in your daily life? I, myself am probably the wrong person to ask that question. Just today I used Google to look up an address, put it in my GPS, listened to a podcast and that only accounts for about an hour of my day. If you don’t count my phone, or my phone bill, I paid a whopping $0 to do all of that. In his most recent speech, Fed Chairman Jerome Powell questioned the impact that these free internet services have on the economy.
The Fed uses a variety of indicators to try and gauge the state of the country's economy. Arguably the biggest is Gross Domestic Product (GDP), which measures the value of products and services that are bought and sold. But what is the impact on the economy when the greatest innovations of the internet age are free and escape those calculations? That is ultimately the question the Fed is trying to answer
Powell went on to reference a study by MIT economist Erik Brynjolfsson in which Brynjolfsson and his colleagues conducted massive surveys to find the value users placed on these services. What they concluded is that the median user would need to receive about $48 a month to give up Facebook, $97.75 per month to give up Youtube and a whopping $1,460 a month to give up Google! As we spend more time on the internet the more invaluable these services become to our daily lives and continue to get excluded from GDP making the Fed’s decisions that much more difficult.
So, what is the solution? Brynjolfsson advocates for an entirely new measurement called GDP-B that quantifies a good’s contributions or benefits provided instead of their costs. As it stands currently it is crazy to think that Google’s search engine, Maps, Youtube and other services are only valued for the advertising dollars they bring in. As our economy evolves so must the data that is used to evaluate it; the discrepancy between GDP and the services that it excludes could explain why we are in the longest economic expansion despite less than stellar economic indicators.