Tuesday, March 8, 2011

Stagnation or Mismeasurement?

A long, long time ago, in an office not far away, I did some work on the "Productivity Paradox".

Recently, the issue has resurfaced in a new way, especially via a new e-book by Tyler Cowen called "The Great Stagnation".

Annie Lowrey in Slate discusses Tyler's thesis and quotes me on one counter argument:

But revenue is not always the end-all, be-all—even in economics. That brings us to a final explanation: Maybe it is not the growth that is deficient. Maybe it is the yardstick that is deficient. MIT professor Erik Brynjolffson explains the idea using the example of the music industry. "Because you and I stopped buying CDs, the music industry has shrunk, according to revenues and GDP. But we're not listening to less music. There's more music consumed than before." The improved choice and variety and availability of music must be worth something to us—even if it is not easy to put into numbers. "On paper, the way GDP is calculated, the music industry is disappearing, but in reality it's not disappearing. It is disappearing in revenue. It is not disappearing in terms of what you should care about, which is music."

Here are two papers where I discuss this idea in more detail.

What the GDP gets wrong in Sloan Management Review.

Consumer Surplus in the Digital Economy in Management Science.

Not only are they free, but they also spell my name correctly. However, I can make no promises that you'll get any more consumer value than you pay for them.