Econ stats record this as a reduction in productivity

AEI is asking where’s the next productivity revolution going to come from? The answer being that it’s already here.

So when will the next productivity boom happen?

If the US economy is going to generate sustained 3% annual growth, or anything close to that, it will require much faster productivity growth.

As I say, the answer being that this is already here. We’re measuring the digital economy wrongly. Hal Varian says that GP doesn’t deal well with free. The thing is, we know, absolutely, that we’ve got our measurements wrong. The only thing we don’t know is how wrong are our measurements?

To give my favourite current example. WhatsApp is used by some billion people around the world for some to all of their telecoms needs. It turns up in economic statistics as a reduction in productivity.

That’s mad.

In more detail, WhatsApp is free to use and carries no advertising. That means there’s no sale associated with it. We measure consumption at market prices – a price of $0 means no consumption. Consumption is one of the three ways we measure GDP – each of the three should be the same as the other two but isn’t because lying about taxes.

The other two calculations are all incomes, or all production. Things that are sold at no price do not add to production given that we measure it at market prices.

Income, well, there’re 200 or so engineers at Facebook who work on it (I checked with Facebook itself). Say their salary is $250k a year each. Probably too low but we’ve got to use some number or other. $50 million then. That’s incomes added to GDP.

So, in our three methods of calculating GDP – they should all be the same but that doesn’t matter here – we’ve value of WhatsApp (more accurately, WhatsApp adds value of $x each year to the global economy) of $50 million. Or $0 or $0.

Yeah, me too, 1 billion getting their telecoms is more of an addition to the global economy than $0, right?

It gets worse though. Productivity is GDP divided by hours worked. And if WhatsApp’s addition to GDP is nothing and yet we’ve 400,000 hours a year of labour (200 peeps times 2,000 hours a year) then that comes through as a reduction in productivity.

Yeah, me neither. Vodafone uses 200,000 people to provide telecoms to hundreds of millions, WhatsApp uses 200 to provide for 1 billion, the second is listed in our econ stats as a reduction in productivity?

Seriously, we know that we’re measuring the digital economy wrongly, our only argument is how wrongly. My bet is – and I wouldn’t insist but I’d shout vociferously that this is true – that if we measured digital output in better terms then we’d see that the productivity revolution is right here and right now.

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  1. I’ve observed and probably commented here that when I worked for a big corporation and later had various companies as clients around half the people were there to prevent the other half from getting anything done. There’s a hundred per cent productivity improvement right there if we could only get rid of, say, HR, compliance, H&S, credentialism, you name it, all the frustrations of modern business life. Three per cent should not be hard at all.

    • Yes, and not so much what they do, as all the committees of them with which productive people have to meet weekly. During the days of Digital Equipment Corporation, VP Gordon Bell wrote a notorious memo that these committees were knitting klatches and if we could not fire these people, we should at least try to move them to a new No Output Division so they would not have impact on people doing actual work.

      At the least, further reinforcement of Tim’s continual point that “creating more jobs” is not, by itself, a good thing but a cost.

      PS — You can’t just fire the Compliance people, there needs to be a change to the thing they are Complying with. Amid all the celebration of the Obama-care penalty tax on uninsured individuals (to take effect next year, unless they double-cross us again), the Employer Mandate, requiring companies to provide free, compliant health insurance is forgotten. Companies are still trying to stay under 50 employees, with all of them under 30 hours a week. Trump’s “unprecedented” deregulation is still in low gear. Results comparable to China’s “unbelievable” productivity gains are child’s play, except for the Don’t Kill The Job gang.

    • The problem in big companies isn’t government. Yes, there’s employment law. But if you follow it to the bare minimum, you hardly need any people to manage it.

      I worked in a company with 200 staff and 2 full time HR officers. And that’s because HR were just doing the basic HR tasks: payroll, official stuff when hiring and firing people, pensions, and advice to managers. What they didn’t do was anything else. In big companies they often slot themselves into the process in a big way. They run the whole recruitment process. They do mountains of diversity bullshit. They write lots of policy that managers have to adhere to.

  2. There’s very little doubt in my mind Whatsap has a negative effect on GDP. The sheer hours of what could be productive time wasted on Whatsapery must be phenomenal. Hence my use of Whatsap as a c*nt filter. Anyone wasting half an hour tapping out messages on a matter could be dealt with in a 3 cent phone call must be valuing their time as some sort of c*nt.

    Oh & thankyou. I now have enough selfies to last me several lifetimes. Please. No more. Save them for your friends, if you have any.