Tyler Cowen, Though, Is Less Sanguine than I Am

by Don Boudreaux on November 25, 2013

in Data, Growth, Myths and Fallacies, Seen and Unseen, Standard of Living

Here’s a letter to The New Yorker:

James Surowiecki correctly argues that GDP – a statistic based on the premise that “the more stuff we’re producing for sale, the better off we are” – underestimates today’s economic growth.  The reason highlighted by Mr. Surowiecki is that “a huge chunk of the time we spend online is spent consuming stuff that we don’t pay for” (“Gross Domestic Freebie,” Nov. 25).

Yet it’s not only the rich array of free-to-the-consumer digital offerings that is missed by GDP measures.  Also missed are the many small improvements in the quality of more traditional consumer goods - improvements that are the equivalent in the physical economy of free online content.

Two examples: First, celery sold at my neighborhood Safeway now comes in plastic bags that are resealable.  The celery producer, though, doesn’t charge extra for this useful feature.  Second, an automobile today can be driven for 100,000 miles before needing a tune-up.  This improved automobile quality means that a good deal of routine automobile maintenance that drivers once paid for is now effectively supplied free of charge.  GDP captures the value of neither of these improvements.

As we grow wealthier, our demands are less and less for greater quantities of existing products and more and more for improved product quality – economic outputs that, like free online content, are inherently difficult to capture in GDP statistics.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030

I thank David Henderson for the pointer to Surowiecki’s essay.

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