Welfare and technology

New York Times business and economics columnist Eduardo Porter had a pretty good piece last week on the benefits of technology and our struggles to measure them. Here's the gist:

Last year, Robert J. Gordon of Northwestern University proposed that the I.T. revolution has pretty much exhausted its promise. He asked, provocatively: “Is U.S. economic growth over?” And he forecast stagnating living standards for the vast majority of Americans for decades to come.

Government statistics lend support to his skepticism: Value added by the information technology and communications industries — mostly hardware and software — has remained stuck at around 4 percent of the nation’s economic output for the last quarter century. 

But these statistics do not tell the whole story. Because they miss much of what technology does for people’s well-being. 

News organizations that take advantage of computers to let go of journalists, secretaries and research assistants will show up in the economic statistics as more productive, making more with less. But statisticians have no way to value more thorough, useful, fact-dense articles. 

What’s more, gross domestic product only values the goods and services people pay for. It does not capture the value to consumers of economic improvements that are given away free. And until recently this is what news media organizations like The New York Times were doing online. 

The Commerce Department is in the process of revising the way it measures G.D.P. to take better account of the contributions of investment in research and development and artistic creation. But even though the revisions to be announced this summer are expected to make the economy look bigger, they are not devised to capture the value that Americans get from digital technologies. 

“G.D.P. is not a measure of how much value is produced for consumers,” said Erik Brynjolfsson of the Massachusetts Institute of Technology. “Everybody should recognize that G.D.P. is not a welfare metric.” 

G.D.P. misses what Americans gain from sharing information on Facebook or finding information on Google or Wikipedia. It misses how dating sites reduce the cost and increase the odds of finding a mate. It misses the time saved by drivers who use Google Maps and the time gained by consumers from shopping online. Measured in money — what it contributes to G.D.P. — the recording industry is shrinking. Yet never before have Americans had access to so much music.

For all of the hand-wringing one regularly encounters regarding the current state of affairs, it's useful to recall the impact of technology advancements and how much they have improved our lives. While Porter cites a number of examples of the positive impact of technology, such as matchmaking and online shopping, perhaps another worth considering is that of planning a trip versus 15-20 years ago (no small thing -- remember that over one-third of Americans own a passport). 

Twenty years ago -- or even less -- planning a trip or vacation typically involved meeting with a travel agent or purchasing travel guides in order to help with decisions such as where to travel, what accommodations to use and how to get there. Now, one can simply search online for hotels, flights and rental cars, replacing endless phone calls (international calls for hotel bookings abroad) with a few  keystrokes. 

It's not just time savings either, with the internet also producing huge qualitative improvements. Beyond finding prices and availability online, websites such as Tripadvisor also provide pictures and reviews from actual customers.  Visitors can learn online what is worth seeing and doing, and what's a waste of time or tourist trap. Rather than getting one opinion from a guide book, aspiring travelers can easily get dozens or more of first-hand reviews. In addition to the process becoming vastly easier, customers now have greater certainty than ever of what they are getting for their money. Other useful information is also easily obtained, such as local weather (almost regardless of how obscure the destination), local mass transit schedules and currency exchange rates. 

The advantages don't stop once the journey has begun. Once on board the plane, long-flights almost guarantee access to personal video systems with libraries of movies to choose from -- as opposed to one or two movies screened for the entire plane via projectors or drop down monitors -- and other entertainment options such as TV shows and games. Some flights even offer in-flight WiFi. Instead of traveling with sheafs of paper  containing numerous confirmation numbers, phone numbers and other contact information, maps, paper airline tickets, etc., everything can simply be loaded onto a smart phone (a development that is saving money for the airlines).

If using a rental car, a GPS device almost guarantees one never gets lost, ensuring less time (and gas) wasted and more time enjoying the trip. ATMs replace the need for carrying around large amounts of foreign currency when traveling abroad in developed countries (and even many lesser developed ones). Digital cameras help people get the pictures they want, and eliminate the guessing game of shooting with film (also saving the cost of photo development) and producing better memories (which are then easily shared in short order online with friends and family rather than mailed or placed in a photo album). 

The point to all of this is not simply to highlight how much technology has improved our lives, but also -- as Porter notes -- how difficult all of this is to capture in the economic data. Purely from the perspective of economic activity as measured by money exchanged, perhaps not a great deal has changed from vacations 20 years ago: people still have to pay for rental cars, airline seats, hotel rooms (although probably less than before) and other items such as cameras (or smartphones) to capture the memories.

But what about the qualitative changes such as reduced time being lost or making phone calls for hotel and airline reservations? What about the satisfaction from getting exactly what you're looking for in a hotel room, with no surprises? Or the happiness generated from the hundreds or even thousands of photographs and video taken with a run-of-the-mill digital camera? How is this measured, and how much is it worth?

Even when looking at traditional economic measurements it is clear that most Americans are living better than ever. As the Pew Charitable Trusts noted in a report last year, 84 percent of Americans have higher family incomes than their parents had at the same age and 93 percent of Americans whose parents were in the bottom fifth of the income ladder as well as 88 percent of those whose parents were in the middle quintile exceed their parents’ family income as adults. What's truly astonishing, however, is that -- given both the time savings Porter highlights as well as qualitative improvements due to technology that are less easy to measure -- such data almost certainly understates how well the average American is doing.

It's an amazing world, and we're lucky to be living in it.