[hyperpape]

While this article is probably wrong (I don't know what the economic impact of the fax machine was, but I suspect a lot smaller than the Internet), we should probably all be asking ourselves whether the economic impact of our industry is really all that big.

Looking at the profit of companies like Google and Facebook overstates the impact for them. They are making tons of money, but a lot of that is just a shift in the location of advertising dollars. Amazon has lowered prices, and there's real economic impact there, but what is the actual percentage?

In my current line of work, transportation management software, we're giving companies tools to be more efficient and reduce their freight expenditure, but the reductions are really very modest--good enough to keep customers happy, but nothing revolutionary. That seems to be the pattern for an awful lot of software: if you can beat an established industry by a little bit, that's enough for a business, but that's not the kind of revolution that you'd think there is listening to people hyping startups.

And if you think I'm wrong, ask yourself why GDP growth has been so anemic in the age of the Internet.

[snrplfth]

One must also ask, how much of it is consumer surplus. In just the same way as a disease going away reduces the economic activity associated with managing that disease, information technology and the internet have done away with many previously necessary activities, in the process of creating an overall improvement - potentially "shrinking" GDP, even while it delivers substantial benefits. What is instantaneous worldwide communication worth? What would it have been worth in 1967? It's so common and important now - but it's also very cheap, so it doesn't show up significantly in many calculations of economic production.

[hyperpape]

This is a good question. I think there is certainly some consumer surplus not captured in GDP statistics, though it doesn't necessarily undermine my point.

That said, your example of curing disease is a bad case of the broken window fallacy. No longer having to combat specific diseases 1) leaves people healthy and able to contribute to economic activity, and 2) leaves the people previously employed in medical fields able to take other jobs.

Maybe in 2016, where there's a seeming lack of jobs in the developed world, that's not a clear driver of economic growth, but in 1916, it was.

[snrplfth]

Oh, I'm not trying to commit the broken window fallacy. I'm just saying that, for example, if there was a disease that caused a lot of pain, and it was suddenly cured, the reduction in measured economic activity associated with managing that disease might outweigh the measured increased productivity and redeployment of resources and labour. (Maybe something like arthritis, say: usually worst after most people are retired and not measured as workers, doesn't take a huge number of people to manage, but causes a lot of pain.) Obviously curing a disease is an economic good. It's just that we're not terribly good at measuring consumer surplus, or leisure, or various dimensions of satisfaction - especially once you get past basic consumption indicators.

I suspect it's more likely that we're underestimating the consumer surplus from the internet than we are overestimating it. By how much, I don't know.

[hyperpape]

I think you're still making it, just in a more subtle way. What happens to the money those people spend on arthritis treatment?

[snrplfth]

Of course, that money is redeployed, which is good. The point is that, in the case of something like chronic pain, it is very difficult to measure the level of pain, but easy to measure the money spent on it. So, it can be challenging to compare.

Or, to go back to technology, take Facebook for example. Perhaps people would have liked to have a social networking site before, but it simply wasn't available. When it became available, many people used it and enjoyed it in their leisure time. Because it's free, and, while large, does not pull very large revenues per user, it doesn't show up as a major economic activity. And because it's used mostly as an end-consumer leisure activity, it is missed by indicators that don't measure this well. So there can be a substantial total increase in services enjoyed, and we might be missing it. Again - might. I cannot say for sure, but it's worth asking.

[hyperpape]

Gotcha. I definitely agree that there can be consumer surplus not captured by GDP.

[smsm42]

Maybe people just don't earn them, since not having to pay for treatment they can now spend time on reading books and watching birds instead of working. I don't say that happens with everybody, just one possible scenario. That's the thing with such global measures - they can't capture things they are not designed to capture.

[krona]

> And if you think I'm wrong, ask yourself why GDP growth has been so anemic in the age of the Internet.

Global GDP growth has been fairly steady for 40+ years. http://www.worldeconomics.com/papers/Global%20Growth%20Monit...

[hyperpape]

Yes, but that owes heavily to growth in pre-internet industries in developing nations. Unless the Internet is a crucial enabler of that growth (possible, but not a given!) the more relevant question concerns growth in the developed world, which has been lower.

[krona]

You're trying to find growth that is directly attributable to the internet, which is fairly futile in my view because the internet is not in itself a means of production.

[hyperpape]

Not at all. If the Internet changes the way that other goods are produced, that is an impact of the Internet (so I do think the Internet can claim some influence on the growth of international trade, just not an overwhelming percentage).

My company does SaaS for logistics. We lower the cost of moving goods for our customers. I count that as economic impact. It's just that the impact is relatively limited. We can get you lower labor costs, faster planning, more optimal routing, and higher utilization, but we can't make a truck move twice as far in the same amount of time.

[smsm42]

I admire your effort in finding something that salvages that obviously wildly misguided prediction by Krugman. But really: if any measure says Internet had no large economical impact on our lives, it's just a bad measure.

And yes, GDP is suffering from some problems. There's huge informational resources that can not be valued the way GDP is calculated. There are many other criticisms of it[1]. OTOH, is somebody gets money for digging a trench in the morning and filling it up at the evening, GDP increases, even though nothing useful were done, the money was just wasted. Don't get me wrong, GDP is a useful indicator, but it doesn't show everything.

[1] https://en.wikipedia.org/wiki/Gross_domestic_product#Limitat...

[hyperpape]

Your example of the trench is a textbook example of the broken windows fallacy. Digging a trench and filling it up may increase GDP when unemployment is low. It will reduce it when you're near full employment.

[cnnsucks]

>> And if you think I'm wrong, ask yourself why GDP growth has been so anemic in the age of the Internet.

GDP is the wrong figure. As we've pulled up the ladder and pushed people out of the workforce our net GDP has leveled off, but non-farm labour productivity has continued the rapid pace characteristic of the US economy, hitting an all time peak in 2015. We're getting more value out of fewer people. Some part of that has to be attributed to advanced communications, including the Internet.

Krugman has established a long history of embarrassingly bad predictions; this is merely one of the most demonstrably terrible. Also sometimes cited is his advocacy for 'housing bubble' policy and subsequent denials. Krugman doesn't know whats going on. He writes economic red meat for his fellow leftists inside his New York echo chamber. The real world is paying no attention.

[hyperpape]

Where are you getting your numbers? I've read that productivity growth was quite bad for most of the 2000s (you're right that 2016 was good). Also, you can't just write off decreased labor force participation by pointing to higher productivity, since many times in the 20th century, you had high labor force participation and high productivity growth.

P.S. Attacks on Krugman seem pretty non-responsive to what I said, but this is 1998, prior to Krugman's heavy involvement in partisan politics, an involvement which may not have made him more...careful.