by Simon Bond

Erik Brynjolfsson and Adam Saunders write that we see the influence of the information age everywhere, except in the GDP statistics.

More people than ever are using Wikipedia, Facebook, Craigslist, Pandora, Hulu and Google. Thousands of new information goods and services are introduced each year. Yet, according to the official GDP statistics, the information sector (software, publishing, motion picture and sound recording, broadcasting, telecom, and information and data processing services) is about the same share of the economy as it was 25 years ago — about 4%.

Erik Brynjolfsson and Adam Saunders write that the answer isn’t about quantity, it’s about price. GDP is a measure of the current market value of production. So if you listen to a free song, there’s virtually no contribution to GDP (perhaps a few fractions of a cent for the electricity you use). Brynjolsson notes that you could have an enormous of explosion of bits or articles or whatever else. If they’re priced at zero, the statisticians in Washington do the math and, lo and behold, it comes out as a big fat zero contribution for our GDP.

Free goods, GDP and consumer surplus Since most of the on-going discussions about free online services and data revolve around their ‘unrecorded’ value in GDP statistics, it is tempting to think that everything would be fine if only this ‘value’ could be included ‘back into’ GDP. But it misses the distinction between GDP and economic value.

Since its invention as part of the development of national income and product accounts by the US and UK treasuries in the 1930s and 1940s GDP was and remains primarily designed to capture, in the words of Robert Costanza and co-authors, “only monetary transactions related to the production of goods and services”. Greg Ip writes that typically economists determine non-monetary benefits by trying to calculate "consumer surplus": the difference between what a consumer pays and what they would be willing to pay.

As stressed by Shane Greenstein, even for a good that has a price, it is hard to estimate consumer surplus. This issue is as old as newspapers and libraries as the benefits a reader obtained from a local newspaper probably exceeded the $0.25 he or she paid.

Greg Ip notes that when so many Internet services such as search and social media are free and have no precise market based analog, the task is made even harder. 

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