A great pick-up from Climateer Investing on the extremely important subject of whether we are collectively, as a planet, mismeasuring GDP by failing to account for the transformation of the economy into a service-oriented, information-based, digital entity.

It comes from Irving Wladawsky-Berger, the former IBM executive.

As he notes:

Gross domestic product (GDP) is the basic measure of a country’s overall economic output based on the market value of all the goods and services the country produces. Most measures of economic performance used by government officials to inform their policies and decisions are based on GDP figures. But, many concerns have been raised about the adequacy of GDP-based measurements given the major structural changes that economies around the world have been going through over the past few decades. GDP is essentially a measure of production. While suitable when economies were dominated by the production of physical goods, GDP does not adequately capture the growing share of services and the production of increasingly complex solutions that characterize advanced economies. Nor does it reflect important economic activity beyond production, such as income, consumption and living standards.

This point is particularly important to consider in cohesive societies like Japan. On the surface Japan is stagnating and floundering. But when viewed on the ground it is genuinely hard to call it an economy on the brink. There is a disconnect between reality and statistics.

Another good example of what Wladawsky-Berger is talking about is the work done by selfless agents like housewives. Economically, women’s work was almost completely unvalued for generations (and arguably still is on the domestic front). Then women headed into the monetised work force, with a considerable impact on GDP in dollar terms. Some have even blamed the ascent of female workers for the rise in property prices, as two salaries instead of one began to drive up asset prices.

Anthropologically, work for one’s kin or family has always tended to be more altruistic in nature. You don’t necessarily expect your children to pay you back. You won’t threaten them with expulsion or deposit levies (unless you think it’s in their own good in the long term). You will look after an elderly relative for nothing out of compassion. It is in some ways the degree of separation from one’s family which determines the need to establish an IOU culture. One won’t do for a stranger what one will do for one’s lover, and so on.

But as biologist and geneticist Richard Dawkins himself has always marvelled, nature shows that despite the inclination in our genetics to favour only our own family and kin, there are plenty of examples of genuine selfless altruism on behalf of strangers. In some ways this differentiates us from the animal world.

Which means if GDP is being misvalued by a rise in the non-monetised denominated economy, it’s because somewhere in the system we have become more altruistic on a collective level and more inclined to share and collaborate with perfect strangers with the expectation of nothing back in return.

This may go against our individual genetics, but as Dawkins himself notes, nature is full of examples of altruistic acts enacted for the benefit of the group. If our genes have an interest in defending the wider group — perhaps for ultimate survival purposes — then the rise of the non-monetised economy may be a hugely important indicator not only for economics but society at large.

The rise of the non-monetised economy in some sense reflects a return to housewife-dom, but on a community and most importantly voluntary level.

That’s actually the problem with developments like Bitcoin. It takes a peer-to-peer community that has the potential to enable sharing and non-monetised collaboration, and twists the selfish instinct back into it by means of forced monetisation, ledger keeping, and implied perception of value.

Going back to Wladawsky-Berger, as he notes:

In the talk, he mentions a few of the problems in measuring the value of digital goods. The first is that the marginal cost of delivering them over the Internet is pretty close to zero. While in some cases their economic model is based on advertising, in most cases users contribute their time, and develop digital content for nothing. We are spending more and more of our time consuming and developing digital goods than ever before. “We’ve more than doubled the amount of time we spend on these goods in the past five years.” The problem is that GDP measures the total amount spent on these goods and services. If the price is zero, then “zero times any quantity is still zero. So 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.” Traditional metrics have not been adequate for the information economy because so much of the digital economy has been free.

Some digital superstars, of course, have a problem with all the free stuff on the internet. Take Jaron Lanier, the computer scientist best known for popularising the term virtual reality, as an example.

Lanier has been preaching for some time that we should take charge of our digital selves and stop the large corporations exploiting our information for the benefit of their personal profits. He advocates the idea that people should demand nano payments for supplying their digital data, so that companies like Facebook have to spread the wealth they are creating.

His message does seem a noble one at first sight, but economically it’s not necessarily constructive.

So yes, digital companies tend to turn employment heavy enterprises into minimally-manned operations. And yes, they concentrate power and wealth where the computer is. And yes, the efficiency kills “opportunity” more widely. But all of that neglects the input of altruism, and the redefinition of labour from something you don’t want to be doing to something you do want to be doing.

Is it really labour if it’s something that we consider leisure?

The BBC technology show Click recently featured an interview with Lanier, in which he also argued there is no such thing as free. That “zero” is an artificial construct because any time information is used to organise the world it will always organise it to the benefit of some more than others. In that sense, he says, someone will always pay the price. And we agree, that’s certainly true in the case of initatives like Bitcoin.

But that view still ignores the role of altruism and the potential of authority – in the form of regulation – to serve our interests.

The BBC’s Bill Thompson puts this better than we could:

It [regulation] can be demonstrated to be effective. So it’s not just me being a wishy washy soft Briitish liberal type, the fact is it’s been more effective at controlling the activities of companies like Microsoft, Google and Facebook than the open market model which was implemented in the United States.

I can see why Jaron is saying the things he is saying, but I dont think it will work in practice.

As for the issue of there being no such thing as ‘free’:

I would challenge that way of constructing it. We all interact with each other, with technologies, with social networks… There are ways in which value can be abstracted from those interactions; some of them are so small that it can only be accumulated by larger players. I don’t think the nano payments model is effective because the value of my interaction, an individual interaction, is too small. So it’s not talking about “Oh, there’s no such thing as free”, it’s that with some things the cost of extracting the value is greater than the value you might get from it. So you might as well treat it as free.

And that in a sense is why regulation, and commonly agreed upon directives, are important. They ensure we can have the free stuff that we want without allowing power and wealth to be concentrated at the same time.

And that really is the point. As is the fact that it’s hard to extract value from something that people are happy to give up for free because the joy of the activity outweighs the burden.

We’ll leave you with a great quote on the matter from Buckminister Fuller, the social architect and leisure visionary. It’s from an article from New York Magazine in 1970:

We must do away with the absolutely specious notion that everybody has to earn a living. It is a fact today that one in ten thousand of us can make a technological breakthrough capable of supporting all the rest. The youth of today are absolutely right in recognizing this nonsense of earning a living.

We keep inventing jobs because of this false idea that everybody has to be employed at some kind of drudgery because, according to Malthusian-Darwinian theory, he must justify his right to exist. So we have inspectors of inspectors and people making instruments for inspectors to inspect inspectors.

The true business of people should be to go back to school and think about whatever it was they were thinking about before somebody came along and told them they had to earn a living.

Related links:
Mismeasuring UK GDP – FT Alphaville
The job-rich depression – Economist
LABOUR HOARDING OR OVER-ADJUSTED INFLATION? – Towards a Lesiure Society
Recoveryless jobbification - FT Alphaville
On the long-lasting hit to UK productivity – FT Alphaville
Beyond happiness – FT Alphaville

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