Donald Trump’s abandonment of honest economic statistics highlights what’s been true for a while: the way we measure economic activity has long been inadequate for modern political challenges, writes Professor Diane Coyle, for Noema.
Living in a digital realm poses a serious problem for measuring what’s going on in the economy. By definition, “the economy” — that is, gross domestic product or GDP — excludes activities done at home and those involving no monetary transactions. All those do-it-yourself digital activities take some components of the economy across a boundary into the household. Digital services we don’t pay for — social media, smartphone apps, Google searches — have no impact on GDP because their price is zero.
What’s more, these free services are increasingly replacing things that previously did have a price and were therefore accounted for in GDP. As Nobel-winning economist Gary Becker pointed out long ago, shifts of this kind make it difficult to interpret the published figures for national wealth, economic output and productivity.
In any case, it is far from clear that more productivity, as conventionally measured, is always a good thing. Consider the automatic checkouts steadily colonising stores. They substitute capital and software for human labour, and so will improve the sales per employee figures for the stores. But they rely on shoppers’ free labor instead. Just as with online banking, which often saves time but occasionally doesn’t, we should be accounting for time spent and saved as well as money spent and saved.
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