"they valued free Internet services at ... less than 1 percent of G.D.P."
So Pandora, Facebook, Hacker News, YouTube, Google, Wikipedia, gmail, google maps, Reddit... all of these together are worth less than $50/month? Would any of you give up all the free parts of the internet for $50/month?
And look back 30 years: everything has gotten so much better. Rotary dial landlines have been replaced with smartphones. Houses are better and bigger. Cars are better, more comfortable, safer. Children's toys, strollers, playgrounds are so much safer and more convenient. Music has changed from a few CDs to thousands of songs carried around in almost every pocket. The numbers don't seem to make any sense to me.
Marc Andreessen is onto something. The economic numbers don't make any sense when you compare them to reality.
What you're talking about is called consumer surplus, and it's the same argument that Marc Andreessen has been making.
Rents are a real issue with real consequences. It doesn't matter how much cheaper your phone, or your heroin, or your cigarettes cost unless they make your life more productive. You gotta be able to pay rent.
If you buy a table saw and a tool belt and learn how to use them, you can make money, and then you can pay rent. If your table saw gets cheaper, you get to benefit from that consumer surplus. If your heroin or cigarettes get cheaper, you get no benefits from that consumer surplus, unless you want to argue that the temporary highs from drug use lead to long term productivity.
A cheaper TV does not make you more productive. What we can actually see in these studies is that cheaper phones and more time spent on Facebook do not make people more productive. Sitting around watching cheaper and cheaper videos on your cell phone is about as productive as nodding off on heroin.
---
In some circumstances, policymakers might choose to disregard consumer surplus because they do not respect the preferences that drive buyer behavior. For example, drug addicts are willing to pay a high price for heroin. Yet we would not say that addicts get a large benefit from being able to buy heroin at a low price (even though addicts might say they do). From the standpoint of society, willingness to pay in this instance is not a good measure of the buyer's benefit, and consumer surplus is not a good measure of economic well-being, because addicts are not looking after their own best interests.
- Principles of Economics, N. Gregory Mankiw, p. 140
---
The numbers don't make any sense to you because you're not thinking like an economist. The reason why we care about actual trade value and money changing hands is because that's what economics is all about. It's about real people paying real rents and real people buying real food.
> So Pandora, Facebook, Hacker News, YouTube, Google, Wikipedia, gmail, google maps, Reddit... all of these together are worth less than $50/month? Would any of you give up all the free parts of the internet for $50/month?
With the exception of Wikipedia, and Hacker News -- which is more of loss leader for Y Combinator -- all of the services you listed are run by for profit companies. Clearly they're making more than $50 month.
How does all of that relate to how much better it could be?
It's silly to take a fixed point in time and just declare "I think we are all pretty happy here", it's extraordinarily silly to do that as Marc Andreessen.
The Uber example is a great one. From 2009 to 2015, Uber didn't do much to increase the amount of value a driver could create per dollar spent. It did somewhat: Uber drivers can charge less than taxi drivers due to higher utilization and regulatory avoidance. But at the end of the day, drivers were still putting in the same amount of work to move a passenger.
UberPool and UberHop are actually productivity increases. A single driver can provide 2-4 trips worth of value with about 1 trip's worth of work. However, that's just going to drive the cost of trips down. If Uber and its drivers end up not increasing their revenue per driver trip, the productivity statistics would look the same even though drivers are moving four times as many people!
My layman's interpretation could be wrong, but it really just looks like we're using productivity wrong. It's useful to compare companies and countries at a particular point in time, but if you use it to compare the 2000 world to the 2016 world, it's probably not going to tell you useful things.
>The Uber example is a great one. From 2009 to 2015, Uber didn't do much to increase the amount of value a driver could create per dollar spent. It did somewhat: Uber drivers can charge less than taxi drivers due to higher utilization and regulatory avoidance. But at the end of the day, drivers were still putting in the same amount of work to move a passenger
Seriously? UberBlack didn't increase the usage factor[1] of existing black cars? UberX drivers didn't have higher usage factors than regular cabs? Because I'm pretty sure the initial selling point of Uber to limo drivers was "hey, fill in gaps between your scheduled rides", which pretty much only works if it increases the usage factor.
And a higher usage factor means higher productivity.
[1] ratio of "time spent driving a passenger" to "total time working (including idle)", my own term, don't know if there's a standard one
Here's an example from my trip to Paris. We speak to the concierge at the hotel explaining we need a lift to the airport at 8am the next morning. They call us a taxi service which is actually more like a long van. The van stopped at various hotels along the way. Old technology..
You're so wrong it hurts. Please go find any economist on the planet and they'll be happy to explain why your layman's interpretation is wrong.
In the meantime, please read my other comments in this post, as I don't need to keep making the same arguments, but also read the comments on Tyler Cowen's blog:
Marc Andreessen is not an economist and he's also an investor in the companies that he is saying are providing mysterious new productivity that "old economics" can't measure.
Come on, you've got to be able to recognize these kinds of conflicts of interests...
>UberPool and UberHop are actually productivity increases. A single driver can provide 2-4 trips worth of value with about 1 trip's worth of work. However, that's just going to drive the cost of trips down. If Uber and its drivers end up not increasing their revenue per driver trip, the productivity statistics would look the same even though drivers are moving four times as many people!
In this scenario, you need only 1/4 the drivers, and some fraction of those 3 newly unemployed people will eventually do other work. That is the productivity growth.
Silicon Valley can provide tools, or perhaps supplant some industries, but the bulk of productivity improvement is internal to companies. I think the productivity slowdown is a result of many companies not investing in internal improvement/development and instead using their capital in non-productivity enhancing financial moves such as stock buybacks.
In fact, if anything, the increasing inequity between management, C-level executives, and employees makes companies even less able to handle the complex systems of the present world, which is only growing in complexity.
The real issues are human, and human problems require improvements in management, leadership, internal systems, and knowledge and understanding. When rifts form between management and employees, what happens instead is an individual competitive focus that brings productivity and innovation down significantly.
What we're seeing, effectively, is that the world is changing and becoming more complex, and management and internal systems are not keeping up, and instead in many cases going downhill.
There are small pockets of hope in the Lean movement, Kaizen/continuous improvement, and in those who know and understand Deming management philosophy. For a great modern take, read General Stanley McChrystal's "Team of Teams."
Start-ups rally around fashion signalling through open-plan offices, and create elaborate HR codewords to rationalize unhealthy cramming of people into intrinsically unproductive physical situations.
The cost effectiveness of providing private offices for knowledge workers, even in the most dense urban areas, has been well known for a long time, yet few organizations do it, and some organizations even spend money to tear down productivity-enhancing privacy features in favor of wasteful open-plan fashion.
Why would anyone look to the start-up world when expecting productivity?
Most big productivity increases have been in the manufacturing and agriculture areas. Those have been so successful that they now employ only 9.5% of the US workforce. The areas with strong productivity increases shrink, while the ones with low or no productivity increase come to dominate employment.
There's a formal statement of that, essentially an analogue of Amdahl's Law. As you optimise labour in certain parts of the economy, you're left with the bits that cannot have their productivity increased.
Unfortunately I cannot for the life of me remember what it's called or where I read it. Good odds it's in Robert Gordon's new book (The Rise and Fall of American Growth) or related discussion. Or somewhere in William Ophuls' Ecology and the Politics of Scarcity discussing technology, or Carlotta Perez's Technological Revolutions and Financial Capital.
The decline of the number of people employed in agriculture is certainly due to increases in productivity (small family farms giving way to industrial-scale farming). But much of the decline in the number of U.S. manufacturing jobs has occurred due to these jobs being moved outside the country, where labor is cheaper.
I might be late the party for anyone to read what I have to say.
For the past 45 years, Canada has had limited growth in labour productivity and currently stands at $42/hour, contrasting against the US at $52/hour, measured in GDP/hour worked.
It turns out that it's very very difficult to understand productivity. It is against common understanding why Canada's more numerous bachelors degree holders seemingly doesn't contribute to a more productive labour force. If investments in education do not increase labour productivity (as predicted by nearly every model of labour economics), then what measures do affect productivity? It is increasingly unconvincing that countries become more productive by mere accident.
>It is against common understanding why Canada's more numerous bachelors degree holders seemingly doesn't contribute to a more productive labour force. If investments in education do not increase labour productivity (as predicted by nearly every model of labour economics), then what measures do affect productivity?
The "education system" is not an education system. It is a selection system used to choose who gets one of the at any one tine limited number of jobs. Increasing the number of people in that selection system makes it less effective, hence the lowered value of a degree, the need for internships, and increased stress on personal networks for finding jobs.
An estimated 26.2 percent of Americans ages 18 and older or about one in four adults suffer from a diagnosable mental disorder in a given year. When applied to the 2004 U.S. Census residential population estimate for ages 18 and older, this figure translates to 57.7 million people.
In any given year, 1 in 5 Canadians experiences a mental health or addiction problem.
Maybe I'm off base, but why would we necessarily expect great productivity gains? The late 90's to early 2000's was a time when computers become ubiquitous. Yes, there are smart phones and tablets now, but the difference between "by hand" and "by computer" is far larger than "by PC" and "by tablet".
Well duh; most of what Silicon Valley builds are not productivity tools. If anything they build anti-productivity tools like social media and entertainment.
Hang on. Correct me if I'm being terribly obtuse here, but it looks like making an end goal process with a saturated market more efficient would count as a productivity loss?
So say everyone needs to pay taxes. Let's say that everyone complies and pays a company $100 for software to do this. Now I make equivalent software which I'm able to sell for $50 (because I'm better at running my company, say). Now people are spending exactly half as much money, but the same job is being done. This looks like an economic productivity loss? If so, surely there are alternative models that capture the intuitive gain from things like this? Or maybe such gains are rare and negligible?
What happens in this situation is the people who used to make the obsolete things are now out of a job, and eventually get employment somewhere else. What they do then counts for productivity. If they earn what they did before, you'd measure no change in productivity -- though we'd all be better off.
The studies in the article assert that the size of the productivity shortfall is so large that even if we place pretty generous values on all this free stuff we have now it doesn't fully cover the gap.
[off-topic] aren't mobile phones and tablets just sucking productivity out of mankind, if not slowing it down? was watching old movies from 90s with my lady and we both noticed how interactive ppl were in the background, on streets or in cafe, nowadays every one just dives into their mobile phones ...
Are you talking about economic productivity, or social interaction? Those are two questions with potentially very different answers. Also, I think the social interaction argument is pretty weak. The global connectedness that comes from the Internet and smartphones is, in my opinion, a huge improvement to social interaction in the world. I'm not that fussed if I'm at a restaurant with friends and some are using their phones.
The article states that labor productivity has been growing less in the last decade, but how is that measured? Is the productivity number compensated for the number of hours worked? And is it measuring only labor performed by humans?
The middle class never got any money for being more productive in the 90s and aughts. Maybe they're wising up.
Also, virtually every market is dominated by cartel, duopoly, or monopoly conditions, and companies are often satisfied with that position, so investment is down.
While I agree with your statement, it's not terribly germane to Cowen's argument.
What he's saying is that all the fuss over Silicon Valley technology is not warranted when it comes to actual productivity gains.
This is a really important point because it suggests two different way of conceiving of technology:
1) how economists define technology, viz something that allows us to do more with less
2) what laymen consider technology: the latest gee whiz gizmo marketed by Silicon Valley
The economic definition is a lot stricter in some ways - and broader in other ways.
The takeaway is that in economic terms we really haven't experienced much technological evolution. I find that to be pretty believable.
Another way to say this is that the normally-presumed cause/effect relationship is actually backwards here. I.e. If you aggregate the outputs of industry over a long enough period, higher wages cause higher productivity and not visa versa.
It seems that trying to distill the activity of 7+ billion people into a line graph that you can extend naively to make predictions is a bankrupt exercise. Calling lower-than-predicted growth a slowdown is more than a bit disingenuous.
I didn't read it as less-than-predicted growth, but rather simply less than previous growth. Regardless, the wording of the article and headline is wrong, and makes me sad that evidently more people didn't learn / don't remember any calculus.
trying to distill the activity of 7+ billion people
Yeah, it's slightly disingenuous, but we still need some models. It's like when people take the total revenue of Google and divide by the total number of Google employees (including assistants and chefs and tech support and the PMs and artists and designers and all the actual engineers too) to reach a "revenue per employee" number.
It's not perfect by any means, but anytime you divide one number by another, you get to call your result a metric (then you get to write insights about your new discovery too).
[+] [-] thedevil|10 years ago|reply
So Pandora, Facebook, Hacker News, YouTube, Google, Wikipedia, gmail, google maps, Reddit... all of these together are worth less than $50/month? Would any of you give up all the free parts of the internet for $50/month?
And look back 30 years: everything has gotten so much better. Rotary dial landlines have been replaced with smartphones. Houses are better and bigger. Cars are better, more comfortable, safer. Children's toys, strollers, playgrounds are so much safer and more convenient. Music has changed from a few CDs to thousands of songs carried around in almost every pocket. The numbers don't seem to make any sense to me.
Marc Andreessen is onto something. The economic numbers don't make any sense when you compare them to reality.
[+] [-] thedevil|10 years ago|reply
newspaper -> hacker news, google news: GDP drops, but life is better.
stereo + CDs -> mp3 player: GDP drops, but life is better
GPS -> Google maps, GDP drops, but life is better.
snail mail -> gmail, text, GDP drops, but life is better.
[+] [-] dcre|10 years ago|reply
The 1% of GDP ($106 billion) in the study refers only to the chunk of the value that we are not paying for in this way.
You are confused because you are considering both numbers together.
[+] [-] williamcotton|10 years ago|reply
Rents are a real issue with real consequences. It doesn't matter how much cheaper your phone, or your heroin, or your cigarettes cost unless they make your life more productive. You gotta be able to pay rent.
If you buy a table saw and a tool belt and learn how to use them, you can make money, and then you can pay rent. If your table saw gets cheaper, you get to benefit from that consumer surplus. If your heroin or cigarettes get cheaper, you get no benefits from that consumer surplus, unless you want to argue that the temporary highs from drug use lead to long term productivity.
A cheaper TV does not make you more productive. What we can actually see in these studies is that cheaper phones and more time spent on Facebook do not make people more productive. Sitting around watching cheaper and cheaper videos on your cell phone is about as productive as nodding off on heroin.
---
In some circumstances, policymakers might choose to disregard consumer surplus because they do not respect the preferences that drive buyer behavior. For example, drug addicts are willing to pay a high price for heroin. Yet we would not say that addicts get a large benefit from being able to buy heroin at a low price (even though addicts might say they do). From the standpoint of society, willingness to pay in this instance is not a good measure of the buyer's benefit, and consumer surplus is not a good measure of economic well-being, because addicts are not looking after their own best interests.
- Principles of Economics, N. Gregory Mankiw, p. 140
---
The numbers don't make any sense to you because you're not thinking like an economist. The reason why we care about actual trade value and money changing hands is because that's what economics is all about. It's about real people paying real rents and real people buying real food.
You can't pay rent in Facebook "likes".
[+] [-] jonathankoren|10 years ago|reply
With the exception of Wikipedia, and Hacker News -- which is more of loss leader for Y Combinator -- all of the services you listed are run by for profit companies. Clearly they're making more than $50 month.
[+] [-] revelation|10 years ago|reply
It's silly to take a fixed point in time and just declare "I think we are all pretty happy here", it's extraordinarily silly to do that as Marc Andreessen.
[+] [-] natrius|10 years ago|reply
UberPool and UberHop are actually productivity increases. A single driver can provide 2-4 trips worth of value with about 1 trip's worth of work. However, that's just going to drive the cost of trips down. If Uber and its drivers end up not increasing their revenue per driver trip, the productivity statistics would look the same even though drivers are moving four times as many people!
My layman's interpretation could be wrong, but it really just looks like we're using productivity wrong. It's useful to compare companies and countries at a particular point in time, but if you use it to compare the 2000 world to the 2016 world, it's probably not going to tell you useful things.
[+] [-] SilasX|10 years ago|reply
Seriously? UberBlack didn't increase the usage factor[1] of existing black cars? UberX drivers didn't have higher usage factors than regular cabs? Because I'm pretty sure the initial selling point of Uber to limo drivers was "hey, fill in gaps between your scheduled rides", which pretty much only works if it increases the usage factor.
And a higher usage factor means higher productivity.
[1] ratio of "time spent driving a passenger" to "total time working (including idle)", my own term, don't know if there's a standard one
[+] [-] goalieca|10 years ago|reply
[+] [-] williamcotton|10 years ago|reply
In the meantime, please read my other comments in this post, as I don't need to keep making the same arguments, but also read the comments on Tyler Cowen's blog:
http://marginalrevolution.com/marginalrevolution/2016/03/the...
http://marginalrevolution.com/marginalrevolution/2016/03/pro...
http://marginalrevolution.com/marginalrevolution/2016/03/how...
Marc Andreessen is not an economist and he's also an investor in the companies that he is saying are providing mysterious new productivity that "old economics" can't measure.
Come on, you've got to be able to recognize these kinds of conflicts of interests...
[+] [-] YokoZar|10 years ago|reply
In this scenario, you need only 1/4 the drivers, and some fraction of those 3 newly unemployed people will eventually do other work. That is the productivity growth.
[+] [-] digikata|10 years ago|reply
[+] [-] calinet6|10 years ago|reply
In fact, if anything, the increasing inequity between management, C-level executives, and employees makes companies even less able to handle the complex systems of the present world, which is only growing in complexity.
The real issues are human, and human problems require improvements in management, leadership, internal systems, and knowledge and understanding. When rifts form between management and employees, what happens instead is an individual competitive focus that brings productivity and innovation down significantly.
What we're seeing, effectively, is that the world is changing and becoming more complex, and management and internal systems are not keeping up, and instead in many cases going downhill.
There are small pockets of hope in the Lean movement, Kaizen/continuous improvement, and in those who know and understand Deming management philosophy. For a great modern take, read General Stanley McChrystal's "Team of Teams."
[+] [-] Animats|10 years ago|reply
[1] http://faculty.chicagobooth.edu/chad.syverson/research/produ...
[+] [-] JustSomeNobody|10 years ago|reply
Edit: And please don't kill me with semantics of "working" vs "productivity".
[+] [-] ktRolster|10 years ago|reply
[+] [-] p4wnc6|10 years ago|reply
The cost effectiveness of providing private offices for knowledge workers, even in the most dense urban areas, has been well known for a long time, yet few organizations do it, and some organizations even spend money to tear down productivity-enhancing privacy features in favor of wasteful open-plan fashion.
Why would anyone look to the start-up world when expecting productivity?
[+] [-] Animats|10 years ago|reply
[+] [-] dredmorbius|10 years ago|reply
Unfortunately I cannot for the life of me remember what it's called or where I read it. Good odds it's in Robert Gordon's new book (The Rise and Fall of American Growth) or related discussion. Or somewhere in William Ophuls' Ecology and the Politics of Scarcity discussing technology, or Carlotta Perez's Technological Revolutions and Financial Capital.
Light reading.…
[+] [-] greenyoda|10 years ago|reply
[+] [-] Johnnybe|10 years ago|reply
[+] [-] api_or_ipa|10 years ago|reply
For the past 45 years, Canada has had limited growth in labour productivity and currently stands at $42/hour, contrasting against the US at $52/hour, measured in GDP/hour worked.
It turns out that it's very very difficult to understand productivity. It is against common understanding why Canada's more numerous bachelors degree holders seemingly doesn't contribute to a more productive labour force. If investments in education do not increase labour productivity (as predicted by nearly every model of labour economics), then what measures do affect productivity? It is increasingly unconvincing that countries become more productive by mere accident.
[+] [-] dilemma|10 years ago|reply
The "education system" is not an education system. It is a selection system used to choose who gets one of the at any one tine limited number of jobs. Increasing the number of people in that selection system makes it less effective, hence the lowered value of a degree, the need for internships, and increased stress on personal networks for finding jobs.
[+] [-] x5n1|10 years ago|reply
In any given year, 1 in 5 Canadians experiences a mental health or addiction problem.
[+] [-] unknown|10 years ago|reply
[deleted]
[+] [-] sbov|10 years ago|reply
[+] [-] snowwrestler|10 years ago|reply
[+] [-] arjie|10 years ago|reply
So say everyone needs to pay taxes. Let's say that everyone complies and pays a company $100 for software to do this. Now I make equivalent software which I'm able to sell for $50 (because I'm better at running my company, say). Now people are spending exactly half as much money, but the same job is being done. This looks like an economic productivity loss? If so, surely there are alternative models that capture the intuitive gain from things like this? Or maybe such gains are rare and negligible?
[+] [-] YokoZar|10 years ago|reply
The studies in the article assert that the size of the productivity shortfall is so large that even if we place pretty generous values on all this free stuff we have now it doesn't fully cover the gap.
[+] [-] calinet6|10 years ago|reply
Certain circles are beginning to realize that the main issues are human and not technological (Lean, Deming, Kaizen, Design thinking, etc).
So there's your answer. Increasing complexity of work, with unchanged or at best slowly increased ability to cope with it.
For a great overview and insight into this shift (and how to tackle it), check out Gen Stanley McChrystal's book, "Team of Teams."
[+] [-] dilemma|10 years ago|reply
[+] [-] baconizer|10 years ago|reply
[+] [-] baddox|10 years ago|reply
[+] [-] slavik81|10 years ago|reply
[+] [-] henrikschroder|10 years ago|reply
[+] [-] _delirium|10 years ago|reply
[+] [-] cowardlydragon|10 years ago|reply
Also, virtually every market is dominated by cartel, duopoly, or monopoly conditions, and companies are often satisfied with that position, so investment is down.
[+] [-] tryitnow|10 years ago|reply
What he's saying is that all the fuss over Silicon Valley technology is not warranted when it comes to actual productivity gains.
This is a really important point because it suggests two different way of conceiving of technology: 1) how economists define technology, viz something that allows us to do more with less 2) what laymen consider technology: the latest gee whiz gizmo marketed by Silicon Valley
The economic definition is a lot stricter in some ways - and broader in other ways.
The takeaway is that in economic terms we really haven't experienced much technological evolution. I find that to be pretty believable.
[+] [-] thetrumanshow|10 years ago|reply
This is a fun thought-experiment.
[+] [-] pcarolan|10 years ago|reply
http://www.mckinsey.com/business-functions/strategy-and-corp...
[+] [-] oldmanjay|10 years ago|reply
[+] [-] Ericson2314|10 years ago|reply
Derivative of productivity != productivity, NYT.
[+] [-] seiji|10 years ago|reply
Yeah, it's slightly disingenuous, but we still need some models. It's like when people take the total revenue of Google and divide by the total number of Google employees (including assistants and chefs and tech support and the PMs and artists and designers and all the actual engineers too) to reach a "revenue per employee" number.
It's not perfect by any means, but anytime you divide one number by another, you get to call your result a metric (then you get to write insights about your new discovery too).