A GDP Omission
What to include in the GDP?
When Nobel Laureate Simon Kuznets developed the concept of the GDP during the 1930s, he had to decide which goods and services would count. He knew the GDP had to measure the health of the country. But how? His answer was adding together the prices of all goods and services that were legally produced during one year. Washing the dishes at home would not be counted. But, if you paid someone for the same task, it would.
Now though, I suspect that the question of what to count has become even tougher to answer.
During July, government statisticians began to include “intellectual property products” in the fixed investment category. Crucially, that meant research and development would be recognized. In addition, music, entertainment and TV show production costs are also added in to the GDP.
But what about all the free services we use online? Think Twitter. 300 billion tweets and I do not think that anyone paid a penny. We used to buy a set of encyclopedias. Now we have Wikipedia. Maps–no need to buy them. We have Google. And…YouTube?
You see where this is taking us. If the GDP is a yardstick of the goods and services produced in a country during a year, should it include the items for which no dollars are paid? And if yes, then how?
Looking at the IoE–the Internet of Everything–economist Michael Mandel gives us one possible answer. He says that if we add data services, then the GDP will rise by an extra $300 billion or so.
Sources and resources: H/T to James Surowiecki for his New Yorker column, “Gross Domestic Freebie.” Also, I recommend this excellent 5 minute video that explains the GDP from Slate and Planet Money’s Adam Davidson. For more on how to measure the uncounted internet economy, these papers here and here, take a closer look.