We know that the computer has really made a difference. It replaced typewriters, photo albums, calculators and maybe even travel agents. But still, can we precisely state its impact?
Economists have calculated that each year since 1977, on average, computers have added $1700 of benefit, or “welfare gain,” to our lives “above and beyond what we paid from them.”
Electricity also created a huge welfare gain. By contrast, the benefit of Apple-Cinnamon Cheerios was tiny (yes, they really were studied). Looking back at the 17th century, one researcher explored the welfare gain of introducing coffee, sugar, tea and tobacco to the European diet.
Austin Goolsbee, a top economic advisor to President Obama, co-authored a study of the welfare gain from the internet. Because the monthly payment that covers most internet service is unrelated to quantity, Dr. Goolsbee and his associates concluded that they could not use dollars to determine cost. Instead, they looked at the opportunity cost of the time spent online.
The Economic Lesson
The benefit we derive from computers could be called our welfare gain. One way to calculate welfare gain is to subtract the actual dollar cost of something from its usefulness, or, as an economist would say, its “utility.” (If you want to see how utility becomes a concrete equation, you can look here.)
To calculate the welfare gain from computers, researchers originally focused on two areas during a 27-year period, 1977-2004. 1) The dollar cost of that computing capacity; 2) The utility of that computing capacity. Why did they start with 1977? Because the first mass-produced computer, the Apple II, was introduced then.
Having said all of this about welfare gain, the final question that comes to mind is why? Why do economists believe it is important to know about welfare gain? Maybe we can think about the statistics that might relate such as the CPI and GDP.