Hidden Economy

When Twitter went public recently, it was valued at $24 billion, with revenue of $535 million. 300 billion tweets have been sent since Twitter began, and that number increases by half a billion a day.

What’s curious about this, James Surowieki writes in The New Yorker, is that Twitter uses “have paid Twitter no dollars and no cents.”

And that leads Surowieki to contemplate the fact that our ways of calculating productivity are poorly designed to capture the free stuff that goes on on the web:

“Our main yardstick for the health of the economy is G.D.P. growth, a concept devised in the nineteen-thirties by the economist Simon Kuznets. If its rising briskly, we know that the economy is doing well. If not, we know its time to worry. The basic assumption is simple: the more stuff were producing for sale, the better off we are. In the industrial age, this was a reasonable assumption, but in the digital economy that picture gets a lot fuzzier, since so much of whats being produced is available free. You may think that Wikipedia, Twitter, Snapchat, Google Maps, and so on are valuable. But, as far as G.D.P. is concerned, they barely exist. The M.I.T. economist Erik Brynjolfsson points out that, according to government statistics, the ‘information sector’ of the economywhich includes publishing, software, data services, and telecomhas barely grown since the late eighties, even though weve seen an explosion in the amount of information and data that individuals and businesses consume.”

There’s something new here: “New technologies have always driven out old ones, but it used to be that they would enter the market economy, and thus boost G.D.P.as when the internal-combustion engine replaced the horse. Digitization is distinctive because much of the value it creates for consumers never becomes part of the economy that G.D.P. measures. That makes the gap between whats actually happening in the economy and what the statistics are measuring wider than ever before.”