We economists marvel, too, but we also wonder how free apps fit into GDP. They do have their long-run downside, as we forget how to read maps and plot routes ourselves. (Anybody out there remember how to work a slide rule? No? That’s not a loss for computation but it does mean lower average numeracy.) But in the short run they save billions of hours in wrong turns not taken and trillions of cells of stomach lining no longer eaten up by travel anxiety. Not to mention their entertainment value.
But hardly any of that very big upside shows up in GDP. In one respect, in fact, GDP goes down. I used to buy maps, including travel atlases. I’m unlikely to do that anymore. Maps purchased by consumers are a “final good or service” and thus do enter into GDP. Maps I interact with online but don’t pay for aren’t GDP. So well-being has gone up — a lot — as a result of Google Maps. But GDP may well have gone down.
In fact, apps do produce some GDP. Google sustains itself in part by selling ads, including to retailers and restaurants looking to pay for prominent mention on its map display. Its ad revenue is an intermediate input into GDP. Many of the entities buying Google ads are in the business of selling “final goods or services” and if they’re money-making, the prices of their goods have to cover the cost of their ads. So by that circuitous route the “value” of the apps does end up in GDP.
But what’s the relationship between what advertisers pay for my eyeballs and the value of the app to me? The two are not completely unrelated. The more I use the app the more I’m likely to buy the advertised products, presumably. But in practice, the probability of my buying is pretty small while my benefit from the app is pretty big. How strange that miracle apps can change our lives but not our GDP.
William Watson, “How using Google Maps on your summer road trip messes with the GDP”, Financial Post, 2017-07-18.
August 3, 2017
QotD: Improved quality of life doesn’t always show up in GDP figures
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