GDP ‘not fit for purpose’ in digital age, says Google

  • The rise of the smartphone and apps such as Instagram and Snapchat mean traditional measures of growth are no longer fit for purpose, according to Google’s chief economist.
  • Hal Varian said the global nature of modern supply chains meant statisticians were miscounting growth in GDP and productivity.
  • “I think GDP is larger and productivity is larger than indicated [by the data],” he said.
  • Mr Varian urged politicians to look at other ways of measuring growth and welfare than the commonly used measure of GDP.

The rise of the smartphone and apps such as Instagram and Snapchat mean traditional measures of growth are no longer fit for purpose, according to Google’s chief economist.

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The rise of the smartphone and apps such as Instagram and Snapchat mean traditional measures of growth are no longer fit for purpose, according to Google’s chief economist.

“I think GDP is larger and productivity is larger than indicated [by the data],” he said. “It is a serious issue and it’s only going to get worse.”

While he insisted that GDP was not dead, he said websites such as YouTube had helped consumers to find free solutions to problems previously solved by mechanics and repair shops.

He said: “GDP has a very hard time with free. If you go back to 2000, there were 80 billion photos that cost 50 cents a piece to develop. That’s climbed to 1.6 trillion, but at a cost of essentially zero. And they don’t show up in GDP. Why? Because they’re basically not sold. But friends and family still enjoy them, and they’re still a big deal.”

David Canning, a professor at Harvard University, also said it was a mistake to use GDP as a proxy for welfare.

“Money is not the metric of human welfare. I’ve seen a paper written by economists who argue we should have no children, because if you have children, the GDP per capita in your household is lower. That is true, but we like children even though we don’t buy and sell them. There are things in life worth doing, even if we don’t buy and sell them. That is a truth economists have to realise.”

Mr Varian said he still expected productivity to strengthen as cheaper technology encouraged more investment. He said “learning how to learn” would be the most valuable tool of the future as workers continue to upgrade their skills to adapt to the rapidly changing workplace.

Jared Bernstein, a senior fellow at the Centre on Budget and Policy Priorities, said some jobs would be more valuable than others in the future. He said there was “just one sector that added jobs every month during the Great Recession – healthcare.”

GDP ‘not fit for purpose’ in digital age, says Google