Google's Hal Varian Says GDP Is Unfit For The Digital Age

Hal Varian, a chief economist at Google, has come to the conclusion that Gross Domestic Product (GDP) is no longer the best way to measure and gauge growth, productivity, or welfare. GDP, for those that don't already know, is a representative monetary measure for the market value goods and services produced over a period of time. Usually, GDP is presented quarterly, for a half-year, or for a full year. Considering the widespread use of GDP as a measuring standard, Varian's viewpoint may seem controversial. However, it is important to note that viewpoint doesn't apply for every use of the metric. Instead, that outlook is based primarily on the way GDP measurements work and the things they aren't very good at measuring.

Varian cites several examples of how GDP fails as a measuring mechanism. For starters, supply chains within a modern business often exist on a global scale now. That can lead to miscalculations for GDP and productivity due to the sheer amount of data and the various ways that data can be analyzed. Beyond that, the rise of smartphones and "applications" has shifted business models beyond what can be measured in an itemized way as products produced or sold. "GDP has a hard time with free," according to Varian. He goes on to provide two examples, using the photo development industry and YouTube. In the year 2000, according to Varian, there were 80 billion photos that effectively cost around 50 cents a piece. Now there are 1.6 trillion, but the cost has dropped to almost nothing. The problem isn't that photos are no longer valuable to consumers. They are just "basically not sold" anymore since there are other ways to share the images. But they also aren't calculated into the GDP. Youtube has also played a role since it provides a way for users to find solutions to problems that previously would have required help from professionals.

Because the outlined circumstances are hardly confined to the photography or video streaming industries, Varian is convinced that “GDP is larger and productivity is larger than the data indicates." He's also taking things a step further in urging politicians and others to look at different ways to measure the new and emerging markets that are having, and will continue to have, that effect on the accuracy GDP measurement. While he expects productivity to get better with cheaper technology and further investments, workers will need to learn to be more adaptable in order to face the challenges presented by the advancements and a more rapidly changing work environment.

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