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OPINION

The digital paradox

The digital paradox
April 27, 2017
The digital paradox

The idea here is that the internet has improved what Kelvin Lancaster called "consumption technology": our ability to convert spending into wellbeing.

Take, for example, music. Years ago, looking for rare music was a time-consuming and expensive process of schlepping, often forlornly, around high-priced record shops. It's no accident that it was Liverpool that acquired a great music scene in the 1950s - because the city got more American visitors, who introduced the locals to rock n' roll, blues and country while much of the rest of the country was closed to such influences. The internet, however, means we can now get all that music easily and for nothing.

The same's true of books. Getting the complete works of GK Chesterton or PG Wodehouse before the internet was difficult and expensive. Today, it takes a few seconds and a few pounds. The same's true for the media: news is now largely free (although whether it improves our wellbeing is dubious). And price comparison and review sites mean we can get better or cheaper insurance, restaurants and hotels.

A given level of wellbeing can thus be achieved more easily now. "There may be welfare effects of innovation that are not reflected in GDP," say Hulten and Nakamura. "Living standards can be rising at a greater rate than is signalled by the growth rate of GDP."

This seems reasonable. But it runs into a big problem. It implies that subjective wellbeing should have risen relative to GDP. But it hasn't. Statistics show that life satisfaction hasn't much changed since the early 2000s.

One reason for this is that the information age doesn't only empower the consumer. It also empowers companies. They can use big data to do more price discrimination. In effect, they can grab some consumer surplus for themselves.

Another reason, though, lies in a point made by Katherine Guthrie and Jan Sokolowsky - that the more options we have, the more regrets we have. The more you enjoy listening to music or snapchatting with friends, the more you'll resent having to work instead. And all that time spent on Twitter means you'll feel frazzled as you catch up with work and chores. From this perspective, innovation can actually lower wellbeing.

My point here is that GDP doesn't and cannot accurately capture a lot of what really matters: the effect of technical change or how we feel. Simple numbers tell us little about complex reality.