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Expanding consumer surplus in the digital era

Matthew Yglesias makes an astute point about how digital technology makes it easier to create things that promote the general welfare without necessarily creating wealth:

Consequently, the realm of activities with gigantic divergence between measured GDP and welfare value is vastly expanding in ways that I don’t think policymakers and civil society donors are yet responding to in fully appropriate ways. The case for finding ways to directly and indirectly subsidize the creation of such goods is extremely strong. But more generally, I think we should expect the significance of this kind of thing to expand in the future.

The negligible marginal cost of producing multiple copies of digital works is the enabling factor. I think so many people get caught up in the mentality of “monetization” that they fail to step back and look at the sheer number of interesting, entertaining, and useful works that are now being produced simply because people find it fulfilling or entertaining to produce them.

1 Comment

  1. Yeah. This is one thing I have to keep in mind when looking at income inequality figures as well (and I’ve been very vocal on that subject). There are many new & improved goods whose extra value is simply not captured in prices or GDP, especially online goods.

    For instance, mass music piracy has enormous positive welfare effects (as well as some negative ones for the music industry). Cars cost about the same as they did 30 years ago but have dozens of airbags and stability control and ABS and electric windows and A/C. Facebook and blogs and a million other ultra-low-cost or unpaid media outlets provide hours of entertainment without any money changing hands (except for the ad brokers).

    Facebook and Google are two companies that have managed to find ways to tap into this – to get inserted in the value stream between low-cost or unpaid producers and consumers – and the latter certainly has done well from it.

    The downside is the “creative destruction” effects on existing high-cost (and high-pay) producers. This is likely the most disruptive technological revolution since the Industrial Revolution – I often describe the Internet as a solvent to existing business practices, something that dissolves previously-profitable middleman enterprises like travel agents and retailers and brokers and replaces them with direct connections between producers and consumers. Unfortunately a very large percentage of jobs in our society are exactly such middleman positions and we haven’t figured out what we’re going to do with all the people displaced from them.

    But at least when you’re kinda broke and unemployed you can get access to massive databases and media systems that even the richest person did not have 15 years ago. Too bad about your house…

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