#ANSWER: GDP, Consumed By Change
An excerpt adopted from GDP, The Bell Tolls for Thee
This #ANSWER is written in response to #QUESTION: https://medium.com/hps-insight/question-gdp-the-best-way-to-measure-economic-health-63ea52d4ea18
GDP is dying of consumption.
In the United States, Gross Domestic Product is measured by spending, emphasizing an economy of things rather than networks that assist with transactions and economic flows. In the 20th century, this methodology worked fairly well, but today’s Information Age consumer acts fundamentally differently than his or her predecessors.
In the past, technological improvements fed into standard consumption patterns on a manageable economy of scale. When the train replaced the horse-and-buggy, for example, prices for traveling from Point A to Point B dramatically decreased, saving time and energy in the process. The distance travelled, however, remained the same, so a lower price simply enabled the same type of consumption. The same goes for the music industry, with improvements from records to cassettes to CDs that lowered prices while mildly expanding access to music selection.
The emerging economy, dependent on the “cloud” and the Internet, has blown up this type of development. Consider this chart of recorded music sales, all of which would count toward GDP:
By the looks of it, music consumption collapsed at the start of the new millennium. We all know this isn’t really the case: instead, new abilities like music streaming redefined what it meant to purchase and listen to music. Before, it would cost $10 to buy a 12-song CD. Now, it costs $10 a month to own a Spotify account with near-unlimited access to songs — an indisputable increase in value for the consumer. But a person who buys two CDs a month, gaining only 24 songs in the process, will double the Spotify listener in his contribution to GDP.
That’s not an incremental technological change — it’s a redefinition of what it means to be a consumer. Since the Information Age prioritizes broad-based access over the purchasing of a single item, it’s likely GDP will decline in certain sectors that actually provide more value to the economy, not less. If you think about the changes in the encyclopedia and travel guide industries (now dominated by Wikipedia), communication (now challenged by free services such as Skype and Facebook), and news services (rendered near-obsolete on any platform that isn’t the Internet), you can see how GDP’s market-based calculations are likely to move further away from true value as the economy evolves.
With such a rapid transformation in consumer abilities, GDP needs an update to remain a relevant indicator of economic trends. Maybe a look at the Value Added method for calculating Gross Domestic product is in order: at the very least, intermediate consumption activities would be included. Until something changes, however, GDP may die out as a respected indicator in the economy of the future.
