When is Technology Relevant in GDP Data?

Even though technology can appear mysterious in terms of GDP measure, there's actually a simple way to consider how tech gains particularly matter for aggregate output and productivity - especially if the product in question has become "free" for consumers. Technology holds an accountable position for productivity gains in GDP data, when tech contributes to reductions in non discretionary costs for both individuals and organizations. When this in fact occurs, individuals and organizations alike experience more economic options and opportunities for commitments than were previously possible.

While prices represent what people are willing to pay for tangible market product, prices can be misleading when they involve the intangible costs of getting things done, particularly when non tradable sector activity is responsible for those costs. In many respects, non discretionary costs lack the voluntary nature of other market decisions, and assuming those costs may lead to other transactions and commitments being (involuntarily) set aside. For any measured time frame in aggregate, many consumers, firms and organizations simultaneously make discretionary or non discretionary decisions which ripple out like waves across a pond. These ripples become cumulative institutional effects which - in the circumstance of excessive non discretionary obligations - can also reduce the clarity of aggregate output as data for GDP.

The most important technological potential of our time, could ultimately reduce the cumulative damage of non discretionary burdens which have settled like layers of sediment across many institutions. Just the same this possibility is not yet on the horizon, despite the fact some optimists believe the problem could actually be with GDP calculations. Hence I respectfully disagree with Tim Worstall's reasoning in "From Facebook to Skype, GDP is not keeping up with technology":

The most obvious answer is that the data has been counted wrong - that has long been my contention. 

Worstall believes we need to make amends in the measure of GDP, to address "low GDP growth in the middle of a technological revolution." But unfortunately, some of the apps he references could actually be making more demands on economic time priorities and overhead costs, than functioning as labour or time savers. Arnold Kling recently noted the problem of overhead costs that apply for labour not associated with traditional production:

Production labor can be incrementally increased or decreased as needed. But overhead labor is not adjusted strictly according to sales volume.

Labour and related personal time priorities function so differently in non tradable sector activity, that these intangible organizational processes have skewed our understanding of productivity. Yet how does any society continue to meaningfully coordinate divisions of labour, or clarify ongoing productivity gains, if aggregate output can no longer be accounted for in relation to overall costs? Due in part to how many professionals derive profit, our non tradable sectors lack the incentive to utilize technology for productivity gains, with the general exception of reducing or occasionally eliminating lower levels of the hierarchy in time based services.

By way of example for the latter instance, technology created productivity gains in the early nineties which could be readily observed. I was just one of many office workers during this time who reluctantly let go of governmental employment, due to the new software programs which made it feasible for attorneys in my workplace to assume activities which previously had been carried out by office assistants. While productivity gains such as these were associated with private enterprise, the fact local and state governments were also able to reduce overhead costs (even if only temporarily), doubtless contributed to Washington's balanced budget during the Clinton administration. Truly, this was a time when digital technology became quite relevant to GDP data.

Why has it proven so difficult to realize similar productivity gains today? One reason is that recent technological innovations actually threaten the organizational structure of today's non tradable sectors. It's one thing to apply automation which increases output in traditional production or services which readily scale, but altogether another to contemplate deep learning which in crucial respects can undermine the logic of extensive human capital investment. Especially when that investment augments the fixed scarcity of professional time value, for time based product.

Not only does AI seem to suggest that some professional human capital costs aren't "necessary", but 3D manufacture could eventually upend the rationale for much of traditional manufacture as well. However, traditional building methods are the bread and butter of countless local developers, in what is still one of the main wealth building activities for any community which continues to have an economic pulse. Yet as long as traditional development holds sway in most quarters, it will determine the nature of local economic activity which is even still feasible, despite what citizens would like to create if they had the chance to do so.

One of the main reasons for economic uncertainty, is that we still have no idea how our existing non tradable sectors will respond to the recent array of cutting edge technological possibilities. Even though the potential for productivity gains is extensive, it nonetheless comes with mind boggling cultural ramifications. Sometimes civilizations are able to coexist with new innovations alongside traditional systems, and sometimes they are not. In the meantime, no one can really pretend the crucial elements have come together for the best optimal economic outcomes, because technology. Again: In order for technology to make substantial contributions to productivity gains, its impact would contribute to overall cost reductions which improve the systems capacity of entire supply chains which coexist with applied knowledge production. Alas, free apps such as Skype and Facebook weren't made for this challenge.