Why Free Content is Bad, part 7.2.(c) by mattsteinglass
March 3, 2009, 12:27 pm
Filed under: Economics, Internet

Is it possible that the internet revolution really hasn’t improved productivity much at all (as Yglesias asks, pointing to a Michael Mandel hypothesis)? Well, let’s say that were true in most fields of the economy — agriculture, the auto industry, health care, construction etc. Nevertheless, there remains one sphere of the economy in which I can prove the internet revolution has made us spectacularly more productive.

And what sphere is that, you ask? That’s right — the internet sphere! For example, there were about 12 trillion more blog posts in 2008 than there were in 1995. And people like reading blog posts! And posting blog posts! All of this internet activity was creating value in society. And it goes way beyond blog posts. People are collaborating long-distance on writing music and putting it online. People are making videos and short movies and talk shows and putting them online. People are dating online and participating in movie quizzes online and spending ridiculous portions of their days entertaining themselves online.

There’s just one problem. Almost all of this activity and value creation is happening for free. For the vast majority of internet activity, no one has figured out how to monetize it. So none of it shows up as GDP growth and very little of it increases anybody’s wages. In the pre-internet days, when people talked more on the telephone with each other, they would pay the phone company more money, and that money would show up as increases in GDP and in wages for phone company employees and in dividends for stockholders and in taxes for the government to balance the budget with. Even today, when people send more SMS’s, that translates into more money flowing in the economy because phone companies have figured out how to monetize SMSing. But when people spend more time Twittering, almost nobody makes any more money. There’s a tiny marginal increase in online advertising revenue and a tiny increase in 3G connection fees charged by mobile phone companies. And when people spend more time making music with each other online and posting the resulting video to YouTube, again, there’s a tiny marginal increase in YouTube’s revenues, but it doesn’t come close to fully monetizing the value of that added entertainment.

The production of value of the culture sectors in the US, and in Europe and Japan and China and elsewhere, have increased immensely due to the internet. But virtually none of that is showing up as GDP growth; in fact a lot of is showing up as negative growth in the traditional culture industries, as free content destroys the old monetized sectors (the music industry, journalism, etc.).


2 Comments so far
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“For the vast majority of internet activity, no one has figured out how to monetize it. So none of it shows up as GDP growth and very little of it increases anybody’s wages.”

I think you’re looking at this from the wrong angle. Take the Open Source Initiative for example. True, it hasn’t increased wages for most people, but it sure as hell has decreased costs for the vast majority.

And that’s the point. People are eager to share their knowledge and experience, and they will seek out like-minded individuals in the spirit of cooperation. Money may not be exchanged, but knowledge is.

Which brings me to my point. GDP is simply a measure of money, not wealth.

Comment by Reeno

[…] Cowen by five hours March 6, 2009, 9:35 am Filed under: Internet At 12:27 am EST on March 3 I wrote that perhaps the explanation for the lack of internet-driven productivity growth (cf. Yglesias cf. […]

Pingback by I want props for beating Tyler Cowen by five hours « ACCUMULATING PERIPHERALS

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