Tuesday, November 12, 2013

The Official GDP Numbers Miss So Much (or How to Price the Free Economy?)

Besides their other attributes our readers have been on top of this story for years but sometimes it bears repeating.

From Bloomberg:

Lady Gaga for Free Online Shows Boom Missed by U.S. GDP: Economy
Neilson Barnard/Getty Images
Economists other than Erik Brynjolfsson, a professor at the Massachusetts Institute of Technology in Cambridge, are also trying to quantify how much better off people are by experimenting with various methods to calculate the maximum amount consumers would be willing to pay for otherwise free services.
Since completing a master’s degree in electrical engineering in 2009, Ti Zhao, a self-described “education junkie,” has continued to take classes. The total price tag for the last eight in which she enrolled: $0.00.

“It’s hard for me to imagine ever paying for a class again,” said Zhao, who has taken advantage of free studies provided by edX and Coursera Inc., including a public-health course taught by a Harvard University professor, after hearing about online education services through a friend. The 27-year-old San Francisco resident had been spending about $500 a class to enroll in a local university’s continuing-education program.

College lectures join a growing pool of web-based goods and services being given away that are transforming the lives of consumers like Zhao. Government statistics such as gross domestic product that only track things people buy underestimate the “very promising” progress made by the U.S. economy in this area, according to Erik Brynjolfsson, a professor at the Massachusetts Institute of Technology in Cambridge.

“In the coming years, we’re going to have to reinvent the way we measure economic growth,” said Brynjolfsson, director of MIT’s Sloan School of Management Center for Digital Business. “The reality is, GDP, the amount we spend, is not equal to what we get.”

Deriving the value consumers implicitly assign to the Internet by gauging how much time households spend on free websites, Brynjolfsson and MIT postdoctoral associate JooHee Oh calculated that those virtual goods added an additional $34 billion to consumers’ welfare each year from 2002 to 2011. That’s equivalent to 0.26 percent in GDP.
Money, Time People pay for those sites with their time instead of their money -- time that, in theory, they could have spent working more or consuming something else.

“These measures of consumer surplus are improving quite nicely,” said Brynjolfsson. “You can see why ultimately we need to think harder about our metrics.”

The impact of free virtual goods is clear to young consumers like Emileigh Buck. Among her favorite online applications is Pandora Media Inc.’s Internet radio service that she uses to stream music ranging from Lady Gaga to indie electronic artist Robert Delong. Pandora introduced her to new musicians she never would have discovered on her own, helping broaden her tastes without the cost or hassle of accumulating and storing stacks of CDs, she said.

“I got an iTunes gift card two years ago that I still haven’t gotten around to using,” said the 25-year-old Seattle resident, referring to Apple Inc.’s digital music store. “It’s just so much better with Pandora.”
Other Estimates Economists other than Brynjolfsson are also trying to quantify how much better off people are by experimenting with various methods to calculate the maximum amount consumers would be willing to pay for otherwise free services.

IAB Europe, a Brussels-based group that promotes digital marketing, and McKinsey & Co., a New York-based consulting firm, jointly surveyed Internet users in Europe and the U.S. to estimate the value placed on services ranging from search engines to social networks. Americans in 2010 would have spent 32 billion euros ($42.9 billion) above and beyond the cost of services they actually paid for and expenses associated with such things as advertising and privacy, according to the study....MORE 
Seriously, how can you put a pricetag on the Lady Gaga Drone Dress?