We took a lot of flak for a post in May arguing that the web and new internet startups would ultimately bankrupt the government.
Long-argument-short: The explosion of the web created so many new non-financial transactions, non-financial markets, and opportunities to create and enjoy oneself that don’t cost a penny, that ultimately we’d move decisively to a more dynamic economy, but one with less actual money. And since we can’t pay taxes in “attention”, this would cause the government to run short of funds.
The traditional gauge of economic success is profit, but over time we’ll find that such statistics as measures of GDP tell us less and less about broader efforts to improve human well-being. Much of the Web’s value is experienced at the personal level and does not show up in productivity numbers. Buying $2 worth of bananas boosts GDP; having $20 worth of fun on the Web does not. And this effect is a big one. Each day more enjoyment, more social connection, and, indeed, more contemplation are produced on the Web than had been imagined even 10 years ago. But how do we measure those things?
That question — and I don’t yet have a full answer — reflects the state of flux we’re in today. We’re going through a lot of adjustments, and not just in real estate and finance. Free stuff on the Web has made this economic downturn more severe. For many of us, the Web really is more fun than a trip to the store, which makes it easier for us to cut our spending. Although the iPhone has been earning lots for Apple, our spending on high-tech goodies does not make up for falling demand elsewhere. A PC and broadband cost something, but for those millions who have paid up, further exploration is essentially free.
Felix is somewhat sceptical, noting that there has always been free forms of enjoyment, but instinctually we’d say it’s clear that there’s been something of an explosion in non-cost enjoyment, at least compared to the peaks of American capitalism.
Cowen doesn’t talk about the tax issue, but actually the point about the failure of GDP is important. It seems likely that GDP could continue to shrink, even as the human condition gets better, while our desperate policy makers, unable to think bigger picture and abandon economic orthodoxy, continue to ply the system with stimulus and more stimulus, hoping things will reverse course. Of course it will fail, just like trying to inflate a popped balloon will fail.