Technology’s productivity shrinks the economy

(written by lawrence krubner, however indented passages are often quotes). You can contact lawrence at:, or follow me on Twitter.


But how will this technological progress show up in conventional economic statistics? Here the picture is somewhat mixed. Take GDP, for example. This is usually defined as the market value of all final goods and services produced in a given country in a particular time period. The catch is “market value”—if a good isn’t bought and sold, it generally doesn’t show up in GDP.
This has many implications. Household production, ad-supported content, transaction costs, quality changes, free services, and open-source software are dark matter as far as GDP is concerned, since technological progress in these areas does not show up directly in GDP. Take, for example, ad-supported content, which is widely used to support provision of online media. In the U.S. Bureau of Economic Analysis National Economic Accounts, advertising is treated as a marketing expense—an intermediate product—so it isn’t counted as part of GDP. A content provider that switches from a pay-per-view business model to an ad-supported model reduces GDP.
One example of technology making a big difference to productivity is photography. Back in 2000, about 80 billion photos were taken worldwide—a good estimate since only three companies produced film then. In 2015, it appears that more than 1.5 trillion photos were taken worldwide, roughly 20 times as many. At the same time the volume exploded, the cost of photos fell from about 50 cents each for film and developing to essentially zero.
So over 15 years the price fell to zero and output went up 20 times. Surely that is a huge increase in productivity. Unfortunately, most of this productivity increase doesn’t show up in GDP, since the measured figures depend on the sales of film, cameras, and developing services, which are only a small part of photography these days.
In fact, when digital cameras were incorporated into smartphones, GDP decreased, camera sales fell, and smartphone prices continued to decline. Ideally, quality adjustments would be used to measure the additional capabilities of mobile phones. But figuring out the best way to do this and actually incorporating these changes into national income accounts is a challenge.
Even if we could accurately measure the number of photos now taken, most are produced at home and distributed to friends and family at zero cost; they are not bought and sold and don’t show up in GDP. Nevertheless, those family photos are hugely valuable to the people who take them.