Some of America’s newest companies have an outsized effect on its GDP. How does a relative upstart like AirBnB do this? By making a market where none existed before: for strangers’ homes, cars, or other under-used capital goods.
Similar interactions are not captured by GDP when they do not involve an exchange of money. Letting a friend stay on your couch, or giving a relative a ride to the airport, is not directly accounted for by GDP (although the money they save may later be, when they buy goods or services they might not have without your cost-saving help).
This was discussed in a recent article in The Economist:
These days it seems that a growing fraction of innovation is not measured at all. In a world where houses are Airbnb hotels and private cars are Uber taxis, where a free software upgrade renews old computers, and Facebook and YouTube bring hours of daily entertainment to hundreds of millions at no price at all, many suspect GDP is becoming an ever more misleading measure. …
The benefits of many new products are simply not picked up at all. The upfront costs of providing services on a digital platform, such as Facebook or Twitter, are hefty. But the marginal cost is close to zero, and the explicit price to users is normally nothing. By global convention, zero-priced goods are excluded from GDP.
We have talked about measurement issues with GDP before. It came about as a way to measure economic capacity for war-making in the first half of the twentieth century and gained importance during the Cold War both as a way to measure progress in he first world and a means by which to allocate foreign aid.
When GDP calculations are changed it becomes easier to see their artificiality, such as when Nigeria’s GDP nearly doubled overnight or when Britain began to include sex work in its figures.
To take a less controversial example, suppose I purchase $15 worthy of groceries to make myself 5 sandwiches at home. The GDP contribution is limited to the price of the groceries, and doesn’t include the value added by my labor. However, if I purchased a week’s worth of sandwiches for $6 each, the GDP contribution would more than double — $30 for the sandwiches, plus the price the deli paid for its ingredients, plus the income for the sandwich artisan, and so on.
Thus, GDP can be better thought of as an intersection of value-added and outsourcing from one household or business to another. This way of understanding economic measures is discussed in more depth on [this episode] of the EconTalk podcast. Yet, in the age of zero-cost Google searches, Facebook messaging, and Wikipedia browsing, even many value-added services are ignored because their sticker price is zero.
- GDP: A Brief but Affectionate History: A look at the origin of GDP and recent changes to its calculation in the UK, Ghana, Greece, and elsewhere.
- Macroeconomic Patterns and Stories: GDP in relation to the business cycle, for humans who are pattern-seeking, story-telling animals.
- Keep From All Thoughtful Men: The history of GDP in relation to military strategy.