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Fed Exploring Alternate Metrics to Value the Internet

By:
Chris Gaetano
Published Date:
Oct 11, 2019
Getty-internet-1046983540

Puzzled by weak productivity gains and lackluster gross domestic product (GDP) growth despite an economic expansion, the Federal Reserve is wondering whether its metrics are still measuring the right things, particularly with regard to digital goods and services, which often are nominally free, according to CNBC.

So, for instance, GDP measures when products and services are bought or sold. The more this happens, the higher GDP goes. But while billions of people interact with social media each day, there's not really any point at which an actual sale is made, and so while everyone seems to agree that platforms like Facebook are valuable, this isn't necessarily represented in economic metrics. 

In order to find out the real contribution these goods and services make to the economy, the Fed is considering a metric developed by MIT economist Erik Brynjolfsson that looks less at the price of goods and services and more at the value people gain by using them. He determines that value by asking people how much money it would take for them to give up certain goods or services for a set period of time. So, for example, his research has found that the median user would need $48 to give up Facebook for a month, $1,173 to give up YouTube for a year, and $17,530 to give up search engines. 

Brynjolfsson calls the agglomeration of such measures GDP-B, with the B standing for "benefit." 

Fed Chair Jerome Powell wondered whether such metrics could capture matters that never before had been counted in the economy, such as not needing to ask for directions due to map apps, or having a speedy resolution to a trivia argument by looking the answer up on Wikipedia.