Is The Digital Economy Causing GDP Mismeasurment?

So I posed the following question to “Davidson” during one of our conversations.  “Is the economy growing faster than we think?” ….. “Is the change to a more digital economy causing us to “miss” growth?”

“Davidson”

When people say the modern economy is not captured in the purchase of ‘things’, they misperceive how the economy works. ‘Digital economy’ changes how we acquire information and entertainment. We still pay for all this in paying for $600 smart phones, $100 cable/Internet services which have replaced newspapers, encyclopedias, traveling to movie theatres and etc. The new costs replace the old costs. We get so much, we think it is nearly free, when just like days of old everyone is making profit because they have lowered their delivery costs or have advertising dollars to pay for delivery to us. The consumer is still paying.

The Net/Net is still captured by GDP measures in the value of routers, phones, servers and etc which we now pay for as a monthly svc fee rather than pay for the things they replaced. We do get more for less and are willing to pay for it, otherwise we would simply not pay for it.

Now, that being said, there are two components of GDP, public and private. Davidson points out below that public GDP is contracting and private is accelerating….this is where the perception that “things are better than GDP indicates” comes from.

In thinking about the existence of ‘Digital Dark Matter’ it is instructive to look at the details of Real GDP and where the capital comes from. When one does this, Government Expenditure&Investment, the actual spending of government, needs to be separated from transfer payments when thinking of RGDP. Doing this changes one’s perception of where the true productive force exists in our economy how to measure it and analyze it over time. 3 charts tell the story.

1^st-Real Govt Exp&Inv comes from taxation and borrowing capacity of our economy, i.e. we do not tax Govt Exp&Inv to support government programs. But, when we measure RGDP it can inflate or diminish RGDP with changes in Govt Exp&Inv. The history of Govt Exp&Inv shown in the 1^st chart shows that it has diminished as a percentage of RGDP over time.