Technological bounty and mismeasurement

Second Machine Age1389195493This morning I continue with my online reading of Brynjolfsson and McAfee’s The Second Machine Age.  You can find previous posts here.

Last week we left off with a discussion of innovation and artificial intelligence.  That sets the stage for this week’s topic: technology’s benefits to humanity, and the difficulty in measuring them.  SMA enters its second part, a discussion of “bounty and spread”.

Chapter 7: “Computing Bounty” return to the earlier theme on increasing productivity.  B+M put forward a model of technology-assisted productivity which occurs in two stages.  First, a general purpose technology (GPT; see last week) appears, but businesses and consumers don’t know how to implement it in a way that increases productivity.  Productivity growth slackens, in fact – Brynjolfsson calls this the “productivity paradox.”  Then we figure it out, using a complementary technology or practice (100-102).

For example, Walmart drove remarkable efficiencies in retailing by introducing systems that shared point-of-sale data with their suppliers.  [But] The real key was the introduction of complementary process innovations like vendor managed inventory, cross-docking, and efficient customer response… (103)

What about the current economic crisis, a/k/a “slowdown” or the Great Recession?  SMA sees this as partly due to the 2008 financial spasm, but more a result of our being in the first stage of technological boom, still fumbling with complementary processes to make these GPTs work more productively (105-106).

Chapter 8: “Beyond GDP”

Brynjolfsson and McAfee touch on the origins of gross domestic product (GDP) in the Hoover administration, then challenge that popular measure.  Many digitally-enabled activities are invisible to GDP, or actually take GDP down, yet clearly provide value to people.  Is GDP no longer a relevant metric? We now have access to huge amounts of content for free, thanks to digitally networked devices.  This is good for our well-being. But “[b]ecause they have zero price, these services are virtually invisible in the official statistics… [O]ur economic welfare is only loosely related to GDP.” (111)

Chapter 8 explores other metrics and assessments.  Consumer surplus and time savings credit us for the ways tech makes our lives easier, from cheaper costs to better shopping experiences (114-118).  We could start counting intangibles (business processes, user-generated content, human knowledge) monetarily (119-121).  A Gross National Happiness or a human development index are also available (122-123).  At a meta level, we should use new digital tech to aid us in better assessing productivity (123-4).

Meanwhile, outside of this book, Bill Gates spoke on the automation issue at the American Enterprise Institute.  He argued that the labor market is shrinking, and the kinds of labor are becoming less skilled.   Gates suggested we consider a guaranteed minimal income and shifting taxes from income to consumption.  Key themes from SMA.

I began this post by quoting the book’s bounty and spread theme.  Bounty we’ve seen today, but not spread.  That’s coming up next week with chapter 9.

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2 Responses to Technological bounty and mismeasurement

  1. Steve Kaye says:

    I don’t know how much the authors touch on this, but measuring intellectual capital is an established idea (indeed, you could argue the nebulous ‘goodwill’ takes it into account). Thomas Stewart was a big proponent of it in the business world in the 90s. Getting agreement on what intellectual capital is and what the best way of measuring it is has been difficult.

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  2. They don’t dig into it very far, Steve. The whole discussion’s about 3 pages. They don’t cite Stewart, but do point to some other sources.

    In terms of their argument, definition and measurement are about to become even more difficult if we take the authors’ advice and include free online peer production.

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