08 February 2014

Does This Economy Make My Stuff Look Thin? Quantifying the Diminishing Weight of GDP

In his new book, Greenspan quantifies the degree to which ideas and not stuff are driving a rise in GDP in recent decades. I'll translate Greenspan-speak into something slightly less precise but (hopefully) easier to comprehend.

The weight of stuff bought and sold since the 1970s hasn't changed, suggesting that most of the economic gains since then have come from ideas - design, application, ease of use - rather than the materials this stuff is made of.

The weight of imports per dollar has, since 1955, steadily declined by about 3.1 percent per year. Since 1977 it has accelerated even more, declining by 4.6 percent per year. Simply put, the price per ounce of imports as varied as cars, electronics, and sweaters is dropping at an accelerating rate.

And finally, in Alan Greenspan's own words:
The correlation between growing economic activity and growing weight of real GDP apparently peaked in the late 1970s. In recent years, the conceptual contribution to economic activity has reflected importantly the explosive growth in information gathering and processing techniques, which have greatly extended our capability to substitute ideas for physical volume.
And if you're dubious about the idea of ideas having more value than products you can hold in your hand, consider this: Google recently passed Exxon as the world's second most valuable company, a purveyor of information now worth more than an oil company.

From pages 181 - 183 of Alan Greenspan, The Map and the Territory: Risk, Human Nature, and the Future of Forecasting [The Penguin Press, New York, NY, 2013]

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