It’s commonly accepted that there has been a slowdown in GDP growth rates following the 2007-2008 financial crisis. Although the global economy has certainly recovered from the crisis, it’s growing slower than it did in the past.
One common explanation for this is that we’re in a period of deleveraging. The high level of debts that were amassed in the run-up to the financial crisis are now being unwound. Consumption is declining as a result, and although partially offset by increased government spending, the overall outcome is slower growth.
However, I believe that there’s another important reason behind the slower GDP growth rates we’re seeing. The reason is technological progress.
GDP measures the value of monetary transactions which take place in an economy. However, technological progress is making previous ways of doing things much cheaper. So the value of the monetary transaction taking place (GDP) is declining even though the consumer is getting just as much value, if not more, from what they’re doing than in the past. There’s a very real resulting consumer surplus but it isn’t taken into account in GDP growth rates. If it were, GDP growth rates would be higher.
This article from The Economist has many great examples of the consumer surplus generated by the internet, and the internet is just one from of technological progress. The time savings generated by performing research on the web rather than at the library, the internet’s role as a free replacement for more expensive forms of leisure, and the way in which the internet eliminates the need for middle men across many industries, are all examples of how it produces consumer surplus.
Although difficult to quantify, these examples of the consumer surplus created by technology are very real. And although they’re not captured in GDP, they’re a very important part of human welfare.