What GDP misses

Tim Lee is worried that the way we measure improvements in economic well-being is not suited to the Internet age:

Suppose we lived in the world of�Harry Potter, and one day in the late 1950s RCA hired a wizard to wave his magic wand and transform all of the world?s black and white sets into color sets. This would clearly represent a large increase in the standard of living ? a larger increase, in fact, than the non-magical process whereby people have to buy new, more expensive, televisions. Yet the government in the alternate universe would almost certainly have recorded a�smaller�increase in GDP. Our own BLS would see consumers buying more expensive televisions while in the Harry Potter universe consumers would be happy with the old, cheap ones. Hence, consumers circa 1970 would be wealthier in that universe than in ours, but official GDP statistics would show just the opposite.

Today these magic wands exist. For example, a couple of years ago, Google waved a magic wand that�transformed�millions of Android phones into sophisticated navigation devices with turn-by-turn directions. This was functionality that people had previously paid hundreds of dollars for in stand-alone devices. Now it?s just another feature that comes with every Android phone, and the cost of Android phones hasn?t gone up.�

I get the implications of this argument for our data. But does it have implications for policy?

Source: http://feeds.washingtonpost.com/click.phdo?i=d18aed38c78df2cfd3b498350a1fb305

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