When an economist starts out “But extrapolating from the current situation to say that long run sustained growth is over is taking it too far” and “Because the ultimate source of economic growth over history has been technological innovation, and there is still an essentially infinite scope for this to continue” they start losing me quickly.
But Dietz Vollrath goes on to make a point that makes the above much more simpatico for me.
Things like refrigerators, Diet Coke, and cars contribute to GDP every period because we have to make new versions of them over and over again. But in one sense that is a bug, not a feature. Imagine if, having invented Diet Coke, you could make copies for free. That would lower GDP, as Coca-Cola would drop to essentially zero revenue from here forward. But it’s demonstrably better, right? Free Diet Coke? Where do I put in the IV line?
Diet Coke is a good example here. Let’s say that you could replicate the physical inputs of Diet Coke for free, but that Coca-Cola still owned the recipe, and you had to pay them to use it. This would still lower GDP, as Coca-Cola would no longer be earning anything from the physical production of Diet Coke, only from renting out the recipe each time you wanted a Diet Coke. This is still a win, even though GDP goes down. Lots of current innovations are like making Diet Coke for free, but owning the recipe. They are worthwhile despite the fact that they do not necessarily contribute much to GDP, and might even detract from it.
EBay is a good example. Or AirBNB, or Lyft. If products are used more intensively, we need less of them. GDP goes down. Utility goes up.
But if we lack the means to allocate the utility we have “unemployment”. That’s where things go south. I wish Vollrath would discuss how we function in an economy where labor is superfluous. How do we move to a slack economy?