Adam Smith Institute

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Just how far we've come in two decades

OK, so this is largely a result of Moore's Law allied with some clever technologists but still, it's interesting to see quite how far it is that we've come.

The back page of the front section on Saturday, February 16, 1991 was 4/5ths covered with a Radio Shack ad. There are 15 electronic gimzo type items on this page, being sold from America’s Technology Store. 13 of the 15 you now always have in your pocket.

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You’d have spent $3054.82 in 1991 to buy all the stuff in this ad that you can now do with your phone. That amount is roughly equivalent to about $5100 in 2012 dollars.

I've bought myself an off contract smartphone recently for around £100, or $150. Which shows how far we've come over these couple of decades really.

Which in and of itself is just an interesting observation (as is the one that the run of the mill smartphone these days packs more pure computing power than a Cray 2 from the early 1990s). However, this sort of technological change is something that our economic statistics deal very badly with. For several unfortunate reasons.

The first being that we do indeed try to adjust for the improving quality of things, through what are known as "hedonic" adjustments. But there's no one who really thinks that we've got this right as yet. Secondly, the advances in such things as our phones allow us to do things that were simply impossible before. And there's no real way os squeezing those into the GDP statistics. For the third reason: and awful lot of what we can do with these new technologies is actually free at the point of use. So therefore, not being charged for, it dsoesn't turn up in the GDP figures. And fourthly, those things that we used to be able to do but now can do them more conveniently have actually fallen in price. And given that it is the market prices that GDP tracks the contribution here is actually negative.

And this is indeed a problem with our economic statistics. I think a case could be made (I'd argue it, but not want to have to prove it) that the coming of smartphones has been recorded in GDP as a reduction in GDP. Which, given that we can now all do things we couldn't before, do things we could more cheaply, and do other things simply better seems like a remarkable indictment of the basic statistic.

But then we all know that GDP isn't the be all and end all of everything: it's maximising utility that is. GDP is just an indication that there might be more utils out there to enjoy: but not, sadly, a terribly accurate one.