Stanford University


Crafting a New Measure of Economic Well-Being

Dylan Walsh
Contributing writer

September 14, 2023
5-min read

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Invented a century ago, GDP was never meant to fill as many roles as it does today. A new measure of well-being, GDP-B, promises a much clearer picture of where value emerges in our changing economy.

There are several ways we can describe the value of Google Search: by the number of daily queries it fields, the vast quantity of content it contains, the myriad ways it makes life easier. Alternatively, its value is reflected in the fact that, according to a new study, most people would forgo meeting their friends in person for a month before they would give up the service.

And it costs nothing to use.

“There are lots of amazing goods with zero price these days: apps on our phones, Wikipedia, ChatGPT,” says Erik Brynjolfsson, a professor of economics at Stanford and director of the Stanford Digital Economy Lab, a center within the Stanford Institute for Human-Centered AI (HAI). And yet all of this free stuff doesn’t register in the pulse of our economy; it’s not captured by GDP. “So we’re consuming a lot of free digital things and not doing a good job measuring it.”

A new project spearheaded by Brynjolfsson and Carnegie Mellon assistant professor Avinash Collis is crafting a tool for measuring the size and value of our increasingly digital economy. Called GDP-B — the “B” stands for “benefit” — the basic hope is to understand how much value something like Google creates. Early estimates from the work suggest that trillions of dollars of value from digital goods are currently missing in discussions of the U.S. economy, to say nothing of economies around the world.

Measuring well-being, not just production

Nobel-winning economist Paul Samuelson called GDP “among the great inventions of the twentieth century.” It offers a pithy measure of an economy’s production. But it has limits. As noted above, it overlooks the economic value of most free digital goods. It also conflates the production of beneficial goods, like new wind turbines and schools, with the production that’s connected to houses destroyed by wildfire or people sentenced to prison.

“GDP was never meant to measure well-being,” says Collis. “And yet, because we lack other numbers, economists, policymakers — almost everyone — have defaulted to GDP as a proxy for our general welfare.”

GDP-B is designed to address these shortcomings. A new paper by Brynjolfsson, Collis, Stanford postdoctoral scholar Jae Joon Lee, and several collaborators from Meta offers a proof-of-concept by outlining how GDP-B can be measured and interpreted.

The researchers ran an online survey of nearly 40,000 people across 13 countries. Participants were first asked to rank a set of online goods from those they value most to those they value least. The full set of goods included Facebook, Twitter, Instagram, WhatsApp, Snapchat, TikTok, Google Search, Google Maps, YouTube, and Amazon Shopping. This provided information on the comparative value of each.

They next asked participants if they would be willing to stop using Facebook for a month in exchange for three randomly chosen dollar amounts between $5 and $100. “By seeing how many people accept the offer at each price point, we get a rough sense of its value for a representative group of people,” Brynjolfsson says. “If someone won’t give it up for five dollars but will for ten, then we know that the value of that good — its benefit to the consumer — is somewhere between those two.”

Using Facebook as a benchmark, the researchers were able to extrapolate the relative value of the other nine goods, captured in the first phase of the survey.

Uncovering trillions in missing value

Most fundamentally, GDP-B reveals that these 10 goods alone generate more than $2.5 trillion in annual consumer welfare across the 13 countries. This is roughly equivalent to 6 percent of their combined GDP.

Of particular interest, says Collis, was how much of this value flows to consumers. In the case of, say, breakfast cereal, a person may pay $4 for a box but be willing to pay $8; the company gets half the value and the consumer the other half. When it comes to most digital goods, this ratio tips much more favorably toward the consumer.

“Google Search may make 10 or 20 dollars a year from me, but I would say I get thousands of dollars of value from the product,” Collis says. “I can’t imagine living without it.”

“We need a metrics revolution.”

A clearer articulation of an economy’s topography is one of GDP-B’s great prospects. “In the U.S., Congress and policymakers have to make decisions about how to allocate budget dollars, how to spread R&D money or offer grants, and these decisions are often rooted in ideas about how the economy creates value,” Brynjolfsson says. “If we have the wrong measures, then we come to the wrong conclusions.”

Over the next few years, the researchers hope to expand the number of goods they’re looking at — digital and non-digital — from 10 to several thousand. This effort, Brynjolfsson suggests, could create a representative sample of the U.S. economy, giving a far more granular view into how much value different sectors create, and in what way.

GDP-B also has the potential to measure two types of good that elude the reach of traditional GDP. First, non-market items, like clean water, education, or infrastructure. “Having a nice park in a big city creates a lot of value,” Collis says. “But how much?” With the GDP-B survey methodology, governments could start attaching better numbers to historically vague domains.

Second, GDP-B can be used to define the negative value of something, like air pollution: How much would people pay to not have polluted air?

“There is a massive need for better data about how the economy is changing, how people are faring in it, and what kind of policy decisions will lead to better outcomes for more people,” says Christie Ko, executive director of the Stanford Digital Economy Lab. “The tools we have now give us poorer and poorer insight as time goes on. We need a metrics revolution to actually understand where and how progress is taking shape and how to wield this for the benefit of all.”

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