Does Google Chief Economist, Hal Varian

understand economics?

“Way we are measuring productivity is wrong” – Hal Varian, chief economist, google , PROMOTING A NEW PARADIGM in the Wall Street Journal, July 16th, 2015 Do we need a crooked scoreboard, or do we need more focus on fundamentals?

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To Mr. Varian(Google Chief Economist) and other wealthy brains in the world’s most innovative neighborhood, productivity means giving people and companies tools to do things better and faster. By that measure, there is an explosion under way, thanks to the shiny gadgets, apps and digital geegaws spewing out of Silicon Valley. Official U.S. figures tell a different story. For a decade, economic output per hour worked—the federal government’s formula for productivity—has barely budged. Over the past two quarters, in fact, it has fallen. Sluggish productivity is raising alarms all the way to Federal Reserve Chairwoman Janet Yellen.

“In just a few slides, I will show that conventional economics does not need to be fixed, on the contrary, Silicon Valley view of

economic growth is flawed.”Wladislaw Apte

wladislawapte@outlook.com

Wall Street Journal News, July 16th: "Silicon Valley Doesn’t Believe U.S. Productivity Is Down"

Stare at a dish left with pizza tomato sauce dried on it for two days

GDP and Productivity Perspective, By Staring at the dirty dish in the sink

THE EVOLUTION OF DISHWASHING OVER 40 YEARS

DISHWASHERS 1985COULD NOT BE USED WITHOUT PRE-

RINSING

ONLY 30% OF HOMES HAD 1985 OR NEWER MODEL DISHWASHERS IN 2000

DISHWASHERS 2000COULD BE USED WITHOUT PRERINSING OR CLEANING

NOT FOR PIZZA SAUCE LEFT UNRINSED FOR 2 DAYS

ONLY 20% OF HOMES HAVE CIRCA 2000 DISHWASHERS

DISHWASHERS 2014CAN HANDLE PIZZA SAUCE LEFT UNRINSED FOR 2

DAYS

ONLY 3% OF HOMES HAVE 2014 ERA DISHWASHERS

40% OF THE HOMES DO NOT HAVE DISHWASHERS

Technology diffuses over decadesCirca 2015, 40% of homes in America do not have dishwashers, 80% of homes have dishwashers that are older than 15 years, Every year better dishwashers-and better use of dishwashers save Americans ten billion dollars. Source: QBOE Analysis

QBOE-Quick Back of Envelope Analysis: 150 million households, 30 seconds fewer per day on dishwashing, $24 per hour benefit = $10.95 billion productivity increase every year

DISHWASHER USE ALSO DOES NOT INVOLVE PAYMENT, SO UNDERCOUNTING IMPROVED

DISHWASHER USE DISTORTS GDP

DISHWASHER USE REALITYFrom 15 hours in 1956 to 15 MINUTES WITH

THE BEST DISHWASHERS in

2015, Diffusion not Revolution“Real People”

refuse to trust the dishwasher, and do not use all its featuresOn an average Americans are spending

1000 minutes/16 hours. Less per year. 150 million households, $24 per hour = 60

BILLION DOLLARS PER YEAR - Perhaps more than Annual Profit made by Google

INTERNET USE REALITY 1995, Altavista, 1998 Yahoo, 2001 Google, 2014 Google

features demonstrate Diffusion Not Revolution

Majority of people do not want to shop for a car online, do not believe in using Yelp, Do not use Paypal, Many people

still pay bills by Postal MailWe are benefiting more from Internet use every

year, but the improvement is

incremental

Generic Lipitor cuts heart attacks•Almost Free- $200 per year•Only 30% of those who should take Lipitor are on it

•Slow Diffusion•Nevertheless saves $120 billion a year

New car prices have risen slower than inflation •More gas mileage•Longer life•Better Safety Features•Average US Car age is 10 years

•Not everyone drives a “Prius”

•But technology is diffusing

•Annual benefit due to improvement $50 billion, considering only Passenger Cars

Smart Phone use has exploded•Year-on-Year Search Growth tracks nominal GDP growth 5%

•1000 Google Searches per year

•Vast Proportion seek to gather information about news, celebrities, recipe tips- Non economic

•Perhaps there are 200 economic activity related searches per person per year

•Difficult to claim economic Impact based on Searches

UBER AND AIRBNB ACCOUNT FOR LESS

THAN 1% OF PERSONAL

TRANSPORTATION AND LODGING

SPEND, ECONOMISTS ARE RIGHT IN NOT NOTICING THEIR IMPACT ON GDP

Click icon to add picture

“Better dishwashers, cars, meds to prevent heart disease, better insulated homes- offer benefits, that exceed the latest every single year, Perhaps everyone of these innovations offer more benefits than ALL of the Google inventions to date. We never count the indirect benefits of any improved technology for a good reason. Due to slow diffusion of technology, economic impact of most if not all technology is limited over the short run, making conventional GDP calculations quite robust.

Low per capita and income growth is a reality in the 21st century so far. This is true not just for America, but also for the European Union and Japan. Low real economic growth is the malaise that is affecting all 40 OECD nations. Some would argue that we do not have a healthcare or retirement funding crisis- we have a low economic growth crisis.

Economic growth has been a mirage in the 21st century

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Conventional wisdom is right, Productivity increase has been a mirage for

the last 15 years. Silicon valley geeks need to get out of the tech bubble more, and be realistic about their contribution to the world. Secure retirement and access to first class healthcare is a cornerstone of American polity. We do not need a Silicon Valley that gives America a new fangled crooked scoreboard. Silicon Valley brains should perhaps use its brainpower to ensure that future generations of Americans continue to have a secure retirement and first class healthcare affordable to all. “

Wladislaw Apte Comments welcome: Wladislawapte@outlook.com