Reading the Economist this morning and saw the pseudonymous Free Exchange blog post on the economics of internet – specifically “How to quantify the gains that the internet has brought to consumers”. It was followed up by a post by Hal Varian, the chief economist at Google. I figure that I’d write about where I see the true economic value of the net because they seem a bit limited in what they’re writing about.
The difficulty that economists have with structures like the net is that they seldom look at why it was built and how it is sustained. “Free Exchange” gave a excellent example of the high-end consumer use of the net.
WHEN her two-year-old daughter was diagnosed with cancer in 1992, Judy Mollica spent hours in a nearby medical library in south Florida, combing through journals for information about her child’s condition. Upon seeing an unfamiliar term she would stop and hunt down its meaning elsewhere in the library. It was, she says, like “walking in the dark”. Her daughter recovered but in 2005 was diagnosed with a different form of cancer. This time, Ms Mollica was able to stay by her side. She could read articles online, instantly look up medical and scientific terms on Wikipedia, and then follow footnotes to new sources. She could converse with her daughter’s specialists like a fellow doctor. Wikipedia, she says, not only saved her time but gave her a greater sense of control. “You can’t put a price on that.”
In the mid-late 80’s, I was in Dunedin and picking up unacceptably high international toll bills as I regularly logged on to BIX in the US. I even picked up some usenet feeds using 2400 baud modems at a few kilobytes per second. It was a lot easier and cheaper searching a text feed than trying to dig through the pile of manuals, books or old computer magazines that piled up against the side of my desks (or indeed buying them). And I was often after material that had never ever been published.
How I was using the net and the search engines was for an exclusively economic reason. I was writing code and maintaining systems for various computer related jobs, while at the same time hauling myself up the skill set chain in a rapidly changing environment. The economic values of that are literally incalculable because not only was I shifting professions from management to computing (I was in Dunedin doing an MBA) without bothering to spend money on formal training, but I have since used it to stay relevant in a profession that burns out people through skills obsolescence at an inordinate rate.
It is the same today. I just spent the last few years building a new product with a number of programmers, electrical and production engineers. All of us would probably have spent time during every working day using the net via the web or email digging out the bits of information that were required to put this product together. Components of the system were literally coming from all over the world to a final assembly locally. Simply organising the supply chain would have been a major operation a few decades ago without the net. These days it is simpler and *lot* faster than I remember from my days as production manager working through sluggish supply chains. Whilst that is an economic effect that may be measurable, I’d hate to have figure out how to get the data.
As usual I was working in a new environment using new or enhanced tools. This time a embedded debian linux/gcc using an Arm CPU using boost/Qt4 to do a colour touch screen. This was after a year on windows/visual studio using boost/Qt3 as its tool kit helping build a system designed to span the internet and that rendered graphics using directX to screen or to a browser page. That was preceded by a few years building an embedded linux/gcc system using direct X calls for a gui for an eftpos terminal with secure keypad.
There is a awful lot of learning in those various technologies. Quite simply shifting skill sets that far and fast before the internet and delivering product would have nearly impossible. I call this the bootstrapping effect. Once you have a reasonably good base in an area of knowledge, then the resources available on the net allow you to shift areas of expertise rapidly.
Needless to say the internet is my additional brain. Most of my skillset these days (like many in the IT industry) is the knowledge to know what I’m looking for and the skill to sort through the chaff until I locate it. It is only rarely that I have to dip into manuals, and even those are generally standards that should be online.
Most of my search queries is spent simply using net as a reference. The detail of the boost and Qt libraries for me operates like this because remembering the detail of parameters on one of the many methods on one of thousands of classes that I routinely use is something that I often don’t bother retaining. If you just remember roughly what you searching for then you can get it in seconds.
This is essentially what Hal Varian was talking about as one measure of the value of the internet.
So one way to measure the value of online search would be to measure how much time it saves us compared to methods we used in the bad old days before Google. Based on a random sample of Google queries, the UM researchers found that answering them using the library took about 22 minutes while answering them using Google took 7 minutes. Overall, Google saved 15 minutes of time. (This calculation ignores the cost of actually going to the library, which in some cases was quite substantial. The UM authors also looked at questions posed to reference librarians as well and got a similar estimate of time saved.)
I attempted to convert this time to dollar savings using the average wage and came up with about $500 per adult worker per year. This may seem like a lot, but it works out to just $1.37 a day. I would guess that most readers of this blog get $1.37 worth of value per day out of their search engine use.
But the really productive use is not looking up references and I don’t spend much time on it. I expend the time on innovation and avoiding blind paths. Finding out how other people have previously attacked a type of problem and the pitfalls and solutions they found is amazingly productive. These problems could be simple or very complex, but they usually involve a developer or engineer spending weeks doing experimental development trying to define what the problem is so they can look for a solution.
Most of the time in a global network, you’re not the only one who has the problem. The others with the problem are found in one of the innumerable blogs and question sites1 where people have documented the process that they and others followed when looked at the same or similar issues. Even if I didn’t find a solution on the net after a hour of searching, then it usually directed my experimental programming to areas that still offered a hope of a solution. Sometimes whatever I was looking for would not show up at all, which itself was highly useful information. Anything you find (or don’t find) is pure gold because experimental programming can often take weeks.
So this is just my work life. I won’t even mention the effects as political blogger, my personal and family life, or just how I entertain myself these days. They’re somewhat larger.
Economics has very little hope of being able to analyse the value that the internet has in our modern economies. In particular into the innovations that drive our modern economies changes and growth. It is ubiquitously embedded in most businesses these days to a degree that would have seemed fantastic even a few decades ago. While I wish economists well in their continuous attempts at measuring the effect of the internet, I think that it will be a futile endeavour.