Measuring the Digital Economy

IMF News, November 16, 2017

Source details

Event: The 5th IMF Statistical Forum — Session II: Framing the Conceptual Issue.
Discussant: Vitor Gaspar, Director, Fiscal Affairs Department, IMF.
Date: November 16, 2017.
Contact listed on page: Phone: +1 202 623-7100; Email: MEDIA@IMF.org.
Core assertion: “The digitalization of the economy, society and politics is the transformation that is marking the XXI century.” Digitalization is presented as a general-purpose technology that “changes everything,” likened to experiencing the Gutenberg Revolution and electrification simultaneously and within a compressed time frame.

Digitalization effectively blurs the distinction between “the digital economy” and the economy itself: “the economy itself.”
National accounts face familiar conceptual problems intensified by digitalization due to magnitude and pace of change.
National accounts are described as practical and pragmatic constructs designed to measure market value added; they were developed in the 1940s for an economy dominated by goods production.
Important measurement distinctions noted:
- Home production is excluded from GDP; the public sector is included but measured by inputs rather than outputs.
- The conventions that define the boundary of production are quantitatively relevant.
On price measurement and quality change:
- Quoting Thomas Schelling (1958): “… only the money magnitudes are real. The ‘real’ ones are hypothetical.”
- Challenges include accounting for quality change, completely new goods, and heterogeneity when comparing periods with different sets of goods and services.
- William Nordhaus’ recommendation: price indexes should relate to the flow of services households derive from purchases; people (households) should provide the invariant standard to compute real magnitudes.
- Nordhaus’ quoted concern: price indexes might “miss the most important technological revolutions in economic history” and “revolutionary jumps in technology are simply ignored by the indexes.”

Carol Corrado (with David Byrne):
- Explores treating expenditures on consumer digital stocks as investments (analogous to owner-occupied housing).
- Finds implications for real GDP are “quite significant,” especially when accounting for accumulation of digital stock and its utilization rate.
Diane Coyle:
- Draws on the Review of UK Economic Statistics (2016) and her book Brief (But Affectionate History) on GDP.
- Emphasizes how historical choices in System of National Accounts affect current measurement, and how the production boundary conventions matter quantitatively.
- Highlights the need to reassess outputs versus inputs for public services measurement.

Emphasize outputs over inputs for public services valuation; valuing outputs can “make a tremendous amount of difference.”
Adopt household-centered perspectives when constructing real measures and price indexes (Nordhaus approach).
Recognize urgency: the pace and depth of digital change add urgency to adapting national accounts and price measurement methods.
Leverage data produced by digitalization itself as an assistance to measurement efforts.

The measurement problems are not new, but their scale and speed are unprecedented; national accounts remain an appropriate organizing framework because they are practical and pragmatic.
The challenge is serious but not “Faustian” in proportions: familiar problems, intensified by digital revolutions, can be addressed within the national accounts framework and with improved measurement of outputs and household-derived service flows.
Illustrative historical reference and cautionary anecdote: Goethe (Faust Part 1) verse cited about the limits of knowledge and need; and Rajiv Gandhi’s quoted comment that only “15 per cent of every rupee spent on public food distribution ever reached the poor,” underscoring the importance of focusing on outputs and effectiveness in public spending.

Source: Measuring the Digital Economy — Discussion by Vitor Gaspar, Director, Fiscal Affairs Department, IMF, November 16, 2017.