I’ve thought a lot more than I’ve written about the Great Stagnation and whether or not we are simply seeing suboptimal monetary policy at the start of a new economic revolution.
Prices, properly measured, are collapsing and a subset of folks are rapidly shifting consumption towards those low cost areas. The Central Bank, failing to see this, keeps interest rates too tight. This explains a seemingly bizarre worldwide obsession with tight money at the very time that it seems most insane to say I am worse off today with a $1000 in cash than I would have been in 2000 with $1000 in cash.
For me, and I know I am an in infovore subset, there has been massive deflation.
However, the internet as the exclusive playground for infovores may be coming to an end. Social interactions may be the textiles of this new revolution. A product that almost every wants, that is suddenly becoming cheaper.
Facebook penetration is way up
The study, fielded in January of 2011, found that 51% of every teen, man or woman has a profile on this dominant site. That’s a majority of all Americans age 12-plus. And Edison Vice President Tom Webster, who presented the peek at the study in Arbitron’s monthly PPM client call, noted that the 51% is not just among those with Internet connections, but all Americans.
How is the BLS possibly supposed to measure this. I would suggest something akin to travel cost. But perhaps isolation costs. We could get this through experiments. Suppose I have a hotel which blocks Facebook and is out of range of 3G. How much does this knock off the daily rate versus other hotels with no 3G but do have Facebook access.
Even at $5 per night you you would be talking about $5*365*300M = 547B in annual GDP, priced out a zero dollars. That’s roughly 3% of national income, attributed to Facebook alone. Not advertising on Facebook mind you, but the economic value produced for users.
Is it that high? It could be lower but I could imagine it being higher possibly even $10 a night. And, of course there are increasing daily marginal costs to being cut off from Facebook. In the moderate percentage points of GDP is not unreasonable. Double digits seems unlikely but not widely implausible.
And of course, this is in theory just the beginning.
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Wednesday ~ March 30th, 2011 at 10:08 am
Pablo Garcia
While I think you are right, I just want to point that you are giving a lot more credit to Facebook in the hotel aspect: $5*365*300M = 547B, BUT the 300m should be: (300*.51). Essentially cutting the gdp to 547*.51 which I think then makes up 1.5% of national gdp, but then goes up again to about 547 when you consider it could be up to 10$
However, I think internet is being commoditized ( I think thats the right term), that it will no longer be a luxury to have internet in hotels but a standard. Then it is just an added cost passed on to the customer. Once it that cost +some small profit is averaged out to every customer, I think we are looking at something farless than 5$. If a hotel chain charged 5 extra per room, they’d have the internet bill paid off in a week and have 3 weeks of profit per month (Thats my guess). I think if that was the case, and it became a pricing war (which to me hotels tend to be, except for luxury hotels), then that profit might begin to dwindle to give their franchise an advantage.
Maybe i’m looking at it the wrong way. But for the most part I think I agree with what you say.
Wednesday ~ March 30th, 2011 at 10:21 am
Karl Smith
I stand corrected
Wednesday ~ March 30th, 2011 at 8:12 pm
Stickybuffalo.com » Braindump, March 30, 2011
[...] an item (incidentally) about that Facebook thing: more than half of all Americans are at least nominal members. Granted, I should be used to [...]
Wednesday ~ March 30th, 2011 at 11:23 pm
Timothy
I don’t know how much I buy it, but Ted Castronova has discussed the idea of an “exodus recession”-he’s inspired by virtual worlds, but it’s the same kind of thing:
http://terranova.blogs.com/terra_nova/2010/11/an-exodus-recession.html
Thursday ~ March 31st, 2011 at 1:22 pm
Assorted links
[...] Facebook and TGS, and Robin Hanson reviews TGS. Mike Mandel responds to Karl [...]
Thursday ~ March 31st, 2011 at 1:26 pm
Sister Y
The sexual welfare component of human happiness has also become almost immeasurably cheaper, what with widespread availability of birth control and abortion, and a reduction in the legitimacy of a woman’s expectation to be provided for materially for life in exchange for a monogamous sexual relationship. Better interpersonal connectivity will only drive costs down further.
I don’t think this is widely recognized as the great thing it really is for human welfare in general. We all have the potential to be sexovores – even more so than we do to be infovores, perhaps.
Thursday ~ March 31st, 2011 at 1:43 pm
dave
“This explains a seemingly bizarre worldwide obsession with tight money at the very time that it seems most insane to say I am worse off today with a $1000 in cash than I would have been in 2000 with $1000 in cash.”
Unless you eat, heat your home, need medical care or education, etc.
If your an upper middle class infovore things got cheaper. If your everybody else your living paycheck to paycheck.
Thursday ~ March 31st, 2011 at 5:42 pm
tsprad
One minor point that is being overlooked here. I’m a member of that 51% who have Facebook accounts, and I look at Facebook nearly every day, but that’s because it’s free. If I were asked to pay $5 per night, or even per lifetime, for Facebook I would not use it. I don’t think I’m alone in that opinion.
Friday ~ April 1st, 2011 at 12:05 pm
Nick Bradley
same here.
Tuesday ~ April 5th, 2011 at 3:49 pm
Cleaning off My Toolbar « Gucci Little Piggy
[...] Karl Smith at Modeled Behavior considers the argument laid out by Tyler Cowen in his lengthy essay The Great Stagnation. Smith considers [...]