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Inequality and the Internet

Nov 29,2014 - Last updated at Nov 29,2014

The conclusion that America has become vastly more unequal over the past 35 years is beyond doubt.

Since 1979, the pattern has been clear: the richer you were, the far richer you have become. And if you were poor, you probably stayed poor.

But the same period has also been an era of rapid technological change.

The United States is undergoing a third industrial revolution, an information-age upheaval that could be as momentous as its predecessors, which transformed society through the introduction of steam, iron, cotton and machinery, and then internal combustion, electricity and steel.

Today, nearly every resident of a developed country — and soon most of the rest of the world — can easily afford a smartphone, thereby gaining inexpensive access to a universe of human knowledge and entertainment that, until a generation ago, was far beyond the reach of all but the rich.

Is it possible that conventional measures of inequality and income vastly underestimate just how good we have it?

According to conventional economics, the answer, at first glance, seems to be no.

The calculations of economic growth that reveal growing inequality already take into account spending on telecommunications, information processing and audiovisual entertainment.

Unless the benefits from information-age goods and services greatly outstrip what we spend on them, the well-being they provide will have already been accounted for.

But is that “unless” really so far-fetched?

When we invest in our well-being, we not only spend money to purchase goods and services; we allocate a portion of our free time to use them properly.

A movie ticket will not do you much good if you leave before the curtain rises.

Time, like money, is a scarce resource; and, because goods and services related to information require our attention, they are time intensive.

Ever since Homer chanted his “Iliad” around the campfire after dark, we have been willing to pay dearly for stories, entertainment, and information.

The technology of the information age has given us the possibility to invest our time in ways that once only the most powerful could afford.

If, in the seventeenth century, you wanted to watch “Macbeth” in your house, you had to be named James Stuart, have William Shakespeare and his acting company on retainer, and have a full-sized theatre in your royal palace.

We spend, on average, two hours a day with our audio-video devices.

Assume for a minute that the opportunities provided by the rollout of broadband Internet has at least doubled the utility — the pleasure — that we get during that time.

That is the equivalent of receiving an extra two hours of free time every day, on top of the 10 hours on average that we spend awake and not at work.

Put in economic terms, that is an extra rise of 0.6 per cent per year in standards of living since 1990, a far larger increase than the 0.2 per cent per year that reliance on conventional measures would lead us to conclude.

The question then becomes whether our smartphones, Kindles, tablets and computers actually do provide us that extra utility.

Do we value what we get from Netflix, YouTube, Facebook and the Internet’s online library of humanity far more than what we previously learned, listened to, watched or gossiped about through traditional means?

Is watching television on demand more rewarding than visiting a movie theatre?

Is your Twitter stream more illuminating than a trip to a nearby library?

Are Facebook friends more valuable than, well, friends?

Whatever the answer to those questions, there is an even bigger wrinkle.

We do not consume goods and services in a vacuum. Part of the pleasure we receive from them derives from a feeling that our status is rising relative to that of our peers.

The information age has not only provided us with new entertainment options; it has opened new vistas into our neighbours’ lifestyles — and what we have noticed is that some of them are getting much, much richer.

If I were to hazard a guess, I would say that, as a society, the benefits we have received from information-age technology have been neutralised by the envy and spite that results from living in a world that is ever more unequal.

The writer, a former deputy assistant US Treasury secretary, is professor of economics at the University of California at Berkeley and a research associate at the National Bureau of Economic Research. ©Project Syndicate, 2014.

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