Freaks, Geeks, and GDP

Has the Internet, the most revolutionary communications technology advance since Gutenberg rolled out the printing press, done nothing for GDP growth? The answer, economists broadly agree, is: Sorry, but no -- at least, not nearly as much as you would expect.

A quarter century ago, with new technologies starting to saturate American homes and businesses, economists looked around and expected to find computer-fueled growth everywhere. But signs of increased productivity or bolstered growth were few and far between. Sure, computers and the Web transformed thousands of businesses and hundreds of industries. But overall, things looked much the same. The GDP growth rate did not tick up significantly, nor did productivity. As economist Robert Solow put it in 1987: "You can see the computer age everywhere but in the productivity statistics."

An overlapping set of theories emerged to explain the phenomenon, often termed the "productivity paradox." Perhaps the new technologies advantaged some firms and industries and disadvantaged others, leaving little net gain. Perhaps computer systems were not yet easy enough to use to reduce the amount of effort workers need to exert to perform a given task. Economists also wondered whether it might just take some time—perhaps a lot of time—for the gains to show up. In the past, information technologies tended to need to incubate before they produced gains in economic growth. Consider the case of Gutenberg's printing press. Though the technology radically transformed how people recorded and transmitted news and information, economists have failed to find evidence it sped up per-capita income or GDP growth in the 15th and 16th centuries.