The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies (36 page)

2. “Press Announcements – FDA Approves First Retinal Implant for Adults with Rare Genetic Eye Disease,”
WebContent
, February 14, 2013, http://www.fda.gov/NewsEvents/Newsroom/PressAnnouncements/ucm339824.htm.

3. “Wheelchair Makes the Most of Brain Control,”
MIT Technology Review
, September 13, 2010, http://www.technologyreview.com/news/420756/wheelchair-makes-the-most-of-brain-control/.

4. “IBM Watson Helps Fight Cancer With Evidence-based Diagnosis and Treatment Suggestions,”
Memorial Sloan-Kettering Cancer Center
, January 2013, http://www-03.ibm.com/innovation/us/watson/pdf/MSK_Case_Study_IMC14794.pdf.

5. David L. Rimm, “C-Path: A Watson-Like Visit to the Pathology Lab,”
Science Translational Medicine
3, no. 108 (2011): 108fs8–108fs8.

6. Andrew H. Beck et al., “Systematic Analysis of Breast Cancer Morphology Uncovers Stromal Features Associated with Survival,”
Science Translational Medicine
3, no. 108 (2011): 108ra113–108ra113, doi:10.1126/scitranslmed.3002564.

7. Julian Lincoln Simon,
The Ultimate Resource
(Princeton, NJ: Princeton University Press, 1981), p. 196.

8. Julian Lincoln Simon,
The Ultimate Resource
2 (rev. ed., Princeton, NJ: Princeton University Press, 1998), p. xxxviii.

9. World Bank,
Information and Communications for Development 2012: Maximizing Mobile
(Washington, DC: World Bank Publications, 2012).

10. Robert Jensen, “The Digital Provide: Information (Technology), Market Performance, and Welfare in the South Indian Fisheries Sector,”
Quarterly Journal of Economics
122, no. 3 (2007): 879–924, doi:10.1162/qjec.122.3.879.

11. Erica Kochi, “How The Future of Mobile Lies in the Developing World,”
TechCrunch
, May 27, 2012, http://techcrunch.com/2012/05/27/mobile-developing-world/.

12. Marguerite Reardon, “Smartphones to Outsell Feature Phones in 2013 for First Time,”
CNET
, March 4, 2013, http://news.cnet.com/8301-1035_3-57572349-94/smartphones-to-outsell-feature-phones-in-2013-for-first-time/.

13. Jonathan Rosenblatt, “Analyzing Your Data on the AWS Cloud (with R),”
R-statistics Blog
, July 22, 2013, http://www.r-statistics.com/2013/07/analyzing-your-data-on-the-aws-cloud-with-r/.

14. Carl Bass, “We’ve Reached Infinity—So Start Creating,”
Wired UK
, February 22, 2012, http://www.wired.co.uk/magazine/archive/2012/03/ideas-bank/weve-reached-infinity.

15. Noam Cohen, “Surviving Without Newspapers,”
New York Times
, June 7, 2009, http://www.nytimes.com/2009/06/07/weekinreview/07cohen.html.

Chapter 7
COMPUTING BOUNTY

1. While the rate has fluctuated with recession, over longer periods it has been remarkably steady. In fact, in 1957, the economist Nicholas Kaldor summarized what was known about economic growth at the time in a classic article: “A Model of Economic Growth,”
Economic Journal
67, no. 268 (1957): 591–624. His observations, including the relatively constant growth rates of key variables, such as wage growth and the amount of capital per worker, came to be known as the “Kaldor Facts.”

2. Bret Swanson,“Technology and the Growth Imperative,”
The American
, March 26, 2012, http://www.american.com/archive/2012/march/technology-and-the-growth-imperative (accessed Sept 23, 2013).

3. Congressional Budget Office,
The 2013 Long-Term Budget Outlook
, September 2013, p. 95. http://www.cbo.gov/sites/default/files/cbofiles/attachments/44521-LTBO2013.pdf.

4. Robert Solow, “We’d Better Watch Out,”
New York Times Book Review
, July 12, 1987.

5. Erik Brynjolfsson, “The Productivity Paradox of Information Technology,”
Communications of the ACM
36, no. 12 (1993): 66–77, doi:10.1145/163298.163309.

6. See, e.g., Erik Brynjolfsson and Lorin Hitt, “Paradox Lost: Firm Level Evidence on the Returns to Information Systems,”
Management Science
42, no. 4 (1996): 541–58. See also Brynjolfsson and Hitt, “Beyond Computation: Information Technology, Organizational Transformation and Business Performance,”
Journal of Economic Perspectives
14, no. 4 (2000): 23–48, which summarizes much of the literature on this question.

7. Dale W. Jorgenson, Mun S. Ho, and Kevin J. Stiroh, “Will the U.S. Productivity Resurgence Continue?,”
Current Issues in Economics and Finance
(2004), http://ideas.repec.org/a/fip/fednci/y2004idecnv.10no.13.html.

8. C. Syverson, “Will History Repeat Itself? Comments on ‘Is the Information Technology Revolution Over?’ ”
International Productivity Monitor
25
(2013): 37–40.

9. “Computer and Dynamo: The Modern Productivity Paradox in a Not-Too-Distant Mirror,”
Center for Economic Policy Research
, no. 172, Stanford University, July 1989, http://www.dklevine.com/archive/refs4115.pdf.

10. For instance, Materials Resource Planning (MRP) systems, which begat Enterprise Resource Planning (ERP), and then Supply Chain Management (SCM), Customer Relationship Management (CRM), and, more recently, Business Intelligence (BI), Analytics and many other large-scale systems.

11. Todd Traub, “Wal-Mart Used Technology to Become Supply Chain Leader,”
Arkansas Business
, http://www.arkansasbusiness.com/article/85508/wal-mart-used-technology-to-become-supply-chain-leader (accessed July 20, 2013).

12. This is consistent with a similar analysis by Oliner and Sichel (2002), who wrote, “both the use of information technology and the efficiency gains associated with the production of information technology were central factors in [the productivity] resurgence.” Oliner, Sichel, and Stiroh (2007) also found that IT was a key factor in this resurgence. Dale Jorgenson, Mun Ho, and Kevin Stiroh, “Will the U.S. Productivity Resurgence Continue?” Federal Reserve Bank of New York: Current Issues in Economics and Finance, December 2004, http://www.newyorkfed.org/research/current_issues/ci10-13/ci10-13.html.

Susan Housman, an economist at the Upjohn Institute has argued that the enormous productivity gains of the computer producing industries unfairly skew the productivity of the manufacturing sector (http://www.minneapolisfed.org/publications_papers/pub_display.cfm?id=4982). She says, “The computer industry is small—it only accounts for about 12 percent of manufacturing’s value added. But it has an outsized effect on manufacturing statistics. . . . But we find that without the computer industry, growth in manufacturing real value added falls by two-thirds and productivity growth falls by almost half. It doesn’t look like a strong sector without computers.” However, we see the glass as half-full, and welcome the contribution of computers even as other sectors lag.

13. See K. J. Stiroh, “Information Technology and the U.S. Productivity Revival: What Do the Industry Data Say?,”
American Economic Review
92, no. 5 (2002): 1559–76; and D. W. Jorgenson, M. S. Ho, and J. D. Samuels, “Information Technology and U.S. Productivity Growth: Evidence from a Prototype Industry Production Account,”
Journal of Productivity Analysis
, 36, no. 2 (2011): 159–75, especially table 5, which shows the total factor productivity growth was about ten times higher in IT-using sectors than in sectors that did not use IT extensively.

14. See E. Brynjolfsson and L. M. Hitt, “Computing Productivity: Firm-level Evidence,”
Review of Economics and Statistics
85, no. 4 (2003): 793–808. Similarly, Stanford University’s Nicholas Bloom, Harvard University’s Rafaela Sadun, and the London School of Economics’ John Van Reenen found that American firms were particularly adept at implementing management practices that maximized the value of IT, and this lead to measurable productivity improvements, as documented. See N. Bloom, R. Sadun, and J. Van Reenen “Americans Do IT Better: U.S. Multinationals and the Productivity Miracle (No. w13085),” National Bureau of Economic Research, 2007.

15. Andrew McAfee, “Pharmacy Service Improvement at CVS (A),”
Harvard Business Review
, Case Study, 2005, http://hbr.org/product/pharmacy-service-improvement-at-cvs-a/an/606015-PDF-ENG.

16. Erik Brynjolfsson, Lorin Hitt, and Shinkyu Yang, “Intangible Assets: Computers and Organizational Capital,”
Brookings Papers on Economic Activity
, 2002, http://ebusiness.mit.edu/research/papers/138_Erik_Intangible_Assets.pdf.

17. More details can be found in Erik Brynjolfsson and Adam Saunders,
Wired for Innovation: How Information Technology Is Reshaping the Economy
(Cambridge, MA; London: MIT Press, 2013).

18. According to the U.S. Bureau of Labor Statistics, productivity growth averaged 2.4 percent between 2001 and 2010, 2.3 percent between 1991 and 2000, 1.5 percent between 1981 and 1990, and 1.7 percent between 1971 and 1980.

Chapter 8
BEYOND GDP

1. Joel Waldfogel, “Copyright Protection, Technological Change, and the Quality of New Products: Evidence from Recorded Music Since Napster,” Working Paper (National Bureau of Economic Research, October 2011), http://www.nber.org/papers/w17503.

2. Albert Gore,
The Future: Six Drivers of Global Change
(New York: Random House, 2013), p. 45.

3. The English Wikipedia has over 2.5 billion words, which is over fifty times as many as
Encyclopaedia Britannica
. “Wikipedia: Size Comparisons,”
Wikipedia, the Free Encyclopedia
, July 4, 2013, http://en.wikipedia.org/w/index.php?title=Wikipedia:Size_comparisons&oldid=562880212 (accessed August 17, 2013).

4. Actually, 90 percent of apps on smartphones are now free. Alex Cocotas, “Nine Out Of Ten Apps On Apple’s App Store Are Free,”
Business Insider
, July 19, 2013, http://www.businessinsider.com/nine-out-of-10-apps-are-free-2013-7#ixzz2cojAAOCy (accessed August 17, 2013).

5. Cannibalization of SMS services by free over-the-top (OTT) service is estimated to cost telephone companies over $30 billion in 2013, according to the analyst group Ovum. Graeme Philipson, “Social Messaging to Cost Telcos $30 Billion in Lost SMS Revenues,”
IT Wire
, May 2, 2013, http://www.itwire.com/it-industry-news/strategy/59676-social-messaging-to-cost-telcos-$30-billion-in-lost-sms-revenues (accessed August 17, 2013). In theory, the hardworking statisticians at the Bureau of Economic Analysis try to account for quality-adjusted price changes. In practice, this works for small changes but not for highly disruptive introductions of new products and services. What’s more, sometimes increases in GDP reflect declines in our well-being. For instance, an increase in crime might prompt more spending on burglar alarms, police services, and prisons. Every dollar spent on these activities increases GDP, but of course the nation would be better off with less crime and less need for this kind of spending.

6. See http://archive.org/stream/catalogno12400sear#page/370/mode/2up (accessed September 15, 2013).

7. Try the 1912 Sears catalog (p. 873), where it’s priced at just 72 cents; see http://archive.org/stream/catalogno12400sear#page/872/mode/2up.

8. It turns out that you get a slightly different answer depending on whether you try to replicate the “happiness” that you had in 1993 using the 2013 catalog, or replicate the happiness of the 2013 catalog using the 1993 catalog. Technically this is the difference between what economists call the Paasche and Laspeyres Price indexes. An alternative is to continually adjust the basket of goods being considered, which is the approach used in so-called chained price indexes. The choice of price index, while subtle, can lead to hundreds of billions of dollars in differences over time, as in the case of indexing Social Security payments for changes in the cost of living.

9. In principle, when the exact same good is available for a lower price, the nominal GDP would fall, but the real GDP would not, with the difference being reflected in the price index. In practice, changes in consumption like this are not picked up in changes in price indexes, and thus official numbers for both nominal and real GDP fall.

10. Erik Brynjolfsson, “The Contribution of Information Technology to Consumer Welfare,”
Information Systems Research
7, no. 3 (1996): 281–300, doi:10.1287/isre.7.3.281.

11. Erik Brynjolfsson and Joo Hee Oh, “The Attention Economy: Measuring the Value of Free Goods on the Internet,” in NBER Conference on the Economics of Digitization, Stanford, 2012, http://conference.nber.org/confer//2012/EoDs12/Brynjolfsson_Oh.pdf.

12. Hal Varian, “Economic Value of Google,” March 29, 2011, http://cdn.oreillystatic.com/en/assets/1/event/57/The%20Economic%20Impact%20of%20Google%20Presentation.pdf (accessed August 23, 2013). Yan Chen, Grace YoungJoo Jeon, and Yong-Mi Kim, “A Day without a Search Engine: An Experimental Study of Online and Offline Search,” http://yanchen.people.si.umich.edu/.

13. Emil Protalinski, “10.5 Billion Minutes Spent on Facebook Daily, Excluding Mobile,”
ZDNet
, http://www.zdnet.com/blog/facebook/10-5-billion-minutes-spent-on-facebook-daily-excluding-mobile/11034 (accessed July 23, 2013).

14. Daniel Weld, “Internet Enabled Human Computation,” July 22, 2013, Slide 49, https://docs.google.com/viewer?a=v&q=cache:HKa8bKFJkRQJ:www.cs.washington.edu/education/courses/cse454/10au/slides/13-hcomp.ppt+facebook+hours+panama+canal+ahn&hl=en&gl=us&pid=bl&srcid=ADGEESjO16Vz-Mrtg5P2gFvRC82qOoJvsHNVmr56N1XbswDpmqoxb1pUMLoJacAgvNdPRk5OCU0gPCjLbf_3SIvu4oiqCYAqywUkC18VLBdwiE2SwTQrGJXOxuxZFpu_gy6JrmzAtri0&sig=AHIEtbQnKVDd9ybDuAJQJMIMhD8R_oNt8Q.

15. For a good overview, see Clive Thompson, “For Certain Tasks, the Cortex Still Beats the CPU,”
Wired
, June 25, 2007.

16. National Science Foundation, “Industry, Technology, and the Global Marketplace,”
Science and Engineering Indicators 2012
, 2012, http://www.nsf.gov/statistics/seind12/c6/c6h.htm#s2 (accessed July 27, 2013).

17. Michael Luca, “Reviews, Reputation, and Revenue: The Case of Yelp.com,” Harvard Business School Working Paper (Harvard Business School, 2011), http://ideas.repec.org/p/hbs/wpaper/12-016.html (accessed September 12, 2013).