Remarkable Welfare Gains From The Power of Computing Represent Signs Of Things To Come

Two economists project that the welfare benefits from Personal computers adds up to $1,700 per person annually. And this represents a tremendous growth from the previous years.

The Wall Street Journal Blog reports, (bold emphasis mine)

Despite all the wrenching change the computer age has brought, humanity is probably better off than it would have been if the PC had never been invented. Now, economists have taken a stab at figuring out exactly how much better off we are.

The economists — Karen Kopecky of the Federal Reserve Bank of Atlanta and Jeremy Greenwood of the University of Pennsylvania — traced the history of the computer market back to the introduction of the Apple II in 1977 to calculate how much value, or “utility”, American consumers derive from a given amount of computing power. They then looked at how much we actually paid for that computing power, in the form of desktop PCs, laptops, notebooks, software and so on. The difference, known as the “welfare gain”, is the benefit we get from personal computers above and beyond what we pay for them.

Back in the days of magnetic-tape memory, the annual benefit was pretty small — somewhere between zero and about $6 for the average American, adjusted for inflation, depending on the method of calculation. But by 2009, the price of computing power had fallen more than 99.8% and personal computers had become a lot better and more widely used. As a result, the welfare gain rose to somewhere between $1,300 and $2,100 per person, the economists’ estimates suggest. Ballpark average: $1,700.

That’s a massive benefit, adding up to about $500 billion, or 5% of total consumer spending in 2009.

To be sure, the economists’ estimates are based on some assumptions that, while common in the world of economics, are open to debate. For one, they assume that people are extremely rational, and always buy exactly the number of personal computers that maximizes their utility. To the extent that irrational impulses drive people to buy computers, or to the extent that the use of computers entails costs people don’t recognize (say, attention-span deficits or Internet addiction), then the actual benefit could be significantly smaller.

My comments:

First of all, I am flabbergasted that the article would resort to the word “probably” as to ascribe the personal computer’s benefit to mankind, as if such benefits have not been conspicuous.

Second, while I agree that the personal benefits from these computers have been immense, given that the article does not say how or what sort of utility had been measured or rated, I would posit that the figures had been vastly underestimated.

Had the PC been assessed solely from PC sales and turnover? How about time saving gains from added productivity and work process efficiency via diversified applications?

How about savings or value added derived from declining communication costs or from diminishing [Coase’s laws—search costs, contracting and coordination costs or otherwise known as] transaction costs, or the enhancement of business processes or even organizational capital (Garrett Jones)?

And how about the benefits of leisure (e.g. games, etc…) and other intangible gains such as real time connectivity with parents, relatives, friends and associates? Or how about the virtue or non-virtue of self-expression via social networking media?

Three, all these go to show why economists fall for the aggregate trap. They tend to quantify things even if they can’t.

Lastly, nonetheless the above only gives more proof that the world has been transitioning to the age of digitization or the information age, where more and more activities of our lives are becoming decentralized (Third Wave) enabled by technology.

Chart from Ray Kurzweil: Law of Accelerating Returns

I’d add that should the trend of innovations of applications and devices accelerate, this will even deepen and make this transition more widespread.

As Law Professor and author Butler Shaffer writes, “Decentralized technologies are causing us to rethink and redefine what we mean by "society."

The welfare gains of the PC are just signs of things to come.

Updated: Democratizing Knowledge Revolution Via $10 Laptops (Still A Dream)

India recently announced that it would be introducing $10 (Php 500) laptop computers soon.

Although it is still unclear as to the real offering price as reports vary, BBC says ``Early reports of the cheap laptop suggested that it would cost only 500 rupees (£7). However, this could be a mistranslation, because transcripts of the speech, in which it was unveiled, mentioned it costing $10 (£7) but this was later corrected to $100 (£70)”.

Albeit the physorg.com says, ``The $10 laptop project is the product of a collaboration among institutions including the Vellore Institute of Technology, the Indian Institute of Science, and IIT-Madras. The project began about three years ago in response to the proposed $100 laptop (the "One Laptop Per Child" project), an idea from MIT's Nicholas Negroponte, which was going to cost $200. Currently, the $10 laptop is projected to cost $20, but India's secretary of higher education R. P. Agarwal hopes that price will come down with mass production. The $10 laptop will be equipped with 2 GB of memory, WiFi, fixed Ethernet, expandable memory, and consume just 2 watts of power.”

The goal of the $10 laptop is ideally meant to broaden the access of computers for ‘poor’ school children around the world. However, considering the onus from the heavy doses of stimulus being applied today to prop global economies, subsidies from governments to finance its distribution would probably be limited. This means successfully bringing prices to this level can only be achieved if it will be driven by the markets.

Nonetheless, the positive outcome from a market based distribution of these inexpensive “socialized laptops” is likely to have a huge impact on laptop and PC prices and sales globally. Notwithstanding the prospects of exponential growth of web based usage.

To give you an idea of the existing industry penetration levels, according to comScore World Metrix, ``global Internet audience (age 15 and older from home and work computers) has surpassed 1 billion visitors in December 2008”.

The breakdown of global audience by region as follows:

Again from comScore World Metrix, ``The Asia-Pacific region accounted for the highest share of global Internet users at 41 percent, followed by Europe (28 percent share), North America (18 percent share), Latin-America (7 percent share), and the Middle East & Africa (5 percent share).”

So based on geographic distribution, growth is likely to favor Asia.

And which country holds the most users?

According to the Economist, ``THE number of people going online has passed one billion for the first time, according to comScore, an online metrics company. Almost 180m internet users—over one in six of the world's online population—live in China, more than any other country. Until a few months ago America had most web users, but with 163m people online, or over half of its total population, it has reached saturation point. More populous countries such as China, Brazil and India have many more potential users and will eventually overtake those western countries with already high penetration rates. ComScore counts only unique users above the age of 15 and excludes access in internet cafes and via mobile devices.

To quote Forbes Nanotech's brilliant Josh Wolfe in Airbrushing Airwaves & The Adjacent Possible ``The history of technology has been one of displaced labor. New jobs are birthed as old ones die. Talent is embedded in technology. And technology gets further embedded in advanced materials."

The $10 laptop is likely to democratize the knowledge revolution globally.

Update: From hype to dud, the supposed 'laptop' turns out to be another computing device....

This from the Times of India ``The hype surrounding the $10 laptop ``prototype'' with two GB RAM turned out to be a joke when the department of Human Resources Development announced — during its inauguration in the temple town of Tirupati — that it wasn't a laptop at all but a computing device.

While the world eagerly waited for the launch of the $10 laptop — designed by students of Vellore Institute of Technology, scientists in Indian Institute of Science, Bangalore, IIT-Madras, UGC and MHRD — it wasn't a patch on the $100 laptop made by MIT.

The MHRD officials said the price was working out to be $20 but with mass production it was bound to come down to $10 (Rs 500) and thus become affordable for every student in India.

But netizens were disappointed when the ``laptop'' turned out to be nothing more than a computing device along with a hard disk with e-books, e-journals and relevant educative material through the state-art-of-the-art ``Sakshat'' portal.