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California Gov. Gavin Newsom’s “digital dividend” plan suffers a fatal flaw. Consumers are already sharing in the wealth “that is created from their data,” as Newsom puts it. They are already receiving tremendous value from the zero-price content their data supports via targeted advertising. That may seem trivial to those politicians who want Big Tech to start cutting checks. (Or more checks since they do pay taxes and cut paychecks to their workers, who then spend the money, which turns into income for someone else.) But what consumers get in return indisputably is worth something.
Maybe quite a bit. Studies put the value of that content as somewhere in the multiple trillions. This from “The Economics of Attention Markets” by David Evans: “In 2016, American adults spent 437 billion hours mainly consuming content on ad-supported media based; that time was worth $7.1 trillion using the average after-tax hourly wage rate and $2.8 trillion using the average after-tax minimum wage rate.”
Then there’s “Using Massive Online Choice Experiments to Measure Changes in Well-being,” where researchers (MIT’s Erik Brynjolfsson Massachusetts and Avinash Gannamaneni, and Felix Eggers of the University of Groningen) find “that digital goods have created enormous gains in well-being, which are largely missed by conventional measures of GDP and productivity.” Consumers would need to be paid many thousands of dollars to abandon Amazon, Google search, or even Facebook.
And in the new study “The Welfare Effects of Social Media” by Hunt Allcott, Luca Braghieri, Sarah Eichmeyer, and Matthew Gentzkow, the researchers measured “the willingness-to-accept of 2,844 Facebook users to deactivate their Facebook accounts for four weeks.” Their results “leave little doubt that Facebook produces large benefits for its users. A majority of people in our sample value four weeks of access at $100 or more, and these valuations could imply annual consumer surplus gains in the hundreds of billions of dollars in the US alone.”
Then there’s the broader point that consumers capture most of the benefits of innovation, not the innovators. In “Schumpeterian Profits in the American Economy: Theory and Measurement,” 2018 Nobel laureate William Nordhaus concludes “that only a minuscule fraction of the social returns from technological advances over the 1948-2001 period was captured by producers, indicating that most of the benefits of technological change are passed on to consumers rather than captured by producers.”
Now you can better see why Northwestern University economic historian Joel Mokyr writes: “Technological progress has been one of the most potent forces in history in that it has provided society with what economists call a ‘free lunch,’ that is, an increase in output that is not commensurate with the increase in effort and cost necessary to bring it about.”
I get it. Newsom, and others, want Big Tech to pay more. But is there any recognition or understanding of the total value these companies already generate?