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Valuation and Virtue in the New Economy

Tyler Cowen’s “Good and Plenty” promotes the use of market mechanisms to fund culture. He’s recently turned his attention to valuation problems raised by time spent on the web:

Much of the Web’s value is experienced at the personal level and does not show up in productivity numbers. Buying $2 worth of bananas boosts GDP; having $20 worth of fun on the Web does not. And this effect is a big one. Each day more enjoyment, more social connection, and, indeed, more contemplation are produced on the Web than had been imagined even 10 years ago. But how do we measure those things?

Today, Facebook creates lots of voyeuristic pleasure, but much of the “work” is done by software and servers, and the firm hasn’t transformed Palo Alto. Web 2.0 is not filling government coffers or supporting many families — and may be hurting some. (Just ask a newspaper reporter.)

That all sounds scary, yet there is a bright side; I call it the “human capital dividend.” The reallocation of consumer time into the “free sector” on the Web will liberate the efforts of many producers and intermediaries, just as the automobile’s advent shifted workers out of making buggies for the horse. In fact, it’s an economic miracle that Twitter can get by with no more than 50 employees. It’s not quite a perpetual-motion machine, but if other parts of the economy were equally efficient, we’d all be swimming in free or near-free stuff. A second part of the human capital dividend comes from our productivity as Web consumers. Billions of people are rapidly becoming more knowledgeable and better connected to one another.

I think Cowen is right to the extent that our capabilities are undoubtedly enhanced by connectivity and computer power. But what if we embrace a more critical perspective on time spent on the web? What if some experience the need to facebook, tweet, IM, etc as a burden? What if our online presence in each area is in part a form of conspicuous display, as Thorstein Veblen modeled luxury spending? If education can be modeled as a “positional arms race” where the real goal is not to learn substantive skills, but to do better than others, then certainly we can talk about certain experiences of the web in similar terms.

In the “real economy,” we used to have a pretty rich ethical vocabulary for distinguishing between luxury and necessity. (As Christopher J. Berry notes, “luxury has changed from being essentially a negative term, threatening social virtue, to a guileless ploy supporting consumption.”) Perhaps we need a spectrum of value for web-based activity: from supra-economic aspirations (for love, political engagement, spirituality etc), to productivity, to entertainment, to distraction and addiction. But that might be too Arendtian or Maslovian for our relativistic times.

PS: For those interested, we plan to discuss such issues in some detail at a conference entitled The Internet as Factory and Playground. Here are some initial planning discussions.