NCPA - National Center for Policy Analysis

Economists Have Problems Measuring Intangibles

April 7, 1999

Economists focus almost entirely on things that can be measured, such as steel and auto production, because these are tangible things that are easy to see and add up. But our data on services, which now constitute two-thirds of the economy, are very poor because they are intangible.

There are many other important things which economists ignore and don't even attempt to measure or analyze. In a recent speech to the American Economic Association, Robert Fogel of the University of Chicago called attention to some of these.

  • Technological advancement largely determines the long-run rate of real economic growth, and since moving sharply higher around 1700 the pace of technological change has been accelerating ever since. But few economic analyses bother to go back before World War II.
  • Because technological change is not fully incorporated into economic data, growth is substantially understated. For instance, economists have utterly failed to find any meaningful impact of computers on labor productivity.
  • Obviously computers have enormously affected productivity; but because they haven't quite figured out how to measure that impact, economists tend to ignore it.
  • They also fail to measure or ignore the vast growth of nonmarket economic activity, such as the huge growth in voluntarism.

Finally, Fogel faults economists for ignoring spiritual, meaning non-material, factors in individual well-being, by focusing solely on material consumption. Yet spiritual factors are becoming increasingly important to human happiness as material wants disappear.

Fogel thinks that half our real consumption may consist of spiritual goods that are totally ignored by economists. Thus he believes growth is much higher and people much better off than economists think.

Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, April 7, 1999.


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