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One Lesson From the Crisis: It's Time to Create Your Own Economy

Why one lesson of this economic crisis may be that we have to change how we measure growth, production, and success.

In a typical day, I might write two tweets, peruse 15 blogs (Jason Kottke and Penelope Trunk are two must-reads), and watch James Brown dance on YouTube. If it's a really fun day, I'll read more blogs, scour the Web for movie reviews, browse eBay, Google myself, and spend more time on Twitter. None of this costs me a penny, and yet I am producing plenty -- namely, my own interest and amusement.

More and more, "production" -- that word my fellow economists have worked over for generations -- has become interior to the human mind rather than set on a factory floor. A tweet may not look like much, but its value lies in the mental dimension. You use Twitter, Facebook, MySpace, and other Web services to construct a complex meld of stories, images, and feelings in your mind. No single bit seems weighty on its own, but the resulting blend is rich in joy, emotion, and suspense. This is a new form of drama, and it plays out inside us -- with technological assistance -- rather than on a public stage.

Online, you can literally create your own economy. By that, I mean you can build an ordered set of opportunities for prosperity and pleasure, analogous to a traditional economy but held in your head. There is no obvious monetary transaction, but you're using your limited resources to get a better deal -- the very essence of economics. In fact, "economics" comes from oikonomia, the ancient Greek word for household management, and the modern practice of economics is returning to that idea.

The traditional gauge of economic success is profit, but over time we'll find that such statistics as measures of GDP tell us less and less about broader efforts to improve human well-being. 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?

That question -- and I don't yet have a full answer -- reflects the state of flux we're in today. We're going through a lot of adjustments, and not just in real estate and finance. Free stuff on the Web has made this economic downturn more severe. For many of us, the Web really is more fun than a trip to the store, which makes it easier for us to cut our spending. Although the iPhone has been earning lots for Apple, our spending on high-tech goodies does not make up for falling demand elsewhere. A PC and broadband cost something, but for those millions who have paid up, further exploration is essentially free.

Nor do most Web activities generate jobs and revenue at the rate we saw with past technological marvels. When Ford was growing early in the 20th century, it created millions of jobs and helped to build Detroit into a top-tier city. 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.) Everyone on the Web has heard of Twitter, but as of this spring, fewer than 50 people work there.

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. Self-education has never been more fun, and that is because we are in control of that process like never before.

It's a common complaint that the Web makes us more impatient, but most of us use it to track (or create) long-running stories and debates. I've been following the career of folk-rock star Roger McGuinn for more than 30 years, and now I use the Web for that. If anything, the essence of Web life is that we are impatient to discover the next installment in our planned programs of very patient long-term interest. That's a kind of impatience we can be proud of, just as a mother might be impatient to receive a call from her teenage daughter away at college. It's a sign of caring and commitment, not superficiality.

Someday we'll gain the tools to measure these new benefits. Twitter's value will lie not in its eventual market cap but in the human connections it creates. My Twitter feed is a virtual meeting room with economists, aid workers, entrepreneurs, housewives, celebrities, and plain old friends. The Web unites millions of diverse individuals, who interact and sometimes even meet up or marry. The world has a lot more of these connections, even if we've yet to see all of their implications -- including the traditional financial ones of new businesses, employment, and revenue. And it may sound counterintuitive, but the more time you spend staring at your screen, the bigger that human capital dividend will be.

O Pioneers!

Tyler Cowen, an economics professor at George Mason University, is the author of the new book Create Your Own Economy.