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April 13, 2006
Further Proof: Why Capitalism Works
Just another brick in the wall explaining why this strange system called capitalism works. Brad Delong reports:
Only about 0.2% of consumer spending in the U.S. ... went for Internet access in 2004 yet time use data indicates that people spend around 10% of their entire leisure time going online... Based on expenditure and time use data and our elasticity estimate, we calculate that consumer surplus from the Internet may be around 2% of full-income, or several thousand dollars per user.
As this report on a paper by William Nordhaus points out, this is the way with all innovations. Sure, the entrepreneurs, the innovators, make money (or rather, some do,) but the vast majority, 95% and more, of the value created by the new technology/service/gidget goes to those who use it. To the wider economy in general if you wish.
That’s it, in a nutshell, why this rather odd economic system actually works, why it makes us all so stinking rich. By people striving for wealth they make us all more than 10 times richer than they themselves ever manage.
What a great system, eh?
April 13, 2006 in Economics | Permalink
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Comments
Ok you've confused me. Why does this example particularly show that capitalism works?
Tim adds: Because of that very consumer benefit.
Posted by: Matthew | Apr 13, 2006 11:09:16 AM
The internet and www were created by government agencies.
James
Posted by: james C | Apr 13, 2006 2:15:02 PM
... and just look what private industry, enthusiasts and the like have done with it James!
Posted by: Andrew Paterson | Apr 13, 2006 2:54:59 PM
I still don't understand Tim. The Soviet Union had television, with all its (greater) apparent consumer surplus.
Tim adds: Having actually watched Soviet television it’s difficult for me to describe it as a consumer surplus.
Posted by: Matthew | Apr 13, 2006 3:20:07 PM
The UK has Soviet Style TV (the BBC).
Posted by: Rob Read | Apr 13, 2006 5:23:01 PM
