The Internet: Triumph or Tragedy of Innovation?

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The Web's core value for most users is the free (or nearly free) and easy distribution of media. Is that a breakthrough on par with the automobile and flushing toilet, or simply a means of controlling costs?600 hand computer REUTERS Brian Snyder.jpgREUTERS

As an online journalist, I'm paid to make a living on the Internet by monitoring news, writing my thoughts into an online publishing platform, and sharing the final product with friends and social networks. It was just the other day that I was on my computer tabbing between Twitter and some websites when a friend reminded me, via Gchat, that I ought to read Tyler Cowen's e-book The Great Stagnation for our innovation special report, since it made the argument that we're in something of an innovation rut.

Where great ideas really come from. A special report

On first blush, that last paragraph doesn't make a lot of sense. What the heck kind of "innovation rut" transforms the way we work and consume entertainment? Practically nothing I do in the course of a day would have been possible 20 years ago. In the early 1990s, you could count the number of newspaper websites on a fork's tines. Neither Gmail nor Twitter nor Facebook existed when I started my senior year of high school. The smart phone that I keep within three feet of me at all time, like some kind of daemon? Its Android ancestor isn't four years old. The Kindle is even younger. That's some rut!

And yet, there really is something wrong with the American Ideas Lab. Meaningful innovations have been falling since the late 19th century, Tyler claims. Patents-per-researcher have declined since the 1950s. Median household income is stagnant since the 1980s. Tyler's friend, and Atlantic contributor, Michael Mandel traces the origins of our innovation shortfall to the late 1990s. There's a disagreement about the date of origin, but the bottom line is that productive innovations that produce gains captured by middle class families have ground to a halt.

But what about the Internet, you ask. That's pretty innovative, ain't it? It is. Taking stock of the worldwide Internet economy, McKinsey & Company estimated its net revenue at $8 trillion, when you factor in everything from equipment, e-commerce, software consumption, and telecom investment. As an industry, the Internet contributes more to the typical developed economy than mining, utilities, agriculture, or education.

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But the Web's core innovation for most users is the free (or nearly free) distribution of media. Rather than produce financial gains captured by middle class families, it has more often produced cheap entertainment captured by middle class families. That's important. Free entertainment has value. Watching Hulu is worth something, even if we can't bottle that something, slap a price on it, and add it to GDP. But a lot of activity on the Internet doesn't make us richer. Imagine if I told you that in the world of tomorrow, everybody would live in a virtual land of free information that they would leave occasionally to walk around, eat, and visit the doctor. You might respond: You haven't described the world of tomorrow. You've described my day tomorrow.

Tyler's bottom line is that the Internet is fantastic, but its gains are uniquely unquantifiable, precisely because they bring the cost of so many things we love down to zero. This is not the automobile. This is not the refrigerator. It's just a different kind of invention, altogether.

Cowen and his critics focus on the value of the Internet to ordinary people. But what we're beginning to see is the value of ordinary people on the Internet for businesses. One of my favorite terms from the past few years is Paul Saffo's concept of the "consumer-producer." The idea is that if companies follow users -- what we like, what we buy, where we are, where we're going -- our consumption of goods literally produces information that makes companies better. We become tiny agents of innovation, our purchases and status updates pointing companies toward smarter strategies and allocation of resources. I don't know where this turn in the road leads. But it's exciting and new enough for me to think it might be a fool's errand to say that we can lift up in the middle of the Internet revolution and declare it a great victory or great loss for American middle class life.

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Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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