Could the 'Internet of Things' Really Save the U.S. Economy?

By Tim Fernholz

REUTERS

I know the coffee's ready because the light in the Quartz kitchen is purple, not pink. The light knows the coffee is ready is because there are sensors--heat and pressure--taped to the coffee maker. This is the internet of things. It will save us all from economic ruin.


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Or at least that's what a new estimate from innovation guru Michael Mandel says. He figures (pdf) that the "internet of things"--the increasing number of machines equipped with internet-connected sensors--will expand the US economy by $600 billion and $1.4 trillion in 2025, roughly the equivalent of boosting GDP by 2% to 5% over the intervening time period. That could be the difference between so-so growth to the kind of stable growth that drives down debt and unemployment.

More broadly, the argument he's making is a reply to economists like Robert Gordon and Tyler Cowen who fear that the big gains in productivity that supported an expanding middle class and the modern welfare state won't be replicated anytime soon. This has major social repercussions--namely a scenario known as the great stagnation. The internet, for all the ways its changed our lives, has offered its gains largely in the form of consumer surplus--free stuff on the internet you used to pay for, in short--that is great and important but not necessarily money in your pocket.

Today's internet of things is limited to consumer surplus, like Quartz's coffee pot monitor or our weather bulb.

But the future internet of things will be a different beast, because by definition it takes the internet out of the world of abstraction and into industries--manufacturing, energy, transportation--where productivity gains would have a more tangible impact. For instance, while some trash cans are spying on you, others, made by BigBelly Solar, are keeping track of how full they are so garbage collectors can plan their routes more efficiently, saving fuel and time. The largest gains are still to come: Sticking sensors on a turbine to know exactly when it will break down and how to fix it sounds great, but actually handling all that data in a meaningful way isn't easy.

Another hope Mandel holds out for the technology is to make on-the-job-training easier by making machines more responsive to their users.

Does it all sound too good to be true? Absolutely. The estimates cited are a ballpark take on figures produced by McKinsey and Co., not necessarily the gold standard of foresight. The amount of investment needed to take advantage of this technology is high, and it will be years before different systems can be integrated in ways that allow companies, individuals, and eventually governments to appreciate their benefits. But the creeping networks might be the last hope of preserving growth.

This article available online at:

http://www.theatlantic.com/business/archive/2013/09/could-the-internet-of-things-really-save-the-us-economy/279682/