The Rise of the Data-driven Consumer

November 12, 2014
Michael Mandel

PPI is strongly committed to the success of the data-driven economy. The beneficiaries of the data-driven economy includes Americans as consumers, workers and citizens. Participants in the data-driven economy includes edge providers, internet service providers, and in the future, entities such as healthcare networks and internet-enabled state and local governments. We acknowledge that strong differences of opinion exist about the right way to achieve the success of the data-driven economy—notably the debate over Title II regulation of broadband. However, we believe that we all share a vision of how the data-driven economy can benefit Americans.

In that spirit, we share here some of the results from our soon-to-be released paper on data and consumer welfare gains since the recession, by Michael Mandel and Diana Carew. We analyzed how Americans are consuming data-related goods and services, including everything from cable, wireless, and internet service to computers, software and content.

Here are the main results of our analysis:

The prices of data-related goods and services have dropped by almost 20 percent since 2007.
Real consumption of data-related goods and services per person has risen by 48 percent since 2007.
Real consumption per person of all other goods and services—from healthcare to housing to autos to food—is only up 0.9 percent since 2007.
As a result, the data sector has been the main force driving average gains in consumer welfare since 2007. By our estimate, data-related goods and services account for roughly 70 percent of the gain in average consumer welfare over that stretch. *
Stunningly, real personal consumption per capita of all goods and services outside of data, healthcare, and housing actually fell by 3.0 percent since 2007. Real consumption per capita has fallen for motor vehicles and parts; furniture; food; jewelry; and even financial services.
From this perspective, the recent election was a referendum on what many Americans already know – in the non-data sector, stagnant real wages have failed to keep up with inflation.

Our results show we are truly in a “data-driven economy” – data-related goods and services are driving post-recession gains in consumer welfare. Outside of health and housing, non-data-related goods and services are simply not part of the story.

Without the success of the data sector, American consumers would be far worse off than they are today. Whatever we do about regulating the Internet must take into account that it’s the most vibrant sector of the economy.

*In the forthcoming paper, we define average consumer welfare as real personal consumption expenditures per capita. By this measure, average consumer welfare has risen by 3.1% since the third quarter of 2007. Of that gain, 0.9%, or roughly 30%, comes from non-data-related goods and services. The rest, or 70%, comes from data-related goods and services.