Facebook worth more than Portugal? Hell, it's worth a LOT more than THAT

COME ON then

So, our task now is to try to work out what actually is the consumption value of Facebook. What is the contribution to living standards that it makes? To the satisfaction of human desires? No method of doing this is going to be very good and absolutely we're not going to end up with anything accurate. But we might be able to get to an order of magnitude sorta thingie.

Obviously, we can't use what people spend on Facebook and we're saying that the firm's sales aren't a good guide either. What we want to find is the value that people derive from being able to use Facebook.

One obvious way of doing this is to look at the time people spend on it. We all do place a value on our time, as anyone who has ever seen a slow moving queue knows. So the average US user spending 40 minutes a day assigns some value to the time spent doing so. And there're 133 million Americans apparently doing that. Now what we need is to give a value to that time.

A reasonable value to start with is the US average (mean) wage of $24 an hour. We obviously prefer to be on Facebook to working. At the margin that is. Another more reasonable answer is at the minimum wage. This comes from when Joe Stiglitz and Amartya Sen were advising Les Frogs on the Sarkozy Commission. A closely related problem is that there's a lot of work that's not monetised: so called “household production”. We would like to have a value for this. It's a bit of a bodge job but the answer is that it's undifferentiated labour (ie, people don't specialise as much as they do in the wider economy) and thus the wage rate for undifferentiated labour should be used to value it: minimum wage.

Yes, yes, I know there're holes in this reasoning. No, we don't think that anyone would willingly pay $7.25 an hour to play on social media. But it's also true that people do this a lot, this social media, and thus they must assign a value to the doing of it.

And thus we can reach an “economic value in consumption” for Facebook, for the US, of $232bn to $769bn. Which is, I agree, a bit mad.

But back to the original Andreessen question. Where's the growth? Well, if the consumer surplus is normally seen as being equal to the bit that gets included in GDP, the “consumption” economy therefore being twice GDP, if we've got something that now provides us with 20x to 64x the value in consumption over the bit that gets included in GDP then we're in a slightly different world, aren't we? We've most certainly got the beginnings of an answer to where all that productivity and technologically driven economic growth is. Even admitting that all of those numbers are wrong we've still got something that's of such magnitude that it is making a difference to the standard of living. And also that the traditional method of measuring that standard of living, GDP, is increasingly diverging from our actual standard of living.

Another way of putting this is that something that Americans spend 32 billion hours a year on, voluntarily, can't really have an economic value of only $12bn. It's just nonsense to value people's time at under 40 cents an hour.

We've thus got a vast range of economic values that we can ascribe to the adslinging network. It could be nothing [or indeed less than nothing -Ed] as that editor proposes. It could be $12bn as conventional accounts would have it. It could be $100bn to the US economy and globally, Facebook could be worth more to humanity than the entire nation of Portugal, as the Deloitte rentaconomists would have it.

It could even be as much as $769bn for the US alone (4.5 per cent of current US GDP) that my mad method of valuing consumption gives*. And the thing is, while the $12bn is formally correct it's pretty useless as a guide. The Deloitte valuation is indeed cobblers but one can make a case for both zero and 4.5 per cent of GDP. One might go so far as to say that the extreme values are intellectually defensible but not the middle ones. Which is a bit weird, but then economics can be a bit weird at times. ®

Bootnote

*Let's crudely scale up to allow for the fact that most Facebook users are outside North America and then chop the extra in half to allow for the fact that non-US people's time - in economic terms - is worth less than US people's. Say x3 the US bit, for a global economic contribution by Facebook of well over two trillion dollars. By the Worstall Method, then, it is of more value to the human race to have Facebook than it is to have France.

Hm, alright, maybe Tim's got something here.

Joking aside, he and Mr Andreessen might like to consider this theory: no economic growth has appeared to result from the rise of the web giants quite simply because they don't add much value to anything. It is possible to waste your time, after all.

By contrast, reading the Register is an enriching experience on many levels. Savvy advertisers would surely place their messages here - admittedly at somewhat greater cost - rather than flick them alongside their pennies into the dark Facebook well of nothingness and despair. -Ed