Dropbox, Google Drive, and the Consumer Price Index

I was looking at the April CPI this morning, and I got to thinking about Dropbox. I use Dropbox literally 25-50 times a day.  I’m working on a file on my Apple laptop, save it to the Dropbox folder,  and I can be sure that the same file will show up on my PC when I get home.

Dropbox costs me nothing for 2.5 GB worth of storage. More important, I’m getting a valuable service for nothing.

Now comes along Google Drive, which supposedly functions much the same way, and offers 5 GB of storage.  Now, I’m not going to switch any time soon because Dropbox is working fine for me. But a reasonable interpretation here is that the “price” of seamless online storage has fallen.

But where does the fall in “price” of the Dropbox/Google Drive-type service show up in the Consumer Price Index? The answer: Nowhere. Free services such as Dropbox and Google Drive (or Facebook, or Yahoo Mail, or any other Web service without a price) do not affect the CPI, even as their usefulness increases.

This is not a new observation at all (see for example the 2009 working paper ”The Broadband Bonus: Account for Broadband Internet’s Impact on U.S. GDP” by Greenstein and McDevitt).

Yet this omission of free online services from the CPI, once insignificant,  has become increasingly important as we spend more and more of our time online. What has the bigger impact on Americans–an increase in the price of “lunchmeats” (2.3% over the past year) or a decline in the price of online storage (arguably down by as much as 50%, though it is probably less )?

That’s a real question, incidentally, not a rhetorical one. We may have reached the point where Internet companies are providing free services that have a higher value than some things we pay for. How we change our economic statistics to reflect this new reality?

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About Michael Mandel 126 Articles

Michael Mandel was BusinessWeek's chief economist from 1989-2009, where he helped direct the magazine's coverage of the domestic and global economies.

Since joining BusinessWeek in 1989, he has received multiple awards for his work, including being honored as one of the 100 top U.S. business journalists of the 20th century for his coverage of the New Economy. In 2006 Mandel was named "Best Economic Journalist" by the World Leadership Forum.

Mandel is the author of several books, including Rational Exuberance, The Coming Internet Depression, and The High Risk Society.

Mandel holds a Ph.D. in economics from Harvard University.

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