February 1, 2014
NO ONE HAS IT HARDER THAN THEIR FATHER DID:
The Future of American Growth (Martin Feldtein, 1/31/14, Project Syndicate)
Although government statisticians do their best to gauge the rise in real GDP through time, there are two problems that are very difficult to overcome in measuring real incomes: increases in the quality of goods and services, and the introduction of new ones. I believe that both of these problems cause the official measure of real GDP growth to understate the true growth of the standard of living that real GDP is supposed to indicate.Consider the problem of accounting for quality improvements. If I pay the same price for some product or service this year as I did last year, but the quality of the product or service is better, my standard of living has increased. The same is true if the price rises but the quality increases even more. Unfortunately, a government statistician cannot judge the increase in quality of everything from restaurant meals to medical care. So looking only at the cost of a meal or of a day in the hospital causes an overestimate in the price index and an underestimate of the rise in the real standard of living.The problem of taking new products into account is even more difficult. Virtually everyone around us uses a smart phone, a laptop computer, or a tablet. We know what these cost and how much they add to the total nominal value of GDP. But how much more than the standard retail price would individuals pay to keep these "must-have" products? Likewise, what is the value to patients of laparoscopic surgery or drugs that relieve anxiety or prevent heart attacks?In short, I am convinced that the real standard of living produced by the goods and services that we buy is increasing faster than our official data reveal. That is true now, and it is likely to continue to be true in the future.
But my tablet costs more than my typewriter did!
Posted by Orrin Judd at February 1, 2014 7:39 AM