May 29, 2015

IT'S A DELATIONARY EPOCH:

Fed Confronts an Economy Plagued by Mismeasurement (Jon Hilsenrath, 5/26/15, WSJ)

Goldman's note raises questions about measurement of productivity, growth and inflation.

"Structural changes in the US economy may have resulted in a statistical understatement of real (economic) growth," Mr. Hatzius argues.

The data, he says, might not be picking up changes in the economy resulting from the rapid spread of advanced software and digital content. Inflation statistics, moreover, might not grasp the leaps in quality of, say, the camera on your iPhone. My camera, for instance, can capture my dog catching a ball in slow motion, which is very cool and something I've never been able to do before. Mr. Hatzius argues growth and productivity statistics have been understated, and inflation overstated, because the data don't pick up the consequences of this technological change.

"Confident pronouncements that the standard of living is growing much more slowly than in the past should be taken with a grain of salt," he says. Mr. Hatzius, often a dove when it comes to monetary policy, adds further that overstated inflation means the Fed can keep interest rates low.

Posted by at May 29, 2015 8:56 AM
  

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