CPI Bias Deja Vu
I completely agree with Arnold when he remarks:
I personally do not think that the stagnation hypothesis can survive the thought experiment in which you offer somebody the choice between (a) today’s median income and today’s array of goods, services, and prices or (b) 1973’s median income (plus, say 25 percent) and 1973’s array of goods, services and prices. I think that so many people would reject the 1973 option that the stagnation hypothesis becomes untenable.
Even stranger: I learned this thought experiment over a decade ago from none other than Tyler Cowen himself! I think he called it the “deflationary century.” His point: Most of us would rather have $1000 nominal dollars to spend on year 2000 goods than $1000 nominal dollars to spend on year 1900 goods. Ergo: official statistics notwithstanding, the quality-adjusted price level has actually fallen over time. Years later he blogged it:
$5.00 back then goes a longer way, but I would rather earn $100,000 a year today, and yes that is not adjusting for inflation.
Of course, Tyler might say that his thought experiment works for 1900 versus 2000, but not 1973 versus 2010. But none too convincingly. Ultimately, though, I’m pretty sure he realizes that there’s been amazing progress over this period. But saying “slightly less amazing progress” isn’t as provocative as saying “stagnation.”
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Yeah, I tend to subscribe to the “slightly less amazing progress” view rather than the “stagnation” view, although I think that I would not include the word “slightly.”
So much of our economic growth of the last century is implementing the technological innovations made between 1870 and 1914.
https://techratchet.com/2020/01/01/book-review-creating-the-twentieth-century-by-vaclav-smil/
We may never see a burst of technological innovations like during that period, or we might have another one in the future.
Too much of the stagnation hypothesis is based on an assumption of what the rate of technological innovation should be as opposed to what it actually is.
Too many progress researchers assume that economic growth and technological innovation should be exponential and then are shocked when real world data conflicts with their assumptions. Then they blame some other factor rather than their assumption of exponential growth.
Interesting. Econ is definitely not my area. But it seems both things are true.
I would much rather spend a certain sum today to buy a car today, than to spend the same sum today to buy a fleet of Model T’s.
I was likely able to get more of the “basket of goods” with a certain sum last year, than I would be with the same sum today.
How does one square those 2 things?