2 views on why US economic growth is better than we think — and has been for awhile

I read lots of “the economy is worse than the numbers say” stories. I have written more than a few of them, too. Martin Feldstein offers a technology-themed counter:

Today’s pessimists about the economy’s rate of growth are wrong because the official statistics understate the growth of real GDP, of productivity, and of real household incomes. … The measurement problem is particularly severe for new products. … Official statistics also portray a 10% decline in the real median household income since 2000, fueling economic pessimism. But these low growth estimates fail to reflect the remarkable innovations in everything from health care to Internet services to video entertainment that have made life better during these years, as well as the more modest year-to-year improvements in the quality of products and services.

Would it surprise me if future economists with new tools find that back in the early 2000s, things were much better than we perceive right now? I guess not, though such calculations would not, for instance, change things such as stagnant upward mobility rates. (Absolute mobility versus our parents would be altered though.) Along the same lines, here is economic historian Joel Mokyr explaining how measured designed for a “wheat and steel” commodity economy may be inappropriate for a digital one.

But we always have to keep in mind that these measures were designed for sort of a wheat and steel economies. So an economy that uses up a bunch of goods of more or less of constant quality, the same sort of basket of goods are being produced, and if we can next year produce more of it — because we have better machines or better technology or more work harder or more people join the labor force — we actually have more output and so we have more income. And we are rich and everything is good.

The problem of course occurs when you start looking at these things over longer periods of time, and you start realizing that it becomes very, very difficult to compare two years in which a whole bunch of new goods and services have become available that a previous generation not only didn’t have access to but really couldn’t even dream about. So, we have an economics concept which we call ‘consumer surplus,’ which is basically a measure of how much better off you are as a result of a new good or a new service, and sort of different ways of measuring it, standard ways of trying to imagine going to a consumer and saying, Well, how much would you demand to be paid if we took that good away from you and put you back in 20 years ago when that good didn’t exist?

So we can play this game with cell phones and we can play this game with GPS (global positioning systems) and we can play this game–and so you’ve got how much would you have to be paid if we took the GPS out of your car, and you scratch your head and say you’ve got to go back and buy maps and study them while I’m driving. So there’s a loss of wealth. It’s probably not huge. So, my example of a very small invention for which we could ask this question is anesthesia. So you go to somebody who is about to have surgery and you ask him, How much would you demand to be paid if I took out your appendix without anesthetizing you, without putting you to sleep? Nobody would agree. The sum would be infinite.