What if we’re calculating productivity, GDP, inflation, wages, and unemployment all wrong? That’s James Pethokoukis’s question in this post:
It’s a puzzle for which Goldman Sachs has a simple answer: We are measuring productivity wrong, and therefore we are measuring GDP wrong. A metric devised for America’s 1930s “steel-and-wheat” economy, in the words of economic historian Joel Mokyr, doesn’t work so well for a rapidly growing digital economy. In a recent report, Goldman economist Jan Hatzius and Kris Dawsey note that prices of tech hardware — adjusted for quality improvements — have fallen a lot faster than those for software. This suggests software isn’t improving much.
But Goldman thinks this gap is a “statistical mirage” reflecting the “amorphous” nature of software improvements. Hatzius and Dawsey ask: “How much better are the inventory management systems that retail companies contract out or develop for their own account compared with those of 20 years ago? How much better is Grand Theft Auto V than Grand Theft Auto IV? And how much more value do we now derive from our internet connection compared with a decade ago?”
As the Goldman economists reckon, then, U.S. inflation is lower than we think due to sharply falling, “quality adjusted” IT hardware and software prices — and thus real economic growth and productivity are higher. GDP growth might actually be close to 3 percent right now, which would be more in sync with what’s happening in labor markets and the tech sector. Oh, and it also means real incomes are growing faster than we think, which is why the economists are “skeptical of confident pronouncements” that American living standards aren’t improving as fast as they used to. By the way, new analysis by the Peterson Institute suggests worker incomes have pretty much been keeping up with productivity gains. So perhaps more good news for the 99 percent.
Okay, I’ll bite. What if? Show me the numbers. Don’t just ask hypothetical questions.
In my measly view from here on the ground rather than soaring above at 50,000 feet I see a heckuva lot of unemployment, even more underemployment, burgeoning black markets in practically everything, and an economy that, at least at the local level, is barely holding on by the skin of its teeth. Are we all being sold a bill of goods by a constantly nay-saying press?
But I’m willing to listen to Dr. Pethokoukis’s thoughts. Where’s the evidence?
which would be more in sync with what’s happening in labor markets and the tech sector.
Does he mean the labor markets which have shown improvement by the twin mechanisms of replacing FT employment with PT employment +
decreasingcratering participation rates?Anyway, this sounds like Drew’s argument. Which doesn’t account for the fact that I’d rather have a job like the one I had than a new flat screen TV, and that I’d much rather be able to afford a safe neighborhood than either of the above. And I really wish my daughter’s generation had better prospects than it does.
Pethokoukis’s ideas are that the bread and circuses have improved, so that we shouldn’t worry about an ever increasing level of true poverty in terms of safety, education, and social mobility for our children.
And would it be unsporting to point out that of COURSE Goldman Sachs is going to defend the system that is making its managers exceedingly rich? I rather suspect that without even looking up Pethokoukis’s employment situation that he’s probably benefiting from the current system as well.
This is akin to losing your car keys in a dark alley but looking for them under the street lamp because there you can see: the measurements we’ve always used without complaint now show outcomes that we see as problematic, so we’ll change the way we measure and our problems go away! They’re looking for the answers they want.