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IGM Panel: Real Income Growth is Understated

1 min readBy: Alan Cole

The IGM Forum, a University of Chicago project that surveys academic economists on issues, last month found that economists broadly agree that real median income numbers understate real growth in standards of living.

In short, it’s difficult to measure how production in an economy changes over time. As technology makes new products available, the output of the country changes not just in amount (say, more bushels of grain produced) but in composition (say, more automobiles produced and fewer horse shoes.) The latter kind of effect is hard to measure in any sort of appropriate way.

I have frequently written that I also believe this to be true.

The thought experiment that inflationInflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck covers less goods, services, and bills. It is sometimes referred to as a “hidden tax,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spending power. adjustments are supposed to measure is one of “how many dollars would make you happier to live in 1980 than today?” This is why you see economists in the IGM talk about the understated benefits of the internet and computing and so forth, in order to make their case.

If your reaction to this debate is that the whole thought experiment seems impossible to answer in a useful way, then you should eschew real income as a system of measurement entirely, and pursue something that better fits the question you’d like to answer.

However, if you think the thought experiment has some value, then it is worth knowing that most economists believe that current measures are biased towards understating growth.