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.”