The Fine Details of Economic Growth
A few days ago I posted about Peter Thiel’s off-base criticism of the Boskin Commission’s proposed adjustment of the Consumer Price Index for new products and quality improvements.
I didn’t address his point that we aren’t seeing the major technological changes that he, as a young man, had hoped to see.
I think he misses the small picture. By that, I mean that he misses the thousands and thousands of ways that our lives get better due to new products that are slightly better than old products. Donald Boudreaux has a metaphor for this: the prosperity pool.
In an article titled “The Prosperity Pool,” Econlib, April 4, 2016, Don wrote:
These [Pool] Noodles are an ideal symbol for an amazing and wonderful—but often ignored—feature of a modern, prosperous market economy. That feature is that such an economy is largely the result of many small innovations, each of which is not very significant but the massive accumulation of which produces our unprecedented modern prosperity.
Another excerpt:
Look closely around your home. There, you will find rolls of disposable paper towels that make cleaning your kitchen much easier. Those rolls of towels were not invented until 1931. Moreover, unlike Arthur Scott’s original paper towels,3 today’s towels are two- and sometimes three-ply, and they are textured and embossed—all to increase their strength and absorbency. How much poorer would you be if your paper towels were flat and one-ply? Indeed, how much poorer would you be if no one had ever invented disposable paper towels to begin with? Somewhat, but not much.
Continue looking around your home. That can of soup in your pantry can be easily opened by a simple pull on the pull-tab that is now a common feature on canned goods. (When I was young, opening cans always required a can opener.) And the contents of that can are ready to eat, unlike a few decades ago when, to produce edible soup from a can, the consumer had to add water. Of course, these days, you can heat your soup in a microwave oven in a fraction of the time required to heat it using a burner on your stove.
Don’s article is well worth reading or re-reading.
READER COMMENTS
vince
Nov 10 2022 at 7:31pm
It concerns me if the government, with an incentive to lower the CPI, is in control of valuing quality improvements.
Patrick
Nov 11 2022 at 8:40am
I don’t think Thiel is suggesting those innovations don’t improve consumers’ quality of life. Thiel is of the opinion that, ceteris paribus, disruptive innovation should grow exponentially as does incremental innovation, but the fact that disruptive innovation in practice has become largely limited to a few sectors from say 1970 to 2020 is indicative that those conditions are not being adequately preserved.
Dev
Nov 11 2022 at 9:11am
The opposite argument can also be made that they don’t make things the way they used to. Let’s take our replacement culture that does not believe in repairing anything. If it is broken, simply buy another one. So, people keep buying albeit cheaper goods of lower quality most of which are mass-produced in China. So, the useful life of the goods are down even if they seem to be more technologically advanced. So, the bottom line is that making adjustments to CPI for quality changes ought to cut both ways—the index overstates inflation to the extent that better quality is not fully reflected but also understates inflation because the useful life of many goods are shorter than they used to be. Such changes are extremely hard to make accurately without introducing the compilers’ own biases.
john hare
Nov 12 2022 at 4:31am
I seem to be getting more life out of the things I buy. I got 55,000 miles out of the tires that came with my truck and am well over 70,000 miles on the truck with no repairs required. I remember when 100,000 miles was time for the junkyard, or at least a motor rebuild.
Other than disposable knock off items, things seem to last longer with more utility. In construction, I often hear people make the claim about previous quality. You don’t say that after a going into a few structural remodels. There is some quality, just as some people live to 100, the average is vastly lower. Plus all the lower quality stuff gets scrapped before they see it.
MarkW
Nov 12 2022 at 7:24am
So, the useful life of the goods are down even if they seem to be more technologically advanced.
This is absolutely not true for automobiles, which — when I was a kid — were generally rusty and blowing blue smoke by 100,000 miles (this was true of my parents’ cars anyway). The average age of a car on the road has steadily increased over time as they have become longer lasting.
But there’s also tradeoff between durability and cost of repair. When I was a kid, initially my Mom hung the laundry on a line. Our family didn’t get a dryer until I was 7 or 8, and it was a major purchase (as was our first color TV — which is also hilarious now). Of course, being so expensive, it was built to be repaired repeatedly. Now, people keep dryers for shorter periods because the relative cost of appliances vs service visits has changed dramatically. When you can buy a new dryer for $500, but a service call is at least $200, how long does it make sense to keep fixing it? Not very.
There’s another factor here, too, which is rapid improvement making perfectly functional ‘old’ goods not worth using. I’m a mountain biker. My current bike is dramatically different than one I bought ~15 years ago. Much larger wheels. Disc brakes. Better suspension. A new, 1X drivetrain (no front derailleur but a very wide range set of gears on the rear). There is nothing at all wrong with the 15-year-old bike I still have hanging in the basement. But I don’t ride it anymore. And, of course, the 15-year-old model was amazing at the time — light years ahead of the bikes I had as a kid. Rapid improvement works against keeping durable goods for a very long time — which I count as a good thing.
Jon Murphy
Nov 12 2022 at 9:08am
This is not a particularly good explanation for the reason MarkW gives. It’s not a matter of culture but of simple economics.
Patrick T Peterson
Nov 11 2022 at 10:20am
How about all the plastic containers for food and misc. other things that now come with reclosable sealer apparatuses? Have not those made life a little better in so many ways and saved:
– lots of food from going bad,
– time and hassle to find and use a twist-tie,
– etc. etc.?
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