Nobody wants ordinary. That’s why my assertion in An Extraordinary Time that our slow economic growth is merely ordinary growth doesn’t go down easily. One typical response is that the economy’s performance is much better than official statistics indicate. In other words, we don’t have a slow-growth problem, just a measurement problem. If we were able to measure correctly, the contention is, we’d find that the economy is growing much faster than captured by official statistics and that living standards are rising, not stagnating.
There are a three reasons why I strongly disagree with this claim, which was most recently put forward by Martin Feldstein.
First, the assertion that economic growth is much faster than the data show is generally based on anecdotes claiming that the effects of particular products, such as smartphones and Google search, are undervalued by government statisticians. If we properly accounted for such advances, the argument goes, we’d find the economy to be doing much better than we think. These anecdotes, I find, are almost always accurate–there are indeed a lot of measurement problems–but they tend to be quite one-sided. Consider a counter-example. I think most Americans would agree that the quality of airline flights has deteriorated in recent years, as passengers are required to arrive at the airport well ahead of flight time, stand in long security lines, occupy seats offering less legroom than in the past, and wait at the arrival airport for luggage that is no longer permitted in the passenger cabin. U.S. statistical agencies probably should adjust estimates of economic growth downward to account for the diminished quality of this product. They don’t. If all such mismeasurement problems were resolved, it’s not obvious that the net result would be a faster-growing GDP.
Second, the slowdown in economic growth in recent decades is visible not just in the United States, but around the world, in wealthy and less wealthy economies, and in many countries where semiconductor manufacturing, on-line advertising, and other hard-to-measure industries are relatively unimportant in economic terms. Identifying a purported shortcoming of U.S. national income statistics fails to explain why slower economic growth, and the slower productivity growth to which it can be attributed, are apparent in so many places.
Third, to claim that we’re now seriously underestimating economic growth, it’s not enough to show that some parts of the economy are mismeasured. Proving the claim requires showing that the mismeasurement problem is substantially worse today than in the past. I’ve seen no evidence to this effect. Consider that life expectancy at birth in the United States rose from less than 50 years in 1900 to 70 years in 1960, but has grown very slowly since. That rapid improvement over the first six decades of the twentieth century undoubtedly raised people’s living standards in a way not captured by the growth rate of GDP. The mismeasurement related to smartphones and social networking services seems trivial by comparison.
So the mismeasurement story doesn’t explain why economic growth in every wealthy economy is much slower today than during the postwar Golden Age–and has been so since the mid-1970s. And it doesn’t refute my assertion that what seems to be painfully slow growth is really just ordinary economic performance.