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posted by takyon on Sunday January 24 2016, @03:43PM   Printer-friendly
from the make-america-great-again? dept.

Take a look back at a popular TV programs from the mid-1960s, say "The Dick Van Dyke Show," and what do you see? Like today, middle-class Americans typically had washing machines and air-conditioning, telephones and cars. The Internet and video games were not yet invented but life, over all, did not look that different. Now flash back 50 years earlier to 1910 and less than half the population lived in cities, Model T's were just starting to roll off the assembly line, most homes weren't wired for electricity, and average life expectancy was only 53. Now Eduardo Porter writes in the NYT that although Americans like to think they live in an era of rapid and unprecedented change, the truth is that the most momentous changes of the 20th century arose between 1920 and 1970 and according to Robert J. Gordon, author of "The Rise and Fall of American Growth," despite the burst of progress of the Internet era, total factor productivity has risen in the last fifty years at only about one-third the pace of the previous five decades. "This book," Gordon writes in the introduction, "ends by doubting that the standard of living of today's youths will double that of their parents, unlike the standard of living of each previous generation of Americans back to the late 19th century."

But that's not the worst part of the story. According to Gordon, the labor force will continue to decline, as aging baby boomers leave the work force and women's labor supply plateaus and gains in education, an important driver of productivity that expanded sharply in the 20th century, will contribute little. Moreover, the growing concentration of income means that whatever the growth rate, most of the population will barely share in its fruits. Altogether, Professor Gordon argues, the disposable income of the bottom 99 percent of the population, which has expanded about 2 percent per year since the late 19th century, will expand over the next few decades at a rate little above zero. Gordon says that the explosion of innovation and prosperity from 1920 through 1970 was a one-time phenomenon.

From now on, progress will continue at the more gradual pace of both the last 40 years and the period before 1920. "If you think about the productivity effects of the computer revolution, they started way back in the 1960s, with the first computer-produced telephone bills and bank statements and went on in the 1970s with airline reservation systems. In the early 80s there was the invention of the personal computer, the ATM cash machine and barcode scanning which greatly increased productivity in retail. And so much of the impact of computers in replacing human labor had already occurred at the time the internet was introduced in the late 1990s. And actually, depending on which part of the internet you are looking at, it was introduced before then. Most of us were doing email by the early 90s. Amazon was founded in 1994, so we're 20 years now into the age of e-commerce," says Gordon. "There is plenty of room in my forecast for evolutionary change. What is lacking is sharp, discrete change."


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  • (Score: 5, Insightful) by n1 on Sunday January 24 2016, @07:13PM

    by n1 (993) on Sunday January 24 2016, @07:13PM (#294040) Journal

    Of course i'm sure you can tell by your own accounts that inflation is indeed negative, the cost of running your home is of course the same as it was or less than a couple of years ago.

    Or it could be the statistics are manipulated and to keep inflation off target as a way of avoiding the self imposed market indicator of when interest rates should 'normalize'. Much like mechanisms used to 'adjust for residual seasonality [bea.gov]' (after the initial seasonality adjustments) in GDP figures.

    https://priceillusion.wordpress.com/2014/11/04/manipulating-the-consumer-price-index-hedonic-quality-adjustments/ [wordpress.com]

    Ostensibly, the CPI is a linear combination of the “prices” of things/stuff consumers could actually purchase weighted by a percentage that the “ideal consumer” spends on any particular stuff/thing in his “ideal” basket. The main problem here is that the “prices” used are not the prices a consumer would actually pay; instead the real price for an item is scaled by what the BLS calls a “Hedonic Quality Adjustment (HQA)”. The HQA was designed to solve a real world problem economists face: the market keeps pumping out new and better devices. In practice the HQA is used to artificially depress the prices used in the calculation of the CPI.

    Intuitively, the HQA scales prices by their “perceived” quality. We’re not talking about human perception here, but that of a kitchen sink regression model created by BLS economists. Essentially it throws every quality an item might possess into a linear model and performs a regression of these qualities against the prices found in the market for a given product.

    [...] This means that as far as the CPI is concerned, prices can “decrease” for three reasons:

            The price actually decreases, holding quality constant
            The “quality” as measured by the Hedonic Quality Regression (HQR) could go up, holding price constant
            The “quality” goes up by more than prices go up (

    [...]

    http://www.bls.gov/cpi/cpihqaqanda.htm [bls.gov]

    Hedonic quality adjustment is one of the techniques the CPI uses to account for changing product quality within some CPI item samples. Hedonic quality adjustment refers to a method of adjusting prices whenever the characteristics of the products included in the CPI change due to innovation or the introduction of completely new products.

    The use of the word “hedonic” to describe this technique stems from the word’s Greek origin meaning “of or related to pleasure.” Economists approximate pleasure to the idea of utility – a measure of relative satisfaction from consumption of goods. In price index methodology, hedonic quality adjustment has come to mean the practice of decomposing an item into its constituent characteristics, obtaining estimates of the value of the utility derived from each characteristic, and using those value estimates to adjust prices when the quality of a good changes.

    Inflation as calculated here: http://www.chapwoodindex.com/problem-with-the-consumer-price-index/ [chapwoodindex.com] is certainly much closer to what I feel actually engaged in the economy and market.

    In 1983, the government CPI rose roughly 12% and the government modified the CPI calculation to save money. In order to save money on salary increases and entitlement benefits, which are tied to CPI, the government changed their calculation of the CPI to reflect a much lower number.

    The statistic underwent another reconfiguration in 1995/96 with the Boskin Commission. These changes made the CPI an even worse indication of the real cost of living increase.

    It is estimated that between 1996 and 2006, this reconfiguration of the CPI saved the US government over $680 billion.

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  • (Score: 0) by Anonymous Coward on Sunday January 24 2016, @09:01PM

    by Anonymous Coward on Sunday January 24 2016, @09:01PM (#294070)

    Your mind is made up. There is no set of statistics that can affect your opinion.

    This is the same problem that people like Galileo ran into trying to promote their ideas.

    • (Score: 1) by khallow on Monday January 25 2016, @12:09AM

      by khallow (3766) Subscriber Badge on Monday January 25 2016, @12:09AM (#294138) Journal
      statistics != evidence. Rethink your assumptions.