Buried inside an otherwise interesting article over at the FT about how Japanese men are increasingly bargain-hunting at ¥100 shops (the Japanese equivalent of dollar stores) is an important detail that gives us insight into how we fail to correctly measure the modern economy:
In the next reshuffle of goods used to calculate Japan’s consumer price index, compilers are likely to remove coffee cups and wine glasses — items that are now so frequently bought in Y100 shops they are no longer meaningful within a family’s average monthly spend.
There is just a lot more usable stuff at the ¥100 price point than there used to be. This reflects three important trends of recent years: the cost of manufacturing has fallen, the cost of good design has fallen (so low end products look better and last longer than they used to), and retail margins have also fallen in a broadly more competitive age.John Kay, writing elsewhere in the FT, notes that the UK’s chancellor of the exchequer George Osborne has deputized a former deputy governor of the Bank of England to look with fresh eyes at how official statistics are compiled. This part gets it just right:
The data framework within which economic analysis is conducted is largely the product of the second world war. In the 1930s American economist Simon Kuznets began to elaborate a system of national accounts. That work was given impetus when the war led governments to take control of important sectors of economic activity. It was soon realised that this required far better data than had previously existed, which in turn raised the challenge of how best to structure such information.The framework of national accounts constructed then, and the indices and other tools derived from it, have been the basis of data collection by statistical agencies around the world ever since. The UN has provided a forum for international standardisation. And yet the wartime origins of the processes linger into current practice. […]We look at aggregate statistics and worry about the slowdown in growth and productivity. But the evidence of our eyes seems to tell a different story.
As we look ahead to the rest of the 21st century, it’s critical to remember that the tools we use to get a sense of how well things are going are increasingly failing to capture important measures of progress. The problem is this: when two cars have a fender-bender, GDP goes up by about $5000. But when somebody realizes that her old car is actually still running like new and decides she doesn’t need to buy a new one that year, our economic stats take a hit.Changing out the gauges that economists use to see how well the economy is humming along will not be easy—and it will certainly not happen overnight. But countries around the world at least appear to be waking up to the fact that we need new ones, because the ones in place are just not giving accurate readings.