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National Accounting
Costs and Benefits Amid Rapid Technological Change

The tools we traditionally use measure economic progress are badly outdated in today’s world. Case in point:

Americans spent more at retailers selling everything from cars to camping gear in July, but they spent less at electronics stores.

How can this be when gadget-head consumers are equipped with everything from Fitbitsto Beats by Dre headphones?  One answer is that websites and general-merchandise stores are stealing sales from traditional electronics purveyors such as Best Buy and the struggling Radio Shack.

Another reason is that electronics are getting cheaper.

Sales at electronics and appliance stores fell 2.5% from a year earlier in July, according to the Commerce Department’s retail sales report released Thursday.

But adjusting for inflation, that’s not a bad result. The price of products sold at those stores was down 6% in June from a year earlier.

It’s not just that electronics are getting cheaper, its also that they are getting better. The item that is 33% cheaper is often also 2x better—and can do 10x as much because of the pervasive connectivity, and advanced software and customizability (think ‘apps’) that make these gadgets more useful overall.

GDP stats, real wage stats and many others just don’t capture this.

They also don’t fully capture how different parts of the economy are behaving differently. Health care costs are going up very fast, but results are also getting better. Doctors can cure many more conditions and extend quality life spans more than ever before, even it it all costs much more. How do you quantify the difference between a $30,000 heart procedure that lets you live miserably for another two years against one that costs $150,000 and extends your lifespan indefinitely? Or a lousy $20,000 hip replacement with the kind that lets you play tennis for another 20 years and costs $200,000? And yet in education, the costs go up but the output seems stagnant, or is even declining…

There was a lot of naive chatter from the usual well-intentioned but misguided cohort about revising GDP stats to take ‘national happiness’ into account. Good luck with that. But there is a serious case for thinking much harder about how to measure living standards, real incomes, and inequality in a world of rapid technological change.

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  • Andrew Allison

    It’s a great topic, but you chose a terrible example in healthcare: I suspect that there is very little difference between the outcomes of the $20,000 and $200,000 hip replacements, let alone the $7,000 ones available in, e.g. Belgium (and lets not even get into the well-documented performance of unnecessary heart procedures, C-sections and hysterectomies). I think also that you muddied the waters with the final sentence. Inequality, IMO, is unrelated to the topic and standard of living is in the eye of the beholder. If you accept the proposition that money makes the world go around, economic activity is the revenue created by the the goods and services sold. I’d suggest that the money used to purchase them is the real GDP.

    • stan

      America subsidizes healthcare around the world including Belgium.

      • Andrew Allison

        Which has what to do with comparative outcomes in the US?

    • f1b0nacc1

      We talk about this a lot you and I (grin), so I am not trying to beat that dead horse….just note Stan’s comment below.
      One thing though, healthcare has improved substantially in recent years, sometimes in ways we don’t always see. My wife was diagnosed with breast cancer last spring, and (thank God) got excellent care that has led to a substantial recovery (so far). One thing that struck me several times during the early stages of her treatment was the role of modern technology (as a geek, this is always something that catches my eye), and how that has changed things. Modern image processing technology made early detection (early as in within 90 minutes of her mammogram) possible, something that literally saved her life. She had a very rare and extremely aggressive tumor that they caught very early, before it had spread out of control. Five years ago, the testing wouldn’t have been able to spot it in time, and we would have first discovered it when it was too late to save her. Note that this was not a biomedical breakthrough, it was a computer breakthrough that was related more to selfies from smartphones than mammograms. No assessment of ‘investment’ in research would show it, yet it made an enormous difference here.
      Her surgery was far less invasive, and her recovery far faster due to discoveries that came from treatment of battlefield trauma, combined with new materials made available from research associated with aircraft production and 3D printing. Once again, you don’t see any of this in medical journals covering research, and all of it is quite recent. Finally, her chemo was all new, some of it still semi-experimental, as it turns out that she had (in addition to a rare tumor) a particularly nasty form of the tumor (something called a ‘triple negative’, if you are interested in such things) that is extremely difficult to treat. Once again, we were told that five years ago, it was untreatable, and that the first we would have known about it was when she didn’t respond to treatment and died.
      My point here is not to go on and on about the glories of modern healthcare (it has its downsides too), but to point out that virtually none of all of this, which saved her life and has restored her to health, even existed a very few years ago, or is available now outside of the US. I am not a wealthy man (less so now…grin), and thankfully my insurance is very good, but had this story unfolded a few years earlier, the ending would have been different. NONE of this would have happened anywhere else in the world (only in the US does this sort of synergy happen with any sort of regularity), and this treatment doesn’t exist anywhere outside of the US today. Strangely though, I, a middle-class geek in the Midwest, had access to all of it.
      So yes, there is a difference between the outcomes, though sometimes they are invisible to the statistics. My wife is alive, and she is healthy. I have my own health issues, but they are treatable, and unlike a decade or two ago, I live a normal(ish) life with few if any real problems. Many of these new technologies that make these things possible arise from odd interactions driven by profit, not by government direction or the wisdom of bureaucrats focused on specific metrics. A cancer survivor who spends their life in pain or seriously ill is ‘surviving’ according to the stats, but their quality of life is substantially reduced. The same cancer survivor who lives a normal life thanks to more expensive treatments is ‘inefficient’ according to many of the stats, but that survivor has a different story to tell.

      • Andrew Allison

        No argument that medical technology and treatment have improved dramatically (my wife too is a BCa survivor, and I of PCa), but that wasn’t the subject of my comment [grin].

  • Boritz

    On inequality. Isaac Asimov wrote science fiction that depicted people who owned entire planets and lived on them mostly in seclusion. Who can say what will come to pass in the distant and not so distant future, but clearly the potential for inequality in the universe is bigger than anything we’ve yet seen. Meanwhile socialists manage to give the impression that if equality took the form of most of us (not them) squatting in the mud covered with insect bites that would be fine.

  • Kevin

    The thing to realize about most of these economics statistics (especially GDP) is that they represent the economic activity the government could tax or otherwise appropriate. If it can’t be taxed it’s generally not counted or if it is, it’s not rolled up into the national accounts.

    Statistics means data about the state and the resources at its command – it originated in the 18th century as princes wanted to know what resources were at their disposal.

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