Isn’t Life Grand?

Here is a letter to Don Boudreaux:

Professor Boudreaux,

Your post from last year on the improvements in the American standard of living told through the 1975 Sears catalogue is one of my favorites. I didn’t need that post to understand how much has changed, however, because I experience these changes everyday.

Today for example, I needed to shave after I took a shower. I used a razor from a new service, Dollar Shave Club, that sends high-quality razors to your door every month for as little as $1 (though I choose the $6 a month option). Later, I checked my e-mail to find that my new shirt and slacks were on their way from IndoChino, a Hong Kong-based business that makes bespoke suits, shirts, and pants. A new custom-made suit costs just a few hundred dollars. I was able to enter my measurements online using their tutorial. In all, the process takes less than 3 weeks. This afternoon I’m planning on swinging by Costco (an amazing monument to capitalism) to restock on food. I learned (via the NY Times) that a company, Cuisine Solutions, which provides sous-vide products to some of the best chefs in the world now has a consumer line that promises to be of restaurant quality, with many items priced around $10. I don’t have a car to get there, but I can drive a ZipCar, which I can rent for about $9 an hour. The nearest lot is just two blocks from my house. Or I might take the bus. I can use an app on my iPhone (immeasurably more awesome than my previous phone) called OneBusAway that gives me real-time bus arrival information. I’m currently single and might feel like going on a date this weekend. Not a problem since I can go on OKCupid, an online dating service, which makes the process much easier if you’re a shy guy (a service certainly unimaginable in every way to previous generations). Today my roommate brought home his new car. He purchased a 2012 that is noticeably better along a number of dimensions than an equally priced new car I bought back in 2003. I could go on.

There are many clever economists working at the BLS, but I don’t know how the CPI can possibly account for the improvements in the quality and convenience of the myriad of new products and services available IN MY LIFETIME (and I am only 31). Every year my material life is noticeably better than the year before. Most amazingly, these products are largely aimed at low-income consumers, such as myself, a graduate student at the University of Washington.

NOTE: There is an ongoing debate about how accurate the CPI (a nationwide price index) is and how the index can accurately account for the rapidly changing features of current product lineups and the addition of the multitude of new products (its not just the price of products that changes over time, but their features and quality). I won’t go into that literature here, but I simply want to point out that the items I mentioned above have made a noticeable impact on my life and are extremely difficult to incorporate into a price index. The index may account for quality improvements in my iPhone over, say, the Nokia phone I had 5 years ago, but accounting for the widely expanding series of apps that are available, like OneBusAway, is another matter. Likewise, the introduction of online dating has drastically altered the social relations and habits of those seeking love and these changes are probably not picked up at all in the CPI.

This sounds arcane, but is incredibly important because when we compare material standards of living across time we have to take into account price changes. This means using the CPI, or a similar measure. But as I have hopefully demonstrated, there is a lot it leaves out and so we are never really comparing apples with apples. Yes, I may be spending $25 on a pizza-dinner for me and my date and we can explore how the price of that pizza dinner has changed over time. But how I came to be on that date (via online dating) is remarkably different than even 10 years ago, and so my quality of life (in pizza-dollars) is thusly greatly different than initial CPI calculations would suggest. Like GDP, the CPI has a useful place as a simple and straightforward indicator. Also like GDP, it is often misused and misunderstood.


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