Ah, thanks for clarifying. So the key issue is really the adjusted for inflation/deflation part. You are saying even if previously expensive goods become very cheap due to automation, they will still be valued in “real dollars” the same for the productivity calculation.
Does this mean that a lot rides on how economists determine comparable baskets of goods at different times and also on how far back they look for a historical reference frame?
I’m saying that if previously expensive goods become very cheap due to automation, the total for all goods will be valued higher in “real dollars”. For that one good, the total dollar value could indeed be lower, even after overall inflation (such as, for instance, if the price drops by a factor of 20, but only 10 times as many items are produced).
But for the economy as a whole, the value in “real dollars” will always at least stay the same after productivity improvements that lower some prices relative to the status quo. That’s because even though that one good may be lower in value even after adjusting for deflation caused by the lower price, the other goods in the economy will make up the difference and more by being higher in value after adjusting for deflation.
Ah, thanks for clarifying. So the key issue is really the adjusted for inflation/deflation part. You are saying even if previously expensive goods become very cheap due to automation, they will still be valued in “real dollars” the same for the productivity calculation.
Does this mean that a lot rides on how economists determine comparable baskets of goods at different times and also on how far back they look for a historical reference frame?
I’m saying that if previously expensive goods become very cheap due to automation, the total for all goods will be valued higher in “real dollars”. For that one good, the total dollar value could indeed be lower, even after overall inflation (such as, for instance, if the price drops by a factor of 20, but only 10 times as many items are produced).
But for the economy as a whole, the value in “real dollars” will always at least stay the same after productivity improvements that lower some prices relative to the status quo. That’s because even though that one good may be lower in value even after adjusting for deflation caused by the lower price, the other goods in the economy will make up the difference and more by being higher in value after adjusting for deflation.