I’d expect the equivalent of any one of these things in 1960 would have cost at least a hundred times the annual income of an average person if it was even possible at all. Just from these five things alone, it seems like real GDP ought to have grown by a factor of hundreds.
This seems wrong. Imagine some country doesn’t have unobtainium, a mineral which is rare and also not particularly useful. You can’t get it at any price. Then it finds some, and soon enough many citizens have unobtainium paper holders. Does this mean GDP has grown by a factor of infinity? Hell no, most people would gladly exchange their paper holders for something more useful but also previously obtainable.
Isn’t it the same for computers then? You’d exchange an iphone for a house in an instant, and you can’t exchange your iphone for a hundred houses. So it’s just not that valuable to you, and real GDP hasn’t grown by a factor of hundreds.
I ~agree with this, although there’s a reverse argument which also seems true: in 1960, I think a lot of (rich) people would have traded a hundred typical houses for an iPhone. Decreasing marginals are a big deal here (the billionth iPhone is worth a lot less than the tenth), and there’s not a reason to pick one point on the decreasing marginal returns curve over another.
I think the real takeaway is that using price as a proxy for value is just generally not great for purposes of thinking about long-term growth and technology shifts.
Yeah, that reverse argument doesn’t work. You can sell one iphone to a 1960 businessman for the price of a hundred houses, but even in that hypothetical you can’t sell a hundred iphones for a hundred houses each. You can go bigger and try to sell literally all tech advances of today, but even then 1960s US won’t agree to pay you 100x its total net worth. So the hundredfold growth in GDP is wholly imaginary, no matter from which year you look at it. The only sensible method is the one you don’t like: using a bunch of goods that bring about the same amount of happiness in any year, like a spoonful of jam, and measuring other goods compared to that.
I agree the hundredfold growth is a drastic overestimate, no matter how we slice it. But using using a modern price is still an underestimate: the first few iPhones really do yield a lot more value than the last few, and using a current market price misses that value. Price just doesn’t work as a proxy for value.
This seems wrong. Imagine some country doesn’t have unobtainium, a mineral which is rare and also not particularly useful. You can’t get it at any price. Then it finds some, and soon enough many citizens have unobtainium paper holders. Does this mean GDP has grown by a factor of infinity? Hell no, most people would gladly exchange their paper holders for something more useful but also previously obtainable.
Think about it this way. Suppose we have some device that was moderately valuable which everyone needed to own exactly one of, and it costs $100 per year. I don’t know- maybe all humanity has some heart disease and we need to have this medical device or we die. How much “better” does this situation get if we figure out how to cure this problem for essentially free? Say someone develops a pill that costs $.01 and it lasts for a year. In some sense, this is 10,000 times better. No one’s lives are even approximately 10,000 times better, though- people are only $99.99 richer per year.
Ignoring diminishing marginal utility, this can be attributed to the fact that people’s budgets are not completely saturated with such innovations- housing isn’t sufficiently decoupled from things we can’t dramatically improve, like the skill of workers who operate power tools, zoning laws, and the surface area of cities.
If everything got cheaper and better at the same rate as computers, I think it would be fair to assign some ridiculous multiplier to the increase in productivity over the past 60 years. Houses would cost cents and particle colliders would circle the solar system.
Isn’t it the same for computers then? You’d exchange an iphone for a house in an instant, and you can’t exchange your iphone for a hundred houses. So it’s just not that valuable to you, and real GDP hasn’t grown by a factor of hundreds.
This example seems bad? Few of us are wealthy enough to purchase a hundred houses. More directly, I would pay up toall of my discretionary income (i.e. not required to sustain my life or support my income) for access to computers and internet.
The situation is not such that the degree to which computers are valuable to me is appropriately represented in my decision making- computers are extremely cheap, and I am wealthy enough to not have to make any sort of compromise to own one.
I agree that real GDP or rather human productivity in the intuitively relevant sense hasn’t grown by a factor of 100 since 1960.
This seems wrong. Imagine some country doesn’t have unobtainium, a mineral which is rare and also not particularly useful. You can’t get it at any price. Then it finds some, and soon enough many citizens have unobtainium paper holders. Does this mean GDP has grown by a factor of infinity? Hell no, most people would gladly exchange their paper holders for something more useful but also previously obtainable.
Isn’t it the same for computers then? You’d exchange an iphone for a house in an instant, and you can’t exchange your iphone for a hundred houses. So it’s just not that valuable to you, and real GDP hasn’t grown by a factor of hundreds.
I ~agree with this, although there’s a reverse argument which also seems true: in 1960, I think a lot of (rich) people would have traded a hundred typical houses for an iPhone. Decreasing marginals are a big deal here (the billionth iPhone is worth a lot less than the tenth), and there’s not a reason to pick one point on the decreasing marginal returns curve over another.
I think the real takeaway is that using price as a proxy for value is just generally not great for purposes of thinking about long-term growth and technology shifts.
Yeah, that reverse argument doesn’t work. You can sell one iphone to a 1960 businessman for the price of a hundred houses, but even in that hypothetical you can’t sell a hundred iphones for a hundred houses each. You can go bigger and try to sell literally all tech advances of today, but even then 1960s US won’t agree to pay you 100x its total net worth. So the hundredfold growth in GDP is wholly imaginary, no matter from which year you look at it. The only sensible method is the one you don’t like: using a bunch of goods that bring about the same amount of happiness in any year, like a spoonful of jam, and measuring other goods compared to that.
I agree the hundredfold growth is a drastic overestimate, no matter how we slice it. But using using a modern price is still an underestimate: the first few iPhones really do yield a lot more value than the last few, and using a current market price misses that value. Price just doesn’t work as a proxy for value.
Think about it this way. Suppose we have some device that was moderately valuable which everyone needed to own exactly one of, and it costs $100 per year. I don’t know- maybe all humanity has some heart disease and we need to have this medical device or we die. How much “better” does this situation get if we figure out how to cure this problem for essentially free? Say someone develops a pill that costs $.01 and it lasts for a year. In some sense, this is 10,000 times better. No one’s lives are even approximately 10,000 times better, though- people are only $99.99 richer per year.
Ignoring diminishing marginal utility, this can be attributed to the fact that people’s budgets are not completely saturated with such innovations- housing isn’t sufficiently decoupled from things we can’t dramatically improve, like the skill of workers who operate power tools, zoning laws, and the surface area of cities.
If everything got cheaper and better at the same rate as computers, I think it would be fair to assign some ridiculous multiplier to the increase in productivity over the past 60 years. Houses would cost cents and particle colliders would circle the solar system.
This example seems bad? Few of us are wealthy enough to purchase a hundred houses. More directly, I would pay up to all of my discretionary income (i.e. not required to sustain my life or support my income) for access to computers and internet.
The situation is not such that the degree to which computers are valuable to me is appropriately represented in my decision making- computers are extremely cheap, and I am wealthy enough to not have to make any sort of compromise to own one.
I agree that real GDP or rather human productivity in the intuitively relevant sense hasn’t grown by a factor of 100 since 1960.