(March 3) New research from the Federal Reserve Board confirms that standards of living in the United States have been improving. Once again, it is poppycock to say they have been stagnant for decades.
Despite whining from millennials (born 1980-94) or those in Generation Z (born 1995-2012), and despite the politicized blather from the likes of Vermont Sen. Bernie Sanders and Massachusetts Sen. Elizabeth Warren, real economic hurdles are not higher now than for earlier generations.
The idea that “real average wages” (wages after adjusting for inflation) haven’t risen in 40 years is fed by both a misunderstanding of, and a mismeasurement of, how price inflation works. Economists have known for years that the main official inflation gauge, known as the primary consumer price index, “overstates increases in the cost of living because it doesn’t fully account for the fact that consumers change their buying patterns when the price of one item goes up or the price of another goes down.”
As economist and former Republican Texas Sen. Phil Gramm noted in a series of Wall Street Journal columns, wage stagnation is a “myth” and “Americans are richer than we think.” Commonsense proof of this comes in the realities that average home sizes are larger, and they contain more creature comforts (washing machines) and luxuries (extra televisions) than before, while pantries and refrigerators have a wider variety of formerly inaccessible foods….
Those paying attention already knew all that. But what’s new is that the Federal Reserve study released in late February shows that new technology is actually causing an acceleration in the degree of overstatement of inflation.The paper by top Fed economist David Byrne and Conference Board economist Carol Corrado concludes that the effect of the rapid improvement in, and rapid cost reduction in, “digital access services — internet, mobile phone, cable TV, and streaming” has been so dramatic since 1997 that the official measure of “personal consumption expenditures” (the near-equivalent of CPI) has been overstated by a full half-percentage point per year. …
[The rest of the column is here.]
