Tags: Feldstein | GDP | price | quality

Harvard's Martin Feldstein: It's Still Morning in America

By    |   Monday, 03 February 2014 08:06 AM

Although the United States will experience slower growth, the country will be much richer in 40 years than it is today, says Martin Feldstein, the Harvard economist who once chaired President Reagan's Council of Economic Advisers.

In an opinion piece for Project Syndicate, Feldstein lists several reasons for his sunny outlook.

Two of them are unusual, but seem perfectly reasonable. They have to do with the American penchant for innovation and technological breakthroughs.

Editor’s Note:
These 38 Dates Are Key to Bagging $313,038

Namely, Feldstein notes that per capital GDP does not measure improvements in the quality of goods and services, and it also does not measure the introduction of new ones.

"If I pay the same price for some product or service this year as I did last year, but the quality of the product or service is better, my standard of living has increased. The same is true if the price rises, but the quality increases even more," he writes.

"Unfortunately, a government statistician cannot judge the increase in quality of everything from restaurant meals to medical care. So looking only at the cost of a meal or of a day in the hospital causes an overestimate in the price index and an underestimate of the rise in the real standard of living."

Feldstein also notes that most Americans now use a smartphone, a laptop or a tablet computer — three products that are still new in the scheme of things and that represent valuable technological advances. He is convinced the "real standard of living produced by the goods and services that we buy is increasing faster than our official data reveal."

Finally, he uses simple math to show that increases in GDP are cumulative.

In other words, even though the Congressional Budget Office (CBO) projects that real per capita GDP will actually slow down from the 2008 pre-recession average of 2.1 percent to only 1.6 percent by 2023 and stay that way for decades, that number will add up year after year, like interest in a savings account.

Specifically, even a lower average 1.6 percent annual GDP increase over time means that a child born today will have a real income that, on average, is 60 percent higher at age 30 than his or her parents had at the same age.

In the short term, U.S. economic growth may be better than what the CBO is predicting. Consumer spending jumped at the fastest pace in three years and lifted the nation's economic growth by 3.2 percent in the fourth quarter of 2013, Bloomberg reports.

Editor’s Note: These 38 Dates Are Key to Bagging $313,038

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Economy
Although the United States will experience slower growth, the country will be much richer in 40 years than it is today, says Martin Feldstein, the Harvard economist who once chaired President Reagan's Council of Economic Advisers.
Feldstein,GDP,price,quality
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2014-06-03
Monday, 03 February 2014 08:06 AM
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