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Underestimating the Real Growth of GDP, Personal Income and Productivity

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  • Martin S. Feldstein

Abstract

The problems involved in estimating real output that I discuss in this paper cause the official government statistics to underestimate of the rates of growth of real GDP, real personal income, and productivity. That underestimation is important not just to economists trying to understand where the economy is going but also to the broader public and to the political system. The understatement of real growth reflects the enormous difficulty of dealing with quality change and the even greater difficulty of measuring the value created by the introduction of new goods and services. Despite the vast amount of attention that has been devoted to this subject in the economic literature and by the government agencies, there remains insufficient understanding of just how imperfect the official estimates actually are. It is important for economists to recognize the limits of our knowledge and to adjust public statements and policies to what we can know. This paper is not about the recent slowdown in measured productivity but that subject is discussed briefly.

Suggested Citation

  • Martin S. Feldstein, 2017. "Underestimating the Real Growth of GDP, Personal Income and Productivity," NBER Working Papers 23306, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:23306
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    References listed on IDEAS

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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Inflation and Price Measurement: A Primer
      by Steve Cecchetti and Kim Schoenholtz in Money, Banking and Financial Markets on 2018-10-08 12:27:12

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    Cited by:

    1. Brynjolfsson, Erik & Collis, Avinash & Diewert, Erwin & Eggers, Felix & FOX, Kevin J., 2019. "GDP-B: Accounting for the Value of New and Free Goods in the Digital Economy," Microeconomics.ca working papers erwin_diewert-2019-6, Vancouver School of Economics, revised 27 Mar 2019.
    2. Weshah Razzak, 2020. "Research Effort and Economic Growth," Discussion Papers 2002, School of Economics and Finance, Massey University, New Zealand.
    3. Nicholas Crafts, 2017. "Is Slow Economic Growth the ‘New Normal’ for Europe?," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 45(3), pages 283-297, September.
    4. Robert Z. Lawrence, 2017. "Recent Manufacturing Employment Growth: The Exception That Proves the Rule," NBER Working Papers 24151, National Bureau of Economic Research, Inc.
    5. Warwick J McKibbin & Augustus J Panton, 2018. "Twenty-five Years of Inflation Targeting in Australia: Are There Better Alternatives for the Next Twenty-five Years?," RBA Annual Conference Volume (Discontinued), in: John Simon & Maxwell Sutton (ed.), Central Bank Frameworks: Evolution or Revolution?, Reserve Bank of Australia.
    6. John Komlos, 2019. "The Real U.S. Unemployment Rate Is Twice the Official Rate, and the Phillips Curve," CESifo Working Paper Series 7859, CESifo Group Munich.
    7. repec:ers:journl:v:special_issue:y:2018:i:1:p:486-495 is not listed on IDEAS
    8. Lawrence, Robert Z., 2018. "Recent US Manufacturing Employment: The Exception that Proves the Rule," Working Paper Series rwp18-002, Harvard University, John F. Kennedy School of Government.
    9. Diewert, Erwin & FOX, Kevin J. Fox & SCHREYER, Paul, 2017. "The Digital Economy, New Products and Consumer Welfare," Microeconomics.ca working papers erwin_diewert-2017-12, Vancouver School of Economics, revised 14 Dec 2017.
    10. Diewert, Erwin & Fox, Kevin J., 2019. "Productivity Indexes and National Statistics: Theory, Methods and Challenges," Microeconomics.ca working papers erwin_diewert-2019-8, Vancouver School of Economics, revised 25 Apr 2019.
    11. John A. Romley & Abe Dunn & Dana Goldman & Neeraj Sood, 2020. "Quantifying Productivity Growth in the Delivery of Important Episodes of Care Within the Medicare Program Using Insurance Claims and Administrative Data," NBER Chapters, in: Big Data for 21st Century Economic Statistics, National Bureau of Economic Research, Inc.
    12. Filiz Mızrak & Serhat Yüksel, 2019. "Significant Determiners of Greek Debt Crisis: A Comparative Analysis with Probit and MARS Approaches," International Journal of Finance & Banking Studies, Center for the Strategic Studies in Business and Finance, vol. 8(3), pages 33-50, July.
    13. Braga, Breno & Lerman, Robert I., 2019. "Accounting for homeownership in estimating real income growth," Economics Letters, Elsevier, vol. 174(C), pages 9-12.
    14. Razzak, Weshah, 2017. "International Productivity Growth Differentials Sectoral Analysis and Missing Productivity," MPRA Paper 84967, University Library of Munich, Germany, revised 06 Mar 2018.
    15. Thomas Mayer & Gunther Schnabl, 2019. "Reasons for the Demise of Interest: Savings Glut and Secular Stagnation or Central Bank Policy?," CESifo Working Paper Series 7954, CESifo Group Munich.
    16. Anna M. Stansbury & Lawrence H. Summers, 2017. "Productivity and Pay: Is the link broken?," NBER Working Papers 24165, National Bureau of Economic Research, Inc.
    17. Daniel Schwanen, 2017. "Innovation Policy in Canada: A Holistic Approach," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 497, December.
    18. G.V. Popova & Yu.V. Nerovnya & V.V. Terentieva & V.Yu. Shirshov, 2018. "Financial Policy and Stabilization: The Case of Russia," European Research Studies Journal, European Research Studies Journal, vol. 0(Special1), pages 486-495.

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    JEL classification:

    • E01 - Macroeconomics and Monetary Economics - - General - - - Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts

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