Income stagnation and unmeasured increases in information and entertainment

Virginia Postrel writes about the changes over the last ten years in the availability of customized entertainment. She notes that much of these gains do not show up in GDP statistics. It is a form of progress that large numbers of people experience every day, the increase in entertainment variety and convenience represents a challenge to the increasingly conventional wisdom that American living standards have stagnated, at least for the middle class.

Entertainment is so cheap, the enjoyment people derive from having a better chance of finding exactly what they want, when and where they want it, doesn’t count for much. Giving consumers new features for little or no additional money increases well-being but doesn’t do much for productivity statistics.

To measure how changing entertainment options have affected real living standards, what we’d need to know is how much money you’d have to pay each person to make them just indifferent between the entertainment they consume today and the entertainment they could have consumed in the past. What people shell out today for, say, cable TV or Netflix subscriptions is almost certainly a small fraction of that total value — yet it’s the only value official statistics pick up. The result is most likely a significant underestimate of improvements in economic well-being.

Consider a different hard-to-measure change: the increasing variety of imported goods. In a 2004 article, the economists David E. Weinstein and Christian Broda estimated that consumers would be willing to pay $280 billion a year — about 3 percent of gross domestic product — just to have access to the variety of foreign goods that were available in 2001 versus 1972. That’s a big number.

Phil Bowermaster at the Speculist makes the case that Virginia is describing a new age of information and entertainment abundance. Phil believes it foreshadows an age of physical abundance which he believes will come with advanced 3D printing and advanced manufacturing.

Nextbigfuture views

A more detailed analysis of wages and causes of reduced wage growth needs to be made. There has been median income stagnation and the drop in incomes from the recession.

There is a 45 year analysis of US wages by quintile and the top 5%

I believe that there will be future increases in physical goods, but the driving factors will be

* eventual energy abundance (mass production of high burn nuclear fission or breakthroughs in nuclear fusion or solar)
* new waves of robotics and automation
* new manufacturing that lowers costs and boosts productivity
* additive manufacturing will remain relatively niche although it will grow from current levels of a few billion per year

The period between 1988 and 2008 witnessed the first decline in global income inequality since the Industrial Revolution, reports Branko Milanovic of the World Bank. This trend, however, was driven by a decline in inequality between countries and can only be sustained if inequality within countries is kept in check.

Change in Real Income Between 1988 and 2008 at Various Percentiles of Global Income Distribution (Calculated in 2005 International Dollars)

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