Saturday, April 17, 2010

Changes in the Standard of Living

Comparing standards of living across time is essentially an impossible task due to changes in circumstances, conditions, lifestyles, and technology, but is still fascinating to think about. A clever way of considering this is to ask, if your income and wealth were doubled, but you would have to live in the past, how far back would you be willing to live. By this meaning your rank in society would be equivalent of the current rank of someone with double your current income and wealth. One should assume no future knowledge after being transported back to then. Inevitably there is some preference due to what we know occurred back then, such as growth during the 1950s, but one should try to set this aside as if you did not know. One problem is it may actually be more growth rather than level that attracts someone, but in this case how far in the past would not be a meaningful measure. Assume all consumption would be in the products available then with lifestyles changed to accord with what was available. For example, twenty years ago there would be no internet, or at least world wide web, so all the time spent on it would have to spent on other things like going to the library or on television. For someone that grew up with it, it is probably difficult to imagine what life must have been like without it, so age may limit how far back one is willing to go. Nor should one consider this a vacation, but a permanent one way trip since every time could be interesting if we could always go home. So this is primarily about what value you place on changes in lifestyle and technology over that time and how much you are willing to give up as well as get in exchange. For it is not just a matter of giving things up but appreciating other things like less population and density, more local social activities, and a slower pace of life. While technology changes, there is always some earlier technology to substitute with a reduction in utility like paper for the internet, or landlines for cellphones. So how far in the past would you be willing to go?

I don't see much of a problem going back 30 years for double the income and wealth despite the vast changes the lack of the internet and primitiveness of pcs would impose. I could do without gps and cellphones. On the other hand 50 years with its lack of air conditioning and microwaves would be pushing it although I could live in some pretty nice areas and eat out to compensate. Going through the energy crisis again wouldn't be much fun though, not only the crisis itself but the poor growth of the period as well. From this, I subjectively judge the real growth rate of the standard of living to be more than 1/50, 2%, but less than 1/30, 3.3%, which is quite close to measured real gdp per capita changes. Thus I see little mismeasurement in the official statistics as a result. Your feelings may differ.

No comments: