Asymmetrical Information - Megan McArdle

10.01.12

Remembrance of Things Past

Economist Bryan Caplan tries to assess the pace of technological progress.

Bryan Caplan is asking readers to do an excercise for him in order to settle an argument with Tyler Cowen over how much living standards have improved in the last 20 years:  

I'm hoping EconLog readers can help us resolve our impasse.  How?  By keeping a time diary for a day or two.  For every waking hour of the day, ask yourself:

1. Was my experience during the last hour noticeably better as a result of an innovation introduced from 1990-present? [Yes/No]

2. Was my experience during the last hour noticeably better as a result of an innovation introduced from 1950-1989? [Yes/No]

Ideally you'll record your judgments as you go, but chronologically reviewing your day hour-by-hour is a reasonable substitute.

Once you're done, code "yes"=1 and "no"=0.  Then calculate your average scores, and report them on quicksurveys.  

Bryan predicts that the median response for question number 2 will be no more than three times as high as the median response for question number 1.  

I predict that his prediction will prove correct, but that this will not tell us as much as Bryan thinks.  The problem is that most people doing the survey will not remember 1950 well, if at all.  They will thus miss a lot of innovation that happened in the 1950 to 1990 timeframe.  Few people will pick up a box of fresh raspberries and think, "Wow, this was made possible by container shipping (1950-60s), airline deregulation (1970s) and trade liberalization (1950s-early 1990s)!"  They won't think to themselves, "Hey, that ZIP code (1960s) sure helped my mail get here faster!"  Or note the air traffic control system that helps their plane get in safe.  But they'll remember the things that have changed within the last few decades: the iphones and flat panel televisions, the laptop computers and DVDs.  And they're fairly likely to attribute things that were invented earlier but became common later, like remote controls, to the later period.  

I agree that there is bias in the inflation statistics, which don't do a good enough job of accounting for quality improvements.  (No slam on the statisticians; this is just really, really hard to do).  I might even agree that CPI bias is worse now than it used to be, because 1950s improvements tended to be improvements in volume, while 2000s improvements tend to be improvements in quality.  

But I don't think there's any real way to measure it.  Relying on this sort of survey is more likely to tell you about what people remember, than about the actual improvements in their lives.