NCPA - National Center for Policy Analysis

Measuring Progress In A Varied Economy

April 19, 2001

As the number and kinds of products proliferate in our expanding economy, economists are having an increasingly difficult time measuring and quantifying such things as inflation and productivity growth. Even if variety is increasing, that doesn't prove that consumers are better off.

To put it another way, does "new and improved" really mean better?

Peter J. Klenow of the Federal Reserve Bank of Minneapolis and economist Mark Bils of the University of Rochester tackled the variety question in a paper entitled "The Acceleration in Variety Growth," to be published in the American Economic Review.

  • The two took the federal government's list of product categories and divided them into two groups -- products which are "dynamic" or "static."
  • Dynamic goods and services were those which showed frequent changes, such as clothes -- while static products are those which almost never change, like milk and gasoline.
  • They found that consumer spending on dynamic goods increased 1.3 percent a year, or 68 percent total, between 1959 and 1999.
  • But 70 percent of that movement toward dynamic goods took place between 1979 and 1999.

They say the movement appears to have accelerated in the mid-1980s.

The researchers conclude that consumers are voting with their dollars in favor of more variety in categories such as electronic products, prescription and nonprescription drugs, breakfast cereals, candy, sports equipment and toiletries and cosmetics.

Increasing variety raises American's standard of living -- giving us more of what we want rather than forcing us to make one-size-fits-all choices.

Source: Virginia Postrel (Reason magazine), "Economic Scene: Variety Is a Good Gauge of Progress. But How Well Can Economists Measure It?" New York Times, April 19, 2001.

For study text

http://www.klenow.com/Acceleration.pdf

 

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