Tim, if the country made $1 trillion on model ts and make $1 billion on ford mustangs (and ford mustangs is all that were available similar to model ts back in the day, the nation would, in fact be poorer from a monetary standpoint.
If you get more and better goods and services for less money across the board you would have deflation. Deflation doesn't intrinsically make anyone poorer. It typically isn't something people adjust to well or at least quickly so its likely to cause problems, but it doesn't directly make people poorer on the whole (obviously people with a lot of debt would be in pain). If you go beyond replacing cars to replacing goods and services all over the place, and the new better replacements costs 1000 times less in dollar terms than people aren't actually poorer (unless they have much less than 1/1000th the number of dollars). The nominal GDP figure would indeed be lower, but the deflation adjusted GDP would be higher.
otherwise, i any ninny could argue that a new improved snickers bar that sells for half price is worth a million dollars in feel good "wealth."
Which is another way to point out the problem I mentioned before. The correct adjustments are complex, uncertain, and even subjective to a degree. But that doesn't mean that the factors aren't real. If the Model T sold for $1000, and then the 2008 Mustang sells for $1001, you haven't had inflation. Ignore quality improvements and you would show a tiny bit of inflation, but in reality your getting much more for a very slightly higher price. The Model T and the Mustang are not the same good, paying more to get more doesn't show inflation. Even when the new good isn't clearly better, you still have the problem that it isn't a different good, and simply counting it as the same thing doesn't give you a very accurate picture. The adjustments might be difficult to do well, and easy to reasonably dispute, but counting a new good as the same good, is also very easy to reasonably dispute. |
