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Underestimating the Real Growth of GDP, Personal Income and Productivity

Martin S. Feldstein

NBER Working Paper No. 23306
Issued in March 2017
NBER Program(s):Development of the American Economy, Economic Fluctuations and Growth

The problems involved in estimating real output that I discuss in this paper cause the official government statistics to underestimate of the rates of growth of real GDP, real personal income, and productivity. That underestimation is important not just to economists trying to understand where the economy is going but also to the broader public and to the political system.

The understatement of real growth reflects the enormous difficulty of dealing with quality change and the even greater difficulty of measuring the value created by the introduction of new goods and services. Despite the vast amount of attention that has been devoted to this subject in the economic literature and by the government agencies, there remains insufficient understanding of just how imperfect the official estimates actually are. It is important for economists to recognize the limits of our knowledge and to adjust public statements and policies to what we can know.

This paper is not about the recent slowdown in measured productivity but that subject is discussed briefly.

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Document Object Identifier (DOI): 10.3386/w23306

Published: Martin Feldstein, 2017. "Underestimating the Real Growth of GDP, Personal Income, and Productivity," Journal of Economic Perspectives, vol 31(2), pages 145-164.

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