1. How we better off today?
i. What are we buying? The brush? The candle?
*No, we are buying their functions, say cleanup, light.
*Lighting is 43,200 times cheaper
“How much is a car?”------no, it is: how much miles we take for the same amount of money.
*Something got more expensive. What happened?
ii. Leisure and work
The time spent doing household work has plummeted
What has happened to people’s income?
1790 to 1900:
90% on necessities to 72% on necessities (vacation and health care appear)
To 2005
Much lower percentage on necessities (and diverse parts on the pie graph)
*What’s more? When we compare 1790 with 2005, we are not taking apple to apple. The houses in the two pies are actually different. Even though, the percentage decreased.
2. Why do we care about poverty?
i. What happens if food price double?
In the past, with 75% income on food, you die, you are on the edge.
But now, you can bear more risk.
ii. Then what? Where’s the extra budget we gain from the decrease: healthcare, education. What else?
iii. In other words, all this “free up” wealth also buys……bureaucrats, bombs(military spending) and bailouts.
These are all result of the improvement of living standard.
3. Reflecting on these Divergence:
i. Income seriously understates the extent and magnitude of economic growth: How much should I pay u to let u back to the past? Although you are rich, you cannot do what you want like now.
ii. Commodities themselves do not matter; it is the services provided by the consumption of them.
iii. Real economic growth is underestimated by up to 1.4% per year.
iv. Is happiness a red herring? Is health care a good deal today?
*What our living standard measures miss: availability, quality, capability, convenience, safety of goods and services:
i. Product Proliferation
The cell phone: no more trifling luxury, and changed the world.
Risk: We bear much less risk today: trifling of food price from starvation to decrease in iPod download.
ii. Income and wealth
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