extracted from Paul Krugman's blog
The rise in prices implied by real GDP numbers is measured by the GDP deflator, while the rise in incomes as calculated by the Census involves dividing by the CPI. And while those two price measures matched very well pre-1973, since then, not so much:
What's going on here? It means that we're either overstating inflation (and hence understating income gains) or overstating economic growth. Both the BEA (which measures GDP and related) and the BLS (which does consumer prices) work hard and honestly at their tasks; the difference probably arises (I'm sure someone has done this more carefully) in how you value new or improved goods. My sense has always been that the GDP accounts overdo their hedonics, but that's very much a matter of opinion. Maybe the real point here is to remember, always, that economic statistics are a peculiarly boring sub-genre of science fiction; extremely useful, but not to be treated as absolute truth.
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