The NYT ran a piece discussing the possibility that we are substantially undercounting growth because we aren't incorporating the benefits of many things we can now get for free, like information over the Internet. There are many interesting issues here, although it is difficult to believe the uncounted benefits add much to growth. We also have uncounted costs, like paying for the cell phone and Internet service that you need now to stay in communication with friends and family. We also have to pay for all sorts of on-line security, which we didn't have to do before we were on-line. (The payments for antivirus software and other security measures add to GDP and growth.)

Regardless of the validity of the claims for under-measured growth, there is an important logical point. If we are undercounting growth, then we are getting richer faster than the official data show. Harvard economist Martin Feldstein is cited in the piece saying that he thinks we are undercounting GDP growth by 2 percentage points annually. This means that we have to add this figure to current growth rates.

In the case of wage growth, if Feldstein is correct, then average (not median) real wages can be expected to grow 3.5 percentage points annually for the next two decades, rather than 1.5 percent growth rate projected by the Social Security trustees. This means that in two decades real wages will have nearly doubled and three decades they will be 180 percent higher than they are today.

This would mean a great deal in terms of economic policy. We have many people running around Washington warning about how our kids will face crushing tax burden if we don't reduce our deficits and debt. Suppose that Martin Feldstein is correct and we actually are understating growth by 2.0 percentage points annually. And suppose the deficit fearmongers are right and in two decades we have to raise taxes on our kids.

If we raised Social Security taxes by five full percentage points (way more than any projections indicate would be necessary) their after-tax earnings would still be on average almost 90 percent higher than what workers receive today. In thirty years, their after tax wages would be more than 160 percent higher. 

As I said, I don't think it's plausible that we could be understating growth by anything close to the 2.0 percent claimed by Feldstein. However, if we are, then our kids will be incredibly rich relative to today's workers. It would be rather silly for us to waste our time worrying about deficits or debts out of a concern for generational equity. (It is silly anyhow, since debt and deficits have almost nothing to do with generational equity, but that is another story.)