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What popped into your mind when you first read some sense, the nation’s purchasing power has increased because of the availability of those pills.
that, too. But as a typical, fun-loving economist I also Yet the numbers you see on real G.D.P. don’t reflect found myself wondering how the Commerce Department that increase — and they never will. Eventually Viagra would account for the wonder drug in its estimates of will be in the index, and as its price falls in the face the gross domestic product — and from there wandered of competition, the deflator will fall and measured real into a reverie about the meaning of economic progress.
income will rise. But at no point will the statistics ever Government statisticians will, of course, have no dif- capture the big payoff, the one that happened when ficulty slotting Viagra into their estimates of “nominal” Viagra became available for $10 a, um, pop.
G.D.P., the sum total of all the money spent in the How could the statisticians get this right? It would economy. Viagra’s contribution will simply be the to- have to involve a subjective evaluation: each person tal amount that people spend on the pills, or, equiva- would have to be asked, and would have to answer truth- lently, the profits earned and wages paid in the drug’s fully, the question “How much money would you have manufacture and distribution. What’s more, we can be spent last year (with your ever-growing bald spot and pretty sure that Viagra’s numbers, while music to the that other problem) to be as satisfied as you are now?” stockholders’ ears, will make very little difference to the Averaging over the population, we would come up with national totals. The new drug’s spectacular sales are a true measure of the change in the cost of living, and small change in an $8 trillion economy. And besides, most of the spending on this new product will come at In fact, where they can, the statisticians do try to the expense of spending on other things — say, romantic do something more or less along these lines, adjusting the price of automobiles and many other products by But nominal G.D.P. doesn’t tell us much. Most of imputations for improved quality. But nearly everyone the time, the economic number we care about is “real,” admits that the imputations fall well short of captur- or inflation-adjusted, G.D.P., which is supposed to mea- ing the real improvement in living standards. Officially, sure the purchasing power as opposed to the dollar in- the median family in 1996 had only slightly higher real come of the economy. Basically, nominal G.D.P. is con- income than it did in 1973; in reality, that median fam- verted into real G.D.P. by dividing it by a price index — ily would be extremely upset if forced to go back to a “deflator” — that is supposed to measure the average a 1973 standard of living (no VCR, no microwave, no cost of goods and services sold in the economy.
So far, so good. But what happens with the introduc- So what’s the moral? Should we smugly assume that tion of Viagra, or Propecia, or whatever the next big the official statistics understate economic progress, that thing may be? Statisticians can’t compare the prices of the New Economy is speeding us to a new age of eco- these drugs with what they were last year because they nomic bliss? Not so fast. For one thing, it is by no weren’t around last year. So inevitably, estimates of the means clear that our age of technological marvels is any deflator take account only of the goods that have been more marvelous than the age our parents, grandparents So what? Well, this year some men can buy some- Viagra is only the latest in a long line of medical mir- thing they wanted pretty badly — or baldly, in the case acles — antibiotics, smallpox vaccine, anesthesia — just of Propecia — and they can get it at a reasonable price.
as the Internet is only the latest in a line that goes back Last year they couldn’t buy what the pills provide at any to the fax machine, the telephone and the telegraph.
price, and probably would have gladly spent far more at While the statistics do understate today’s true rate of clinics or in therapy to get lesser results. So surely, in economic progress, they always have.
But there is a deeper point. The value of Viagra is not a dollar-and-cents issue. Rather, it is a psychologicalquestion — what we are really asking is how much betteroff the drug makes people feel. But isn’t that true ofeconomic progress in general? And once you put it thatway, you have to wonder whether we are really makingthat much progress after all.
Consider: According to the official statistics, the me- dian family in 1947 had almost exactly the same pur-chasing power as the 20th-percentile family — just alittle ways above the poverty line — of 1996. And thestatistics surely understate the true increase in purchas-ing power. Does that mean that most people in 1947were poor? Well, they didn’t feel poor. Conversely, the60th percentile in 1996 officially had about the samereal income as the 95th percentile in 1947, and againthis surely understates the real progress.
Does this mean that most Americans are now upper middle class? They don’t feel that way.
In other words, as soon as you try to think seriously about how to measure Viagra’s effect on the nation’swealth, you realize what a dubious enterprise such com-parisons are.
G.D.P. as accurately as possible; we need that numberfor all kinds of purposes. But the rather vulgar caseof Viagra reminds us that, in the end, economics is notabout wealth — it’s about the pursuit of happiness.

Source: http://flash.lakeheadu.ca/~kyu/Measurement/Viagra.pdf