Will Wilkinson has been schooling the internets about
division properly controlling for inflation when figuring real incomes, eliciting bored nods from those that have actually read Broda/Weinstein/Romalis (no links… too boring to write a post about) and confused indignation from those that want to talk about everything except real income inequality. Anyway, this prompted me to take another look at Broda’s (the intellectual ring master of this set of papers) list of working papers.
I found this interesting paper. Broda and Weinstein do the same sort of analysis for Japan that Broda/Romalis did for poor people in the US: he generates price indices (hah!) controlling for substitution and quality issues (but leaving out the fancy math to account for new products). Japan doesn’t make these corrections when calculating its CPI and so the authors just replicate the changes the BLS made in calculating the US’s CPI after the Boskin report but for Japan. They find that deflation was understated:
Ignoring the factoid that “deflation is bad”, this actually means growth in real consumption per person in Japan was higher than previously thought. Instead of growing at a rate 2% slower than the US, using the uncorrected Japanese official statistics, real consumption per capita has been growing at a rate only 0.7% slower than the US.