Life is getting better when you'd pay more to keep it
Kave Rennedy
SubscribeSign in
Life is getting better when you'd pay more to keep it<br>Trammell & Jones
kave<br>May 04, 2026
Share
People’s lives might be getting better as we get richer: folks can afford children’s shoes and live longer. Or their lives might be getting worse: lonelier and doing work they feel no part of. Who could possibly say?<br>Econometricians.
Real GDP measures how much of everything people get in a year, including goods like food and services like haircuts. This is a good start, but how should we compare a year with 3 apples and 5 haircuts to one with 10 apples and 4 haircuts? Apples went up, and haircuts went down.<br>If we give up here, we’ll be giving up on most years, because rarely do people get more of literally everything. But we can tell that some years have more stuff. Imagine we were comparing 3 apples and 5 haircuts in the first year to a billion apples and 4 haircuts in the second year. That looks like an improvement to me!<br>Dollars are a measure of how much people value stuff. Statisticians use prices to convert each good into dollars, and then sum them up to get a total GDP. But this approach can mislead. If apples become too cheap to meter, almost no dollars get spent on them, even when people are eating more apples than ever. So, when calculating real GDP, statisticians pick a benchmark year, and then convert the goods using that year’s prices.<br>But pricing things this way runs into trouble when you try to use the result as a welfare measure.<br>Imagine that there are only two goods: food and string quartets. People like both, but each additional bit of food or string quartet performance is valued less than the last.<br>Over time, the inhabitants of this world get better at making both food and music. But, they improve at making food faster than at making string quartets.<br>As food gets cheaper and cheaper, satisfying your needs costs almost nothing. People move almost all their spending to string quartets. String quartets get cheaper, but not nearly as much as food does. Because almost all spending is now on quartets, real GDP basically tracks how fast the quartet sector grows.
GDP growing with and without string quartets<br>Delete string quartets from the world, and real GDP would, confusingly, grow faster. People would spend all their money on food, and they get better at making food very quickly. So real GDP grows faster without string quartets, but the utility of that world is lower!
Utility is higher with string quartets. Peep how the ordering switches between the two graphs!<br>Not the best measure. As John Wentworth put it in 2021, real GDP mainly measures the goods which are revolutionized least.<br>Philip Trammell and Charles Jones have a new paper that suggests a better measure. It’s also the source of the above example. I recommend reading it; it’s shockingly clear!1<br>Rationality equilibrates<br>The paper assumes that folks are rational, then leans on a corollary: people get the same bang for their buck everywhere. Spending an extra cent today is just as good as saving it for tomorrow. You might as well spend it on lowering your risk of death or buying more of your favourite tea.<br>Why does rationality imply this? Cos if it were better to buy tea than save money, you’d already save less and spend more on tea. People keep adjusting their budgets until there are no more wins to be had with that money.<br>I’ll call this the “rationality equilibrates” argument.<br>1% of your money or 0.01% of your life<br>People are actually quantifying the value of their life all the time. The world abounds with options to trade a little danger of dying for a little bit of money. Both working in an oil refinery and buying a cheaper car are a little more dangerous than the alternative, and both make or save you money.<br>These choices put a price on avoiding death. You could live to see tomorrow, or you could get to spend a bunch more money today. There’s a price at which that equals out. The name for that price is value of statistical life (VSL). I’ll call it “value of life”.<br>The dollars in that price are not just any dollars. They have the magic property that each dollar is as good as the last. If your value of life is $1 billion, those are dollars that each feel as welcome as a dollar does right now, not dulled by the jaded disgust of a person richer than they can stomach.
Homer experiencing non-diminishing marginal utility in donuts<br>This is an example of a “rationality equilibrates” argument: if you take a 1 in a million chance of dying for $20 today, you think the rest of your life is less than a million times as good as that extra $20. To find out how good your life is, in the face of a fickle dollar, we need to know: how good is that extra $20?<br>To say it another way, the utility of your life, according to you, is its value in dollars, multiplied by the utility of a dollar.<br>That just leaves finding out how much the next dollar is worth to you. As the...