Economists on Drugs

One of the favorite examples of economists who argue that the consumer price index (CPI) is missing quality improvments in new goods and services, and therefore understating the increase in living standards, is the great new drugs that have been developed in the last quarter century. That is why it is interesting to read an article in the Washington Post reporting on a study showing that the new generation of antipsychotics (price tag $10 billion a year) is not better than the old drugs that they replaced.

It sounds like the CPI has been overstating the increase in living standards.

-- Dean Baker

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