Matthew Yglesias: Hillary Clinton's Favorite Chart Is Pretty Misleading : "Workers' pay hasn't kept up with the growing productivity of the American economy...

...Hillary Clinton has offered up her own version... as part of her campaign's larger theme that a Clinton administration will bring much-needed higher pay. But while the image is striking and depicts something real and important about the economy, it's also fairly misleading.... One problem... is that economic productivity simply has nothing to do with 'working hard.' A guy who moves furniture for a living works very hard, but he does not generate much economic value per hour.... Highly productive workers are generally productive due to some combination of rare and valuable skills and access to useful technology....

But the bigger problem is that both lines are indexed to inflation--using different inflation indexes. The result is a chart that seems to suggest that further increases in productivity would be useless or unnecessary as a path to higher wages and incomes, when the real truth is the reverse....

The Consumer Price Index... tries to measure the price of what a typical [urban] consumer... buys.... The Implicit Price Deflator... tries to measure the price of everything that is produced.... These are different ideas. American consumers buy airplane tickets, but they generally don't buy airplanes. Consequently, the price of a Boeing 777 isn't part of the CPI basket.... When you draw a chart that uses both of these inflation indexes... the divergence between the two ways of looking at inflation is naturally going to drive divergence....

There's no right way to do it. You can't feed your kids a commercial jetliner or exports of business software, so saying something like, 'Real wages have actually gone up a lot as long as you count a bunch of stuff that nobody buys in the price index' doesn't make much sense. On the other hand, making business equipment and software is a very legitimate line of work. Saying, 'The economy really hasn't grown much if you don't count America's most vibrant and innovative industries' is pretty blinkered. Probably the best way to get an apples-to-apples comparison is to not adjust for inflation at all... nominal GDP versus nominal compensation... look at the ratio: