During the pandemic, a frequently re-iterated claim was that the contraction of the economy was not dramatically less severe in areas that adopted milder policies but reported higher levels of mortality. This was taken as an argument that the trade-off of slowing down business activity to slow down contagion and avoid crowding hospitals was not too expensive. After all, countries like Sweden (which had less stringent policies) did not fare noticeably better economically than countries like Denmark, Norway, and Finland, all of which adopted more stringent policies. 

But this may be a false perception resulting from how the data used to convert nominal monetary amounts (such as personal consumption, personal income, business expenditures, and the like) into real amounts (i.e., adjusting for inflation) was affected by the pandemic.

In a recent paper published in the Canadian Journal of Economics, Erwin Diewert – who is essentially the father of important theoretical breakthroughs that underlie modern consumer price indexes (CPI) that government agencies create – and Kevin Fox pointed out that many lockdowns created a “disappearing product” bias. This bias starts from the way CPI is built, as prices must be weighted according to the importance of each good in the total expenditures of a household. These “weights” create a fixed basket that statistical agencies frequently adjust thanks to multiple surveys.