I work with data a lot, and my main issue with hedonic adjustment is that anytime I've ever made any such adjustment to "improve" a metric that wasn't purely mechanical (like a moving average or a ratio to another number), it's just one step away from making the number say anything I want it to.
The entire concept of "fixing" a metric relies on an inhuman level of self-truthfulness to not just lead you down the path of hearing only what you want to hear.
The point of metrics is that they should slap you in the face with objective reality, and improvement is just too subjective a concept.
Yes, and this confirms one suspicion of them I had, that they only work in one direction. They ever adjust inflation upward when products get worse:
>Interestingly, hedonic adjustments only act as deflators. Say the airline crams another seat in your row, eliminates carry-on bags and otherwise makes your flight less happy and hedonic. Does the hedonically-adjusted price of your airfare increase? Nope.
Hm, I wonder if anyone’s tried to popularize an alternative inflation measure to CPI that either discounts hedonic adjustments, or tries to be more “honest” about it somehow, perhaps by trying to measure relative user happiness or something (though that’d be super shaky).
Yup, productionalizing a comprehensive CPI is a boring, thankless and expensive (household surveys, not just webscraping!) undertaking. Which is why we pay a big government department to do it for us.
The sceptical but honest truth-seeker would discover, after months of labour that the official quality-adjusted BLS numbers are reasonably sane, maybe understated by a few tens of pct-points, and the hedonic adjustments will add about 0.5 to 1%, which is probably a reasonable estimate of overall quality improvements. That truth is so mundane that your months of labour will barely net you a Medium blogpost. Or you take a shortcut, just add 1.5 to 2%-points to the BLS numbers and sell it in a newsletter, like shadowstats...
In 1998, a 27" CRT TV was $300 in 1998 dollars. Today's 32" LCD TV is $120.
Just in nominal dollars, not adjusted for inflation, the new TV costs 40% as much as the one from 1998. Then the offical CPI says $300 1998 dollars are worth around $500 2021 dollars... so that brings us down to about 24% before making any hedonistic adjustment. [Edit: And, really, we should be comparing a 32" TV from 1998. That's not in the ad, but it is plausible to imagine it costs more than any of the 27" models. Let's call it $450 just to be conservative. That gets you to around 15% w/ CPI and no hedonistic adjustment]
But the new TV has twice as many lines of resolution, a bigger screen, better color, uses a fraction as much power, is lighter and is physically smaller. So the operating cost is lower, you can put it anywhere you want, you have a bigger and nicer picture to look at. I'm sort of baffled how someone could not agree that the newer one is very clearly better.
I suspect that if you offered most people a CRT version of today's TV, nobody would take it at even half the price. That gets you to within spitting distance of 10%.
You can perform the same exercise with other size tubes, but the result is basically the same.
Not sure why downvoted, this is an important point: utility is sublinear in most dimensions of product quality. For example, a desktop computer with everything the same but 2x the CPU speed is less than 2x as useful.
Don't tell Dudley though:
>>“Today you can buy an iPad 2 that costs the same as an iPad 1 that is twice as powerful,” he said.”You have to look at the prices of all things.”
Let's take 50" TVs instead. I initially used smaller ones because I don't recall many people having TVs like that in 1998, but the 1998 ad doesn't have 32" TVs and the modern website doesn't have 27" TVs in stock.
50" is one size that Best Buy carried in both 1998 and today. So we can compare like for like.
Today's 50" LCD should be no less entertaining than a 50" CRT from 1998, right? I'm not claiming it is more entertaining, just that it isn't less. Today's 50" costs $330 at Best Buy. 1998's 50" costs $1500 at Best Buy in raw, un-adjusted dollars.
You're getting a 78% discount without making any inflation or hedonistic adjustment whatsoever. You can play pretend in fairy land and say that inflation doesn't exist... and you get to enjoy the same TV plus have spare dollars to spend on other entertainment.
Actually... maybe the the modern, cheaper TV is infinity times more entertaining. After all, a TV with nothing to watch isn't very useful. Your old TV provides little value except as a conversation piece when guests come over (if you don't enjoy free OTA content). On the other hand, with the new TV, you can spend 3x on content what you spent on the TV itself.
For what it's worth, I worked at Disneyland Innoventions back in 2002 when we got early previews of consumer products that weren't on market yet, one of which was the first plasma screen TV with a built-in screensaver. When it became available to retail, it was over $7,000. The very first plasma screen at all from 1997 was originally $23,000. The color television in 1954 was about $12,000. For 15 inches.
I don't think they've gotten 1000% more entertaining, but one effect is people can have a television per room and no viewing conflicts. Back in the day we only had one television per household and you were stuck watching whatever your dad dictated most of the time.
Also, if you look at fcc historical charts (https://docs.fcc.gov/public/attachments/DA-14-672A1.pdf), check Table 3 on page 10 of that pdf, it shows expanded basic cable, or basic cable plus live regional sports, was $22.35 in 1995 and $64.41 as of 2013, but also Netflix existed by then for $7.99 a month.
I'm honestly not that sure how to feel about this. Things like assisted braking, crash zones, seatbelts, and airbags are pretty unambiguous improvements. But I'm not sure the plethora of cheap entertainment options is any kind of a net benefit, hedonic or otherwise. As a kid in the 80s, most of the time my sisters and I entertained ourselves by reading books, playing board games, building things out of legos. Maybe less immediate hedonic reward, but explicitly interactive activities made for better family bonding and active consumption rather than passive was a lot more intellectually stimulating. I can barely even pay attention to a book these days, but I still remember being 12 and the level of thought and imagination they would provoke and it was a heck of a lot more than I've ever gotten out of film or television.
This kind of gets at the problem: "the 1998 ad doesn't have 32" TVs and the modern website doesn't have 27" TVs in stock". We're not talking about everyone being able to afford a better TV than before; instead, the TV size at each price and quality tier has gone up over time and people get that size whether they want it or not. A 21" TV used to be a good size for a main set, by around a decade ago you could get a 32" set of reasonable quality for a reasonable price but the 21" ones were bargin-basement with poor picture and sound quality, fast forward to today and 32" are all budget options degraded to the same poor quality (and the same resolution) as 21" ones a decade earlier, with anything smaller a niche product offering poor value. Last I heard 52" was the current tier with good-quality TVs and 42" had already started the quality slide compared to what used to be available in that size.
Also, there's a really obvious reason to think that 1998's 50" TV was not worth $1500 in raw, unadjusted dollars to the vast majority of people: almost no-one bought it at that price. In theory this principle applies to every item that used to be available with both cheaper and more expensive options but now only has the option which is more expensive: that improvement is worth less to people than the price difference when they both used to be available, or there wouldn't have been a market for the cheaper option back then.
I think the point of this article is that the TV you could buy for $300 in 1997 you can't now buy for $30. So the 10 times increase in quality hasn't allowed a 10 times reduction in cost of living.
Not CPI, but Western China-watchers (eg Morningstar) use various proxies for China's GDP since they assert that the official numbers are often politicized.
Personally I suspect the answer is somewhere in between. Arguably it's not even a well-defined question. Clearly something like inflation and deflation can exist, even across large time periods, but there may be no single number that can ever capture it accurately. I am somewhat reminded of the difficulties of trying to fix an absolute reference frame in physics, especially when trying to fix it to locations on Earth over large periods of time.
Thanks for the links! Agreed, it’s extremely hard to do well - the basket of goods that one would consider reasonable doesn’t even stay the same over time, computers get added, gasoline (hopefully) drops out.
> Yes, and this confirms one suspicion of them I had, that they only work in one direction. They ever adjust inflation upward when products get worse:
Well, it asserts that but doesn’t provide a basis for the claim, which directly contradicts BLS: “The hedonic quality adjustment method removes any price differential attributed to a change in quality by adding or subtracting the estimated value of that change from the price of the old item.” [0]
Given that the author focus almost the entirety of his piece on hedonic adjustments discussing new car price data as illustration without ever mentioning that this is a CPI component to which the hedonic quality adjustment method is not applied, I would trust its unsourced claims not at all, and be extra sure to double check any sourced claims.
Well, since I don't know what country you hail from, I am going to speculate, but my bet is it hurts its usefulness for you, but very probably not for the government that publishes it and uses it to demonstrate how "effective" their policies have been.
> Yes, but hedonic adjustment is basically an attack of the bottom line of inflation as an useful metric IMO.
The underlying premise makes sense though. If your country got richer and everyone started buying high end variants of stuff, and the low-end variants got discontinued, is everyone suddenly worse off?
The trouble is that the reality is probably closer to it simply not being financially worthwhile for manufacturers to offer the lower-end variants anymore - in the case of cars, partly because they're legally required to include these features, but also because the incremental cost of adding those new features shrinks. That is, rather than the cost of a 1990s base-model remaining the same and people just getting higher-end models, the cost of a 1990s base model increases closer to that of more feature-filled models to the point it doesn't make sense to make the features optional. If you think about the cost of making, say, a fancy entertainment or sat-nav interface, that's gone down in a way that the cost of huge chunks of carefully machined, stamped and welded metal hasn't.
Also, the definition of a high-end variant changes over time too. For example, today a 52-inch TV fills the same price niche that a 32-inch one did, say, a decade ago but it also fills the same quality niche - you need to buy the 52-incher to get the same kind of audio and picture quality as a 32-inch set from years gone by, and the 32-inch sets have deteriorated in quality in ways that aren't necessarily visible from the obvious spec-sheet numbers.
It's nice to see this. I've been interested since the mid-2000s and haven't seen any breakdowns or examples of hedonic adjustments. Anyone have any other references?
The baseline utility of a car is that it transports you to and from a job, errands and leisure activities. A $9,000 2021 "1990" Mustang would do that rather well, and the other safety/quality improvements probably aren't worth almost $20k to most people, especially given that most people consider themselves above average drivers.
$9,000 for a used car gets you the safety improvements, but perhaps not the new car reliability, even adjusting for 30 years of quality improvements.
I think it would sell rather well so long as it had Bluetooth.
> $9,000 for a used car gets you the safety improvements, but perhaps not the new car reliability
I'm not convinced of that. Reliability has definitely been trending upwards. 100k miles used to be considered a high-mileage car, but now a car model that didn't regularly make it to that distance would be considered defective.
Given the option, my bet would be that people (those on the mid to low end of the economy anyway) would strip out just about every feature not essential to the car going down the road if it meant big savings. They'd ABSOLUTELY do if for 50% off. Safety features would be gone in an instant.
Cars don't come with airbags or even seat belts because consumers demand them, they do so because its the law. That's not to say safety features are a bad thing, just that their omnipresence isn't due to economic forces.
Maybe safety features are a weak force, but I know plenty of parents that buy vehicles based on safety features. Volvo is pretty famous for marketing their safety features and kid friendly features as a competitive differentiator.
I think we (the consumers) have also been conditioned hedonistically upwards (for lack of a better term) in the last 30 years, as in we wouldn't probably transport our family anymore in a car with no airbags or very few airbags, to say nothing of the crash-test characteristics of new cars compared to cars made 30 years ago.
So, to answer the question, because we (the consumers) have also changed we wouldn't probably purchase as many new 1990 Ford Mustangs or Honda Accords at $9,000 or $12,000 (meaning half the price for the latest models) as we have bought 30 years ago if said models would have costed $4,500 or $6,000 (meaning half their price at that time).
But, nevertheless, I think there is a sweet spot between our new hedonistic expectations (we want airbags now) and a fairer (meaning cheaper) price.
That leads me to think that twenty years from now that essential features in vehicles (sold in the US) will be emergency care related so that the owners can avoid the increasing cost of emergency medical care.
In 2040 no one will buy a mint condition '2020' vehicle because it won't include a defibrillator, IV fridge, and stowable gurney.
If we're speculating, I don't think many people would buy any car in 2040. The task of taking people from point A to point B will be accomplished by robotaxis, while being more convenient, safer, and cheaper.
The people buying their own cars would probably still be around, as there are people buying their own horses today.
So, $9,000 ($9,450 per autotrader) in 1990 is roughly $18,000 ($19,000) in today’s dollars by most inflation calculators. (I realize we are skirting dangerously close to tautological money value conversations here, but having lived and paid for things in both years, double seems close. Maybe a little under-reported, actually.)
So, if someone put a new car on the market for $18,000 with the (lack) of features of the 1990 ford mustang, the poor reliability, louder interior noise, no bluetooth, dim/unsafe headlights, it wouldn’t sell. It wouldn’t sell because you can easily purchase a used 2015 Ford Mustang in good condition for this price. Approximately 0% of buyers would prefer a 1990 mustang to a 2015 mustang.
Cars have added an incredible amount of value staying at or near their inflation-adjusted prices in the last 30 years. wireless audio, navigation, safety features, performance / efficiency tradeoffs, reliability are all miles better.
Combine these features with very low interest rates and increased interest in financing, and actual prices are similar-to-better today on a monthly basis.
A new 5 liter mustang costs maybe like $36k right now. Average mortgage rate in 1990 was 10% (!). Assuming car loans were 12%, then a 5 year financing of a $9,500 car would have been $211 per month in 1990 dollars, or $422/month in today’s dollars. New mustangs can be leased for as little as $300/month, purchased for $400-650/month.
So, these prices are not wildly out of line with 1990s era prices. And, maintenance costs are vastly lower as well. All that to say, Tata motors is doing less well than tesla, toyota or ford, and I think that’s likely to continue.
I didn't adjust the $9000 for inflation because according to the CPI calculations there's been ~0% inflation for cars. So if they're right a new 1990 Mustang would be priced at $9000 today in today's dollars.
There is no metric for "inflation for cars". What the BLS data is saying is that the nominal price/quality for cars has stayed the same. So in 1990 you could get a mustang for $20k, and if instead you stuffed 20k in you mattress for 30 years, you could now buy a base model Kia, which when all the positives and negatives are added up delivers similar value to the features of a 1990 mustang. A 2021 mustang costs a lot more, but it's obviously in a different league, hence the adjustment.
Meanwhile, that $20k buys at loss less food, healthcare, education, house, etc which is why "today's dollars" are worth less and why it's fair to say cars got cheaper in inflation adjusted terms.
> So in 1990 you could get a mustang for $20k, and if instead you stuffed 20k in you mattress for 30 years, you could now buy a base model Kia, which when all the positives and negatives are added up delivers similar value to the features of a 1990 mustang.
Yep this was my point. We can see if the CPI is being calculated correctly by comparing cars which had the same price in each year and see if they really are about as good as each other. Whether you want to call this 'inflation for cars' is just semantics.
(The original article says a Mustang in 1990 cost $9000, but I've also found sources for $10000 and $20000 so you might be right on that point.)
> Would it be better or worse than a second-hand modern car at the same price?
The difference would be so huge that I'm not convinced this question isn't rhetorical.
Features that were high end or cutting edge in 1990 (progressive power steering, power windows, air conditioning, power adjustable seats, traction control, cruise control, airbags) are ubiquitous on all but the very cheapest cars nowadays. Features that we take for granted (Bluetooth integration / in-dash maps, automatic headlights, non-awful automatic transmissions, non-awful stereos) didn't even exist in 1990. Certainly from a safety perspective, probably from a luxury and convenience perspective, and possibly even from a performance perspective, a $9000 second-hand car is better than any car from 1990.
Sort of an interesting detail on the safety standards. Even though these mostly impact/protect the eventual owner _only_, they are forced into the car design such that a prospective buyer’s choices (and prices) are constrained. Oddly enough, both these mandated price-increases and the inflation-hiding hedonic adjustments that benefit from them are coming from the same general vicinity..
So, the author is trying to understand hedonic adjustment, and does it via the BLS CPI series for new car purchases.
Which is rather clearly a fatal error since BLS uses cost-based, rather than hedonic, quality adjustments for new car and truck purchases. [0] The author is trying to understand a process by examining an area in which the process is not applied.
There is no other way to run the world today under democratic regimes. Politicians will never win votes by promising to reduce govt debt.
The only sustainable way to run the world is to underreport on inflation using a flawed metric, which nobody is supposed to understand, such as CPI. And then let the real 8% or so inflation eat the govt debt away while the govt borrows money at <2% interest on treasury bonds.
These adjustments to CPI are not to be understood. They are designed.
But how many politicians actually follow through on such promises? Do they ever get in trouble for failing to do so? In the United States at least, none of them ever get punished by losing their seat when they fail to cut spending.
> There is no other way to run the world today under democratic regimes. Politicians will never win votes by promising to reduce govt debt
That's not true. Macron in France was elected ( was second in the first round, and against the far-right candidate, which was profoundly terrible and got destroyed in the big debate, in the second round, where everyone flocked to him to avoid the other winning; so take "winning" with a grain of salt, although his party did win 50+ in the parliamentary elections a month after the presidential ones) on a platform of reform to make business easier, stabilising the budget, cutting unnecessary or overextended government expenditures, privatising some government-owned enterprises and investing the leftovers ( without a deficit) at improving the economy, work prospects for young people, startups, key industries, etc. Considering his work history in banking, then an advisor to the previous president, and later financial minister, doing roughly the same things, it wasn't just empty talking.
Of course that went away when the pandemic hit, and he said multiple times, and i quote, "whatever it costs". It would have been fundamentally stupid on his part not to go back on his platform and leave everything go bankrupt and broke.
The way money is created in the modern world is not the only way to create money. There's a good chance we're in the last decade or so of "the way we create money" today continuing to appear to work, since we're just running around the same cycle any number of civilizations have run around before us. Even if we do have 'computers' this time.
What the hedonic adjustment ignores the fact that many of the things people need to live are bought for utility, now how many added features they might have.
Take toilet paper as an example, since most Americans find this a necessary object for if utility. Lets say the cheapest roll of toilet paper has 100 sheets cost $1. One day, the toilet paper company decides to reduce a roll to 90 sheets, but claims the new toilet paper is softer and of a better quality. The pointy heads at the FED may very well decide that increased quality and added softness of the sheets means that the new, smaller roll is of equal value to the older, larger roll. Through a hedonic adjustment, no inflation will be reflected to have occurred. But to the guy trying to wipe his ass, he is getting 10% fewer sheets for the same money. He is now going to have to buy 10% more toilet paper despite CPI reflecting no inflation in toilet paper prices.
Now lets take a look at the cars, since they were cited in the article. CPI data has cars as unchanged. The author of the article shows how actual prices tracked hourly earnings. However, the author looks at average hourly earnings, which are skewed due to the vast majority of wage gains going to the top wage earner. So let's take a look at the median numbers. Using the example from the article, a Honda cost ~$12,000 in 1990 and ~$25,000 - more than 100% increase in real price. Median household income went from $59,966 in 1990 to $78,500 today, a rise of ~31% over the same period of time. The same Honda that cost ~1/6th of median household income costs ~1/3 of median household income 30 years later. The need for workers to get to their jobs (unfortunately for them) remains constant.
Similar real price comparisons between the costs of things people actually need to survive (food, transportation, healthcare, insurance, education) and median wages will reveal similar discrepancies, so its not all too surprising that people hold official CPI numbers in such low regard. But at least TVs are cheaper.
> What the hedonic adjustment ignores the fact that many of the things people need to live are bought for utility, now how many added features they might have.
That's true.
> He is now going to have to buy 10% more toilet paper despite CPI reflecting no inflation in toilet paper prices
This is 100% wrong. I don't think anyone should be surprised that professionals who have thought about these things a lot were long aware that a hedonic adjustment is not appropriate for all things. Toiler paper does not get any quality adjustment (hedonic or otherwise) in the CPI calculation.
Grandparent might mean median individual income instead (since household income graphs can be skewed by more people working - Elizabeth Warren writes about this in the Two Income Trap):
What's interesting when looking at the cost of homes (and cars to some extent) is the cost of servicing the loans for these items has plummeted. So you might well be buying an item with higher capital costs but the amount of money leaving your bank account each month hasn't inflated that much.
When I bought my current house in 1995 I was paying 6% for the mortgage (in the UK), if I was buying now I'd be paying 1.5%.
You simply have to understand that inflation is impossible to measure objectively. By extension, all inflation-adjusted data (so basically all historical economic data) is more or less made up.
If we'd measure inflation like we did in the 80s, it would easily come out 1% higher, meaning the real GDP growth is 1% lower than currently reported. So several economies would be considered in a recession for years insead of showing low growth.
I'm not saying that the way inflation is measured is wrong. But most data depending on the official inflation rates is a lot less accurate than you might think.
The car example is flawed, as it takes availability of comparable offers out of the equation. Instead of comparing brands and models, we should look at "what is the cheapest four-seat car you can buy?" and compare prices between them over the years.
Very true. That’s the choice that’s most important for most people. Same for housing. What good is it when housing prices have doubled but inflation is zero because they also have doubled in size? Houses are not affordable anymore.
Wow,that was both eye opening and also not that surprising. Of course the government is cooking the books on inflation, and has been for a long time. But I would say instead of replacing reality, they are just substituting one fantasy for another. The money itself is an abstraction and it's not possible to compare value across time except as an approximation. The paper money from 1980 may still exist in a drawer somewhere and function as a financial instrument, but the economy it interacts with is radically changed.
How do you hedonically adjust access to all the world's information and entertainment and instant communication with anyone anywhere? How do you hedonically adjust the difference between Covid with and without biotech. How do you hedonically adjust 2-hour delivery of every product imported from anywhere? How do you hedonically adjust Pacman to Halflife Alyx?
With more detailed purchase history available it seems like price indexes should switch to purely volume weighted adjusted price indexes. The quantiles of purchase history would show a much more accurate history of consumer behavior over time; A rise in the ~10th percentile price of goods by volume is a pretty clear indication of fundamental inflation whereas median or higher percentiles may only reflect fads, substituted goods, or improvements in quality, for example.
Maybe such an index already exists? It looks like CPI is switching to this kind of price adjustment for some categories but it seems like the data is readily available for basically all consumer goods; Are stores reluctant to share the volume and price of goods at the individual UPC level?
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[ 2.8 ms ] story [ 145 ms ] threadThe entire concept of "fixing" a metric relies on an inhuman level of self-truthfulness to not just lead you down the path of hearing only what you want to hear.
The point of metrics is that they should slap you in the face with objective reality, and improvement is just too subjective a concept.
>Interestingly, hedonic adjustments only act as deflators. Say the airline crams another seat in your row, eliminates carry-on bags and otherwise makes your flight less happy and hedonic. Does the hedonically-adjusted price of your airfare increase? Nope.
The sceptical but honest truth-seeker would discover, after months of labour that the official quality-adjusted BLS numbers are reasonably sane, maybe understated by a few tens of pct-points, and the hedonic adjustments will add about 0.5 to 1%, which is probably a reasonable estimate of overall quality improvements. That truth is so mundane that your months of labour will barely net you a Medium blogpost. Or you take a shortcut, just add 1.5 to 2%-points to the BLS numbers and sell it in a newsletter, like shadowstats...
Here's a Best Buy ad from 1998: https://www.chron.com/news/article/Best-Buy-ad-from-1998-sho...
Here's a Best Buy listing from today: https://www.bestbuy.com/site/insignia-32-class-n10-series-le...
In 1998, a 27" CRT TV was $300 in 1998 dollars. Today's 32" LCD TV is $120.
Just in nominal dollars, not adjusted for inflation, the new TV costs 40% as much as the one from 1998. Then the offical CPI says $300 1998 dollars are worth around $500 2021 dollars... so that brings us down to about 24% before making any hedonistic adjustment. [Edit: And, really, we should be comparing a 32" TV from 1998. That's not in the ad, but it is plausible to imagine it costs more than any of the 27" models. Let's call it $450 just to be conservative. That gets you to around 15% w/ CPI and no hedonistic adjustment]
But the new TV has twice as many lines of resolution, a bigger screen, better color, uses a fraction as much power, is lighter and is physically smaller. So the operating cost is lower, you can put it anywhere you want, you have a bigger and nicer picture to look at. I'm sort of baffled how someone could not agree that the newer one is very clearly better.
I suspect that if you offered most people a CRT version of today's TV, nobody would take it at even half the price. That gets you to within spitting distance of 10%.
You can perform the same exercise with other size tubes, but the result is basically the same.
Don't tell Dudley though:
>>“Today you can buy an iPad 2 that costs the same as an iPad 1 that is twice as powerful,” he said.”You have to look at the prices of all things.”
https://www.reuters.com/article/us-usa-fed-dudley-ipad-idUST...
Let's take 50" TVs instead. I initially used smaller ones because I don't recall many people having TVs like that in 1998, but the 1998 ad doesn't have 32" TVs and the modern website doesn't have 27" TVs in stock.
50" is one size that Best Buy carried in both 1998 and today. So we can compare like for like.
Today's 50" LCD should be no less entertaining than a 50" CRT from 1998, right? I'm not claiming it is more entertaining, just that it isn't less. Today's 50" costs $330 at Best Buy. 1998's 50" costs $1500 at Best Buy in raw, un-adjusted dollars.
You're getting a 78% discount without making any inflation or hedonistic adjustment whatsoever. You can play pretend in fairy land and say that inflation doesn't exist... and you get to enjoy the same TV plus have spare dollars to spend on other entertainment.
Actually... maybe the the modern, cheaper TV is infinity times more entertaining. After all, a TV with nothing to watch isn't very useful. Your old TV provides little value except as a conversation piece when guests come over (if you don't enjoy free OTA content). On the other hand, with the new TV, you can spend 3x on content what you spent on the TV itself.
I don't think they've gotten 1000% more entertaining, but one effect is people can have a television per room and no viewing conflicts. Back in the day we only had one television per household and you were stuck watching whatever your dad dictated most of the time.
Also, if you look at fcc historical charts (https://docs.fcc.gov/public/attachments/DA-14-672A1.pdf), check Table 3 on page 10 of that pdf, it shows expanded basic cable, or basic cable plus live regional sports, was $22.35 in 1995 and $64.41 as of 2013, but also Netflix existed by then for $7.99 a month.
I'm honestly not that sure how to feel about this. Things like assisted braking, crash zones, seatbelts, and airbags are pretty unambiguous improvements. But I'm not sure the plethora of cheap entertainment options is any kind of a net benefit, hedonic or otherwise. As a kid in the 80s, most of the time my sisters and I entertained ourselves by reading books, playing board games, building things out of legos. Maybe less immediate hedonic reward, but explicitly interactive activities made for better family bonding and active consumption rather than passive was a lot more intellectually stimulating. I can barely even pay attention to a book these days, but I still remember being 12 and the level of thought and imagination they would provoke and it was a heck of a lot more than I've ever gotten out of film or television.
Also, there's a really obvious reason to think that 1998's 50" TV was not worth $1500 in raw, unadjusted dollars to the vast majority of people: almost no-one bought it at that price. In theory this principle applies to every item that used to be available with both cheaper and more expensive options but now only has the option which is more expensive: that improvement is worth less to people than the price difference when they both used to be available, or there wouldn't have been a market for the cheaper option back then.
I think the point of this article is that the TV you could buy for $300 in 1997 you can't now buy for $30. So the 10 times increase in quality hasn't allowed a 10 times reduction in cost of living.
However, I'm just answering your question, not endorsing that per se. Here's some skepticism, which I am also not endorsing, just balancing and emphasizing my lack of endorsement: https://munknee.com/debunking-validity-shadowstats-inflation...
Personally I suspect the answer is somewhere in between. Arguably it's not even a well-defined question. Clearly something like inflation and deflation can exist, even across large time periods, but there may be no single number that can ever capture it accurately. I am somewhat reminded of the difficulties of trying to fix an absolute reference frame in physics, especially when trying to fix it to locations on Earth over large periods of time.
Well, it asserts that but doesn’t provide a basis for the claim, which directly contradicts BLS: “The hedonic quality adjustment method removes any price differential attributed to a change in quality by adding or subtracting the estimated value of that change from the price of the old item.” [0]
Given that the author focus almost the entirety of his piece on hedonic adjustments discussing new car price data as illustration without ever mentioning that this is a CPI component to which the hedonic quality adjustment method is not applied, I would trust its unsourced claims not at all, and be extra sure to double check any sourced claims.
[0] https://www.bls.gov/cpi/quality-adjustment/
We don't have liberal integrals or conservative arctangents.
Inflation is typically used for measuring purchasing power.
IDK much about CPI because I'm not from the US, but in my country the IPC index (which is similar) has a lot of massage really hurts its usefulness.
Well, since I don't know what country you hail from, I am going to speculate, but my bet is it hurts its usefulness for you, but very probably not for the government that publishes it and uses it to demonstrate how "effective" their policies have been.
The underlying premise makes sense though. If your country got richer and everyone started buying high end variants of stuff, and the low-end variants got discontinued, is everyone suddenly worse off?
Also, the definition of a high-end variant changes over time too. For example, today a 52-inch TV fills the same price niche that a 32-inch one did, say, a decade ago but it also fills the same quality niche - you need to buy the 52-incher to get the same kind of audio and picture quality as a 32-inch set from years gone by, and the 32-inch sets have deteriorated in quality in ways that aren't necessarily visible from the obvious spec-sheet numbers.
The BLS FAQ:
https://www.bls.gov/cpi/quality-adjustment/questions-and-ans...
Yes, they'd be arrested for not meeting safety standards. But assuming we changed the law, would people want to buy it?
Would it be better or worse than a second-hand modern car at the same price?
$9,000 for a used car gets you the safety improvements, but perhaps not the new car reliability, even adjusting for 30 years of quality improvements.
I think it would sell rather well so long as it had Bluetooth.
I'm not convinced of that. Reliability has definitely been trending upwards. 100k miles used to be considered a high-mileage car, but now a car model that didn't regularly make it to that distance would be considered defective.
Cars don't come with airbags or even seat belts because consumers demand them, they do so because its the law. That's not to say safety features are a bad thing, just that their omnipresence isn't due to economic forces.
I think we (the consumers) have also been conditioned hedonistically upwards (for lack of a better term) in the last 30 years, as in we wouldn't probably transport our family anymore in a car with no airbags or very few airbags, to say nothing of the crash-test characteristics of new cars compared to cars made 30 years ago.
So, to answer the question, because we (the consumers) have also changed we wouldn't probably purchase as many new 1990 Ford Mustangs or Honda Accords at $9,000 or $12,000 (meaning half the price for the latest models) as we have bought 30 years ago if said models would have costed $4,500 or $6,000 (meaning half their price at that time).
But, nevertheless, I think there is a sweet spot between our new hedonistic expectations (we want airbags now) and a fairer (meaning cheaper) price.
In 2040 no one will buy a mint condition '2020' vehicle because it won't include a defibrillator, IV fridge, and stowable gurney.
The people buying their own cars would probably still be around, as there are people buying their own horses today.
So, if someone put a new car on the market for $18,000 with the (lack) of features of the 1990 ford mustang, the poor reliability, louder interior noise, no bluetooth, dim/unsafe headlights, it wouldn’t sell. It wouldn’t sell because you can easily purchase a used 2015 Ford Mustang in good condition for this price. Approximately 0% of buyers would prefer a 1990 mustang to a 2015 mustang.
Cars have added an incredible amount of value staying at or near their inflation-adjusted prices in the last 30 years. wireless audio, navigation, safety features, performance / efficiency tradeoffs, reliability are all miles better.
Combine these features with very low interest rates and increased interest in financing, and actual prices are similar-to-better today on a monthly basis.
A new 5 liter mustang costs maybe like $36k right now. Average mortgage rate in 1990 was 10% (!). Assuming car loans were 12%, then a 5 year financing of a $9,500 car would have been $211 per month in 1990 dollars, or $422/month in today’s dollars. New mustangs can be leased for as little as $300/month, purchased for $400-650/month.
So, these prices are not wildly out of line with 1990s era prices. And, maintenance costs are vastly lower as well. All that to say, Tata motors is doing less well than tesla, toyota or ford, and I think that’s likely to continue.
Meanwhile, that $20k buys at loss less food, healthcare, education, house, etc which is why "today's dollars" are worth less and why it's fair to say cars got cheaper in inflation adjusted terms.
Yep this was my point. We can see if the CPI is being calculated correctly by comparing cars which had the same price in each year and see if they really are about as good as each other. Whether you want to call this 'inflation for cars' is just semantics.
(The original article says a Mustang in 1990 cost $9000, but I've also found sources for $10000 and $20000 so you might be right on that point.)
The difference would be so huge that I'm not convinced this question isn't rhetorical.
Features that were high end or cutting edge in 1990 (progressive power steering, power windows, air conditioning, power adjustable seats, traction control, cruise control, airbags) are ubiquitous on all but the very cheapest cars nowadays. Features that we take for granted (Bluetooth integration / in-dash maps, automatic headlights, non-awful automatic transmissions, non-awful stereos) didn't even exist in 1990. Certainly from a safety perspective, probably from a luxury and convenience perspective, and possibly even from a performance perspective, a $9000 second-hand car is better than any car from 1990.
I would have an issue playing Red Barchetta in it, because of the poor color matching, but I'd still do it.
Which is rather clearly a fatal error since BLS uses cost-based, rather than hedonic, quality adjustments for new car and truck purchases. [0] The author is trying to understand a process by examining an area in which the process is not applied.
[0] https://www.bls.gov/cpi/quality-adjustment/ (see ELI TA011)
- pay less in interest on their debt - raise Social Security payments by less - inflate away the real value of the debt principal
The US gov’t has reached a record level of debt. It needs to cause massive inflation to devalue its debts, and it needs to lie about it.
The only sustainable way to run the world is to underreport on inflation using a flawed metric, which nobody is supposed to understand, such as CPI. And then let the real 8% or so inflation eat the govt debt away while the govt borrows money at <2% interest on treasury bonds.
These adjustments to CPI are not to be understood. They are designed.
Huh, what? Promises to balance the budget or run a surplus are practically a cliche at this point.
So, in other words, the only way to govern is through demagogy ... what a terribly cynical view of the world.
I also believe it's historically inaccurate. I know of at least two countries for which it is: Singapore and Switzerland.
That's not true. Macron in France was elected ( was second in the first round, and against the far-right candidate, which was profoundly terrible and got destroyed in the big debate, in the second round, where everyone flocked to him to avoid the other winning; so take "winning" with a grain of salt, although his party did win 50+ in the parliamentary elections a month after the presidential ones) on a platform of reform to make business easier, stabilising the budget, cutting unnecessary or overextended government expenditures, privatising some government-owned enterprises and investing the leftovers ( without a deficit) at improving the economy, work prospects for young people, startups, key industries, etc. Considering his work history in banking, then an advisor to the previous president, and later financial minister, doing roughly the same things, it wasn't just empty talking.
Of course that went away when the pandemic hit, and he said multiple times, and i quote, "whatever it costs". It would have been fundamentally stupid on his part not to go back on his platform and leave everything go bankrupt and broke.
I mean that was pretty much the 2010 Tory platform, and they won?
Next up, “the people would never elect a scientist to office?!?!?”
And rightly so. If you understand how money is created, you WANT your government to continue rolling its debt. Money supply is a 0-sum game.
Take toilet paper as an example, since most Americans find this a necessary object for if utility. Lets say the cheapest roll of toilet paper has 100 sheets cost $1. One day, the toilet paper company decides to reduce a roll to 90 sheets, but claims the new toilet paper is softer and of a better quality. The pointy heads at the FED may very well decide that increased quality and added softness of the sheets means that the new, smaller roll is of equal value to the older, larger roll. Through a hedonic adjustment, no inflation will be reflected to have occurred. But to the guy trying to wipe his ass, he is getting 10% fewer sheets for the same money. He is now going to have to buy 10% more toilet paper despite CPI reflecting no inflation in toilet paper prices.
Now lets take a look at the cars, since they were cited in the article. CPI data has cars as unchanged. The author of the article shows how actual prices tracked hourly earnings. However, the author looks at average hourly earnings, which are skewed due to the vast majority of wage gains going to the top wage earner. So let's take a look at the median numbers. Using the example from the article, a Honda cost ~$12,000 in 1990 and ~$25,000 - more than 100% increase in real price. Median household income went from $59,966 in 1990 to $78,500 today, a rise of ~31% over the same period of time. The same Honda that cost ~1/6th of median household income costs ~1/3 of median household income 30 years later. The need for workers to get to their jobs (unfortunately for them) remains constant.
Similar real price comparisons between the costs of things people actually need to survive (food, transportation, healthcare, insurance, education) and median wages will reveal similar discrepancies, so its not all too surprising that people hold official CPI numbers in such low regard. But at least TVs are cheaper.
That's true.
> He is now going to have to buy 10% more toilet paper despite CPI reflecting no inflation in toilet paper prices
This is 100% wrong. I don't think anyone should be surprised that professionals who have thought about these things a lot were long aware that a hedonic adjustment is not appropriate for all things. Toiler paper does not get any quality adjustment (hedonic or otherwise) in the CPI calculation.
See https://www.bls.gov/cpi/quality-adjustment/
What is your source? Here I see it going from about $30,000 to $69,000.
https://fred.stlouisfed.org/series/MEHOINUSA646N
https://fred.stlouisfed.org/series/MEPAINUSA672N
When I bought my current house in 1995 I was paying 6% for the mortgage (in the UK), if I was buying now I'd be paying 1.5%.
If we'd measure inflation like we did in the 80s, it would easily come out 1% higher, meaning the real GDP growth is 1% lower than currently reported. So several economies would be considered in a recession for years insead of showing low growth.
I'm not saying that the way inflation is measured is wrong. But most data depending on the official inflation rates is a lot less accurate than you might think.
How do you hedonically adjust access to all the world's information and entertainment and instant communication with anyone anywhere? How do you hedonically adjust the difference between Covid with and without biotech. How do you hedonically adjust 2-hour delivery of every product imported from anywhere? How do you hedonically adjust Pacman to Halflife Alyx?
Maybe such an index already exists? It looks like CPI is switching to this kind of price adjustment for some categories but it seems like the data is readily available for basically all consumer goods; Are stores reluctant to share the volume and price of goods at the individual UPC level?