Wednesday, March 16, 2011

The Great Deflation: Computer Prices

Matt Yglesias posted yesterday about the "falling price of computer power" and highlighted the chart above from this website showing falling prices for Apple products over the last five years.  

The chart below shows the downward trend in computer prices over a longer period of time using the BLS series "CPI: Personal Computers and Peripheral Equipment" (data here).  Compared to the CPI for Personal Computers of  129.4 in January 2006 when the iMac above was selling for $1,299, the index value for the CPI in January 2011 was 43.6% lower  at 72.95.  That decline tracks pretty closely with the 36.2% drop in Apple prices over the same period, from $1,299 to $829.  

Over a longer period of time, like the full history of the CPI series for personal computers back to December 1997, personal computer prices have fallen by 93.5% (see chart below).  In other words, assuming that the CPI series accurately captures quality improvements, computer equipment that cost $1,000 in December 1997 could be purchased today for only $65.  Alternatively, as a very rough approximation, computer equipment purchased today for $1,000 would have cost $15,300 back in 1979. 
 
HT: Steve Bartin

16 Comments:

At 3/16/2011 3:09 PM, Blogger morganovich said...

if only we could eat personal computers...

"WASHINGTON (MarketWatch) — U.S. wholesale prices jumped a seasonally-adjusted 1.6% in February as food costs experienced the biggest one-month rise since 1974, the Labor Department reported Wednesday.

The rise in producer prices last month follows increases of 0.8% in January and 0.9% in December

The wholesale price of food saw the biggest increase last month. The food index surged 3.9%, the largest gain since November 1974. Most of the increase stemmed from higher cost of fresh and dry vegetables."

 
At 3/16/2011 3:23 PM, Blogger Dr William J McKibbin said...

The cost of computer power is down, yes. However, the cost of jet fighters is going up. Atlantic Magazine reported today that the US will eventually spend $1 trillion on the new jet -- more at:

http://www.theatlantic.com/national/archive/2011/03/the-f-35-a-weapon-that-costs-more-than-australia/72454/

The cost of consumer goods may be down (so far), but the costs of national defense, higher education, and government payrolls are higher than ever!

Thank you for the opportunity to comment...

 
At 3/16/2011 3:48 PM, Blogger Cooper said...

Actually based on my experiance with building computers. There is no way you could build, for 15k in 1997, what you can buy today for 500 dollars. I know the CPI tries to control for quality, but I think they missed the mark here.

In 1997 the Pentium 2 was introduced at a price of about $2,000. It could perform about 54 MFLOPs (Million Floatign Point Opperations Per Seconds) or about 100 MIPS (Million Instructions Per Second)

Today a new Sandy Bridge can hit 20,000 MIPS (200x the performance) or 82 GFLOPS (1500x the performance) And yet it cost $300.

That's far more than "Alternatively, computer equipment purchased today for $1,000 would have cost $15,300 back in 1979."

 
At 3/16/2011 4:03 PM, Blogger Benjamin said...

McKibben: And the new aircraft carriers are going for $14 billion a pop. Before airplanes. We are building the Gerald Ford (sure to bump its bow on reefs) for a putative $14 billion, but probably double that when done.

These posts by Dr. Perry are highly instructuve on the virtues of the private sector vs. ossified government-dictated contracting.

In the private sector, equipment gets cheaper and easier to use, and more powerful. Military equipment only gets more expensive, less resilient, and requires endless training to use, and then doesn't really work very well.

Certain military people now brag it can take two years to train a soldier for a position--of course, the ulterior motive is a "professional" military, since volunteers could never handle such complicated equipment.

P.U. I suspect even the R-Party will shy away from future entanglements. Every time we set foot in even a third-world nation, it sets us back $1.5 trillion. Who can any more Bush follies? Our military has become too expensive to use. It is like trying to use a Rube Goldberg-Titanic to squash minnows.

It probably makes sense now to sunset the military and start fresh with a force designed by a private-sector operator.

 
At 3/16/2011 4:35 PM, Blogger AIG said...

Apple is a really bad baseline for comparing consumer electronics over time. They overcharge, inmho, and they're mainly selling the brand.

My Dell has twice the processing power and 8 times the memory of the Ipad, and its probably worth about 300 bucks now. Plus it can run everything the Ipad can't, and can survive the excessive drops, hitting doors, spilling coffee, being left in the car at -20F overnight and everything else I've put it through, which no apple product can. Thats all for my anti-apple rant.

Nevertheless, we can see the curve is flattening out considerably in the last few years, which begs the question of what new technology is next in the pipework?

 
At 3/16/2011 4:47 PM, Blogger AIG said...

On the "military stuff is getting more expensive" argument, you're completely ignoring quality and capability.

They're not getting more expensive for a "unit of destruction" they can deliver. They're getting comparatively cheaper in fact. An F-35 of today, with 4 bombs, can deliver the equivalent destruction as 1000 B-17s in WW2, with 1000 times less loss of life (assuming that some % of those B-17s were lost in every mission)

Of course the military industry is a model of non-competitiveness and inefficiency.

But, there's 2 important observations. a) whats the alternative? How can we make it more "free market"-like? Its an industry which has been massively vertically integrated and merged over the past couple of decades precisely because many companies have died out due to lack of demand.

and b) its still retains considerable elements of competition, and much more efficient both in product and cost terms over its foreign rivals. There is room for new entrants (as we have seen with General Atomics), especially on the systems side.

The problem with defense isn't any of the usual suspects (government bureaucracy etc etc). Its that there is only ONE customer. Its as much of a natural monopoly as it can get.

So attempts to reduce cost and increase competition, would have to be "bureaucratic" driven too.

 
At 3/16/2011 5:55 PM, Blogger Benjamin said...

AIG-

When it costs $3 trillion (CBO estimate) to run a couple minor wars in two Third World nations, and $1 trillion a year to maintain our military-foreign policy-VA-Congressional archipelago, then I say our DoD is way too expensive.

Sheesh, the "bad guys" can field a soldier for $5,000 a year, and we have to spend 20 to 40 times that amount.

The option is demobilization until a threat appears. You mobilize to meet threat, you don't stay constantly in hypermobilization in case someday there actually might be a military threat.

The advantage of mobilizing to meet threat is your start fresh, with best technology, and minimum bureaucracy. People have to KiSS (keep it simple stupid), and it known everything will be demobilized in a few years, so no one depends on the DoD for a career.

BTW, I am not a leftie, I would sunset HUD, USDA, VA, Labor, Commerce also.

 
At 3/16/2011 6:16 PM, Blogger aorod said...

It's,nice of your aren't being crushed by college tuition costs...

 
At 3/16/2011 6:52 PM, Blogger AIG said...

"When it costs $3 trillion (CBO estimate) to run a couple minor wars in two Third World nations,"

Thats obviously untrue. Iraq war so far has cost about 800 billion, and of course this includes a heck of a lot more things than paying for "technology" and "hardware". The logistics side of a particular operation, and the political side and the "aid ans assistance" side, isn't necessarily relevant to the discussion at hand.

"and $1 trillion a year to maintain our military-foreign policy-VA-Congressional archipelago,"

Thats obviously untrue too. About 200 billion of that money goes to VA affairs. And obviously the remainder isn't spend on "hardware", "R&D", or "acquisitions". A tiny percentage is. So again the argument that the DoD as a whole is spending too much, is not the same as saying "weapons are getting more expensive".

The DoD today spends considerably less as a % of GDP than it did during the Vietnam War, or even during the Gulf War. So it has gotten cheaper.

"Sheesh, the "bad guys" can field a soldier for $5,000 a year, and we have to spend 20 to 40 times that amount."

Yes but we get 100:1 casualty ratios on the bad guys.

"The option is demobilization until a threat appears. You mobilize to meet threat, you don't stay constantly in hypermobilization in case someday there actually might be a military threat. "

Thats obviously not an option. You don't train to be a fighter pilot, or a tank commander, or a communications officer, or a radar operator...in the span of 3 days. We get 100:1 kill ratios because we have soldiers that constantly train and are constantly ready.

War ain't like in 1776, cause the other guys don't ride on horseback and fire muskets anymore.

"The advantage of mobilizing to meet threat is your start fresh, with best technology, and minimum bureaucracy"

? Can you build an aircraft carrier in a weekend?

" so no one depends on the DoD for a career. "

A lot of people do. Having a professional career soldier, is what it takes to ensure that no one gets the bright idea of messing with the US, and ensures we get 100:1 kill ratios is something does happen.

"BTW, I am not a leftie, I would sunset HUD, USDA, VA, Labor, Commerce also."

Hey I'm with ya! DoD needs reform. But its one thing to say that, and say that overall it needs to cut spending. And its quite another to cling to a Revolutionary War view of what defense, military, and international affairs look like (not that I'm accusing you of it, but a looot of "libertarians" just say things like that when it comes to defense)

 
At 3/16/2011 6:53 PM, Blogger AIG said...

"When it costs $3 trillion (CBO estimate)"

That estimate was for 2017 BTW.

 
At 3/16/2011 7:58 PM, Blogger Buddy R Pacifico said...

RE: Defense Spending

There has not been one U.S. ground casualty, caused by an enemy aircraft, in combat, since 1952.


There are American men and women all over the world who enable your freedom and liberty.

 
At 3/16/2011 9:22 PM, Blogger AIG said...

"There are American men and women all over the world who enable your freedom and liberty."

And the world's freedom and liberty! Lets not forget. The age of globalization and free trade and democracy that has covered 80% of the world today, is thanks to this!

If we took the approach some would have us take (an approach based on 1776 reality), 80% of the world today would be communist, and we'd still be ducking under school desks.

 
At 3/16/2011 10:44 PM, OpenID Sprewell said...

The math is actually much better than the first table shows, as Cooper points out and the CPI chart attempts to show. The processor in the iPad 2 might have a slower clock speed but because of improvements in process technology and computer architecture, that handheld tablet is probably more powerful than those larger, older Macs. AIG's right that Apple products are overpriced but the iPad 2 in the table is now more powerful than his Dell (also, Android is more bloated so you won't see as much of the power). The curve isn't really flattening out much, it's just tougher to see the gains on a linear scale, you have to go to a log scale as the numbers get smaller.

 
At 3/16/2011 10:45 PM, OpenID Sprewell said...

wtf, this crappy blogger software made me split my comment up into two parts, otherwise it kept erroring out:

I have been marveling at that drop for some time now, not from looking at any chart but actually buying these computers over the years and seeing the difference, but the truth is that we really haven't found ways to harness all that cheap computing power. That's largely because software is a big mess and hasn't kept up with hardware gains; the lack of micropayments is a big reason for that. We have a lot of pent up productivity and output because of these bottlenecks, but look out once it gets unleashed in the coming years. :)

 
At 3/16/2011 10:55 PM, Blogger AIG said...

"The curve isn't really flattening out much, it's just tougher to see the gains on a linear scale, you have to go to a log scale as the numbers get smaller."

Good point.

 
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