Dropbox, Google Drive, and the CPI
There's an ongoing debate (including in the CD comments section) about whether CPI inflation as measured by the BLS overstates or understates changes in consumer prices. Mike Mandel makes the case here that the CPI may significantly overstate inflation because it doesn't capture many of the significant price decreases in online services, many of which are now free: Dropbox (which Mike Mandel uses 25-50 times per day) with 2.5 GB free storage, Google Drive ("Keep Everything, Share Anything, Access Everywhere") with 5 GB of free storage, and well, even free blogs like Mike's (Mandel on Innovation and Growth), and Marginal Revolution, Greg Mankiw's blog, Cafe Hayek, etc.
Consider that before the Internet, you'd have to buy books written by Tyler Cowen, Don Boudreaux or Greg Mankiw to access their expertise and knowledge, and you can now learn economics from them for free by reading their blogs.
Here's Mike:
"The omission of free online services from the CPI, once insignificant, has become increasingly important as we spend more and more of our time online. What has the bigger impact on Americans–an increase in the price of “lunchmeats” (2.3% over the past year) or a decline in the price of online storage (arguably down by as much as 50%, though it is probably less)?
That’s a real question, incidentally, not a rhetorical one. We may have reached the point where Internet companies are providing free services that have a higher value than some things we pay for. How do we change our economic statistics to reflect this new reality?"
MP: The reason this is an important economic issue is because if CPI inflation overstates true consumer price inflation due to mis-measurement of items like free online services, it would mean that the growth in real wages, real income, real output, etc. over time have been understated.
HT: Mister Ed
Consider that before the Internet, you'd have to buy books written by Tyler Cowen, Don Boudreaux or Greg Mankiw to access their expertise and knowledge, and you can now learn economics from them for free by reading their blogs.
Here's Mike:
"The omission of free online services from the CPI, once insignificant, has become increasingly important as we spend more and more of our time online. What has the bigger impact on Americans–an increase in the price of “lunchmeats” (2.3% over the past year) or a decline in the price of online storage (arguably down by as much as 50%, though it is probably less)?
That’s a real question, incidentally, not a rhetorical one. We may have reached the point where Internet companies are providing free services that have a higher value than some things we pay for. How do we change our economic statistics to reflect this new reality?"
MP: The reason this is an important economic issue is because if CPI inflation overstates true consumer price inflation due to mis-measurement of items like free online services, it would mean that the growth in real wages, real income, real output, etc. over time have been understated.
HT: Mister Ed
71 Comments:
Changing the goods basket lends itself to manipulating inflation.
Hamburger getting too expensive? Throw it out! Everyone can eat dog food!
Can't afford the rent so you move back in with your parents? Great! That's 100% housing deflation!
An honest measure of inflation would measure the cost of a static (within reason) basket of goods.
But nobody at the Fed or in Washington is interested in an honest measure of inflation.
W.C.,
The problem is that the basket we consume changes.
What if consumer preferences change from hamburger to chicken? Is a basket with the same amount of hamburger still relevant? I don't think so.
I think it's actually pretty hard to get a really accurate measure of inflation over long periods of time.
And I thought that inflation was always and everywhere a monetary phenomenon.
What's the true cost of imported oil from the Middle East?
Add these costs to compute per gallon price:
A fleet of ships to protect shipping lanes.
Armed forces stationed within hours of oil fields.
Satellite surveillence monitoring ground and ocean threats.
Radar surveillence monitoring air threats.
Free online services? So there IS such a thing as a free lunch after all! Who knew?
Mandel of course is wrong using as examples of Google Drive and Drop Box though his overall point might possibly be correct (something I don't believe he is either)...
How many people are using either one of these 'free' services vs buying hamburger or any other food stuffs?
"I think it's actually pretty hard to get a really accurate measure of inflation over long periods of time"...
Heck methinks considering for instance how there have been some wild price swings for gasoline the contents of that so called 'basket' could be changing a few times a week...
What does the 'reported' inflation number mean then?
Not much I would think...
this is a deeply flawed argument.
the net effect of drop box etc is minuscule in comparison to the effect of the vastly underrepresented categories of rent and healthcare and the weight adjustments on things like food.
this is like talking about the weight you lost from cutting your hair while i fill your pockets with stones.
further, there is no such thing as a free online service.
if you are not paying for the good or service you use, you are the product, not the customer.
a g-mail user is a product. you are part of an advertising demographic google sells to its real customers. if you view privacy as valuable, then you are paying. not all prices are in dollars.
"Add these costs to compute per gallon price:"...
Well buddy I thought all those services you listed were already supposedly paid for via income tax, excise tax, etc...
"...you can now learn economics from them for free by reading their blogs."
The best way to learn economics is through rigorous programs over many years.
Too many people learn only enough economics to be wrong.
"Well buddy I thought all those services you listed were already supposedly paid for via income tax, excise tax, etc..."
And there you are wrong. They are paid for via bonds that will never be repaid but only rolled over into new bonds.
Which gets us back to inflation.
"And there you are wrong. They are paid for via bonds that will never be repaid but only rolled over into new bonds.
Which gets us back to inflation."...
Ha! Ha! Ha!
Good point varones...
juandos states:
""Add these costs to compute per gallon price:"...
Well buddy I thought all those services you listed were already supposedly paid for via income tax, excise tax, etc..."
Yes, they are paid for with income taxes, but the cost of oil is understated because of extra measures to bring it to market.
So, for the Consumer Price Index do you subtract weight for free services(ie. Carpe Diem) and add weight for hidden costs(imported Middle East Oil)?
I don't think it is posssible.
mandel is talking about an improving standard of living, which is a different animal than a price index...
that said, doug short has the best series of monthly posts deconstructing the CPI...click on a graphic for access to others:
http://advisorperspectives.com/dshort/updates/CPI-Category-Overview.php
the net effect of drop box etc is minuscule in comparison to the effect of the vastly underrepresented categories of rent and healthcare and the weight adjustments on things like food.
Bingo
doug short has the best series of monthly posts deconstructing the CPI...click on a graphic for access to others:
They should be good, he copied the concept from me - except he believes the BLS lies and "special interpretations".
The best way to learn economics is through rigorous programs over many years.
Too many people learn only enough economics to be wrong.
Seems to have backfired on Krugman and Blinder. Supposedly you've also had years of rigorous study, yet you seem to think the law of demand doesn't apply to the labour market.
What does the 'reported' inflation number mean then?
Not much I would think...
I don't know, Juandos.
A while ago, Morganovich and I had a conversation on this blog about how much cheaper clothing is.
In a recent conversation, I mentioned a time in my life when making my own clothing was cheaper than buying it and that I remember darning socks (dress socks, not tube socks). Now, it's just not worth it. Those items are so cheap that Piece Goods (a fabric and pattern store for the home seamstress) went out of business at least a decade ago.
Morganovich pointed out that the quality of the cheaper clothing is not as good. But, I don't think most people care because most people have many items of clothing that they routinely rotate out of their wardrobe to goodwill in favour of new, trendy items. In other words, I think most people value the ability to select more fashionable, trendy clothing more frequently over quality items that last for decades.
So, perhaps it is true that the clothing quality is worse and that on a quality adjusted basis, the clothing is not THAT much cheaper. But, it seems that people value fashion and quality over quality, properly finished seams. Since people are getting what they value, clothing (or that which they value in clothing) is in fact less expensive than it was.
It would seem that petrol would be a constant. I remember driving a used 1972 Cadillac (land yacht) which got 6 miles per gallon. That thing made me very sensitive to fuel prices. But, with the rise of fuel efficient cars, telecommuting and the ability to send documents over the internet as well as shop online, I wonder if it's as important as it was when you were forced to go into the office every day and errands were run all over town in a car.
Today, I have easy access to goods from all over the world. In the 1980's this was unheard of. I'd have to trek to Brighton Beach to get Russian foods I missed from my childhood (not easy since I lived in the South). Today, I can order food from any part of the world online and have it delivered to my front door. How do you even account for that enrichment in a CPI?
Apparel wise, here's the last 12 months (annual change rates) of the raw BLS CPI Apparel series.
The trend is unmistakeable.
0.1%
1.0%
1.9%
3.1%
4.2%
3.5%
4.2%
4.8%
4.6%
4.7%
4.2%
4.9%
5.1%
Bart, thanks. I was really talking about a longer time period than 12 months and changes over a 12 month period (barring a "killer app" type of change) are probably more meaningful.
However, don't despair. The dollar has been strengthening over the past month as the stock market has been collapsing under the weight of the European crisis (and no QE3 announcement). Turns out, we're still the tallest pygmy. So, maybe that trend will reverse.
I've been making this point for some time now. I haven't bought a book in almost a decade, yet I read as much or more than I ever did before, all online. Another way that tech deflation is understated is that usage goes way up when this stuff gets so cheap, ie I almost never wrote "snail mail" letters before email but now I write emails every day. If one actually calculated how much it would cost me to do the same using the physical delivery services of the '80s, you'd see a lot more economic activity that isn't being counted now. And Methinks raises important points that preferences change over time and we have entirely new services being created these days. Trying to create a "general" index of inflation has always been a fool's errand and it has become impossible with the information economy we're transitioning to, with its heavy focus on customization.
The best you can do is maybe track how much prices change for any particular individual's basket of goods- but only for the goods that stay constant in her basket for long periods of time, ie leave out smartphones that are constantly changing and being replaced- which a general index like CPI was always supposed to be a crude approximation for, because it was impossible to calculate it individually for everyone then. However, it's now easy with current computer technology, though it still hasn't been done because the software guys have been too dumb to build it and integrate all the disparate systems.
The concept of economic aggregates is silly, and touting them makes economics into a joke.
You might as well inventory the colors of a fixed set of items, aggregate these colors together, proclaim how red or blue the world is, and then pat yourself on the back for your profound scientific insight.
The best you can do is maybe track how much prices change for any particular individual's basket of goods- but only for the goods that stay constant in her basket for long periods of time, ie leave out smartphones that are constantly changing and being replaced- which a general index like CPI was always supposed to be a crude approximation for, because it was impossible to calculate it individually for everyone then. However, it's now easy with current computer technology, though it still hasn't been done because the software guys have been too dumb to build it and integrate all the disparate systems.
It is clearly true that every individual has a unique basket of goods and services that cannot be measured by an aggregate measure like the CPI. It is also true that productivity increases is cutting the prices of most NEW products as it should. But if you look at the essentials you find that prices of goods that have become commoditized are going up.
The true measure of inflation is the change in the supply of money and credit. Because those are increasing at a far faster rate than the supply of energy, food, fuel, healthcare services, etc., prices are going up.
It is clearly true that every individual has a unique basket of goods and services that cannot be measured by an aggregate measure like the CPI.
It's not only true that the CPI is the best we have on attempting to measure it, but also true that giving up and not trying to measure it at all is foolish.
Plus, the basic idea of baskets is flawed. If beef goes up in price and consumers switch to chicken, that's called a drop in the standard of living - aka 'hidden inflation'.
The original idea of CPI was to track the price of a standard of living - and that's what has gone awry starting in 1968 or so with the health cost weighting in CPI vs. the share of GDP. And it continued in 1982 with the OER boondoggle, etc.
When one changes the definition away from trying to track a standard of living and towards hedonic pricing and substitution and all the rest, that ends up with false and low inflation measures - and its even partly Orwellian.
The BLS BS & lies also extend into health insurance.
Their tracking index, started in 2005 and based at 100 is currently at 116.663.
A private national index, also rebased at 100 in 2005 were at 145.788 recently.
Methinks: "Today, I can order food from any part of the world online and have it delivered to my front door."
Yes, and it's not just food, of course. One example: a rural resident can order very specialized crafts and woodworking equipment via the internet that he could even imagine existed 30 years ago.
What CPI certainly cannot account for is the better spending choices consumers are making as a result of instant information.
methinks: "Morganovich pointed out that the quality of the cheaper clothing is not as good."
I'm not so sure that clothing in general is lower quality than it was when I was a child. Athletic clothing, in particular, is far superior to what was available to us. The moisture wicking golf shirt I'm wearing right now will keep me far cooler than anything that was available in the 1960s when I first learned the game. I don't believe the high quality rubber and the silicon-based cushioning of my running shoes were available for any runners when I completed my first 5K back in the mid-1970s.
What CPI certainly cannot account for is the better spending choices consumers are making as a result of instant information.
And they try with hedonics... and without accounting for reverse hedonics, when standards of living are negatively affected.
Also note that those 'better choices' like food delivered from many parts of the world involve a small amount of overall spending.
bart: "Also note that those 'better choices' like food delivered from many parts of the world involve a small amount of overall spending."
Perhaps for some people. But online shopping continues to grow. Furthermore, the better choices include items and services which are researched online but purchased offline.
bart: "And they try with hedonics... and without accounting for reverse hedonics, when standards of living are negatively affected."
I thought hedonics adjustments had to do with real changes in quality:
"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."
I was referring not to quality changes but to improvements in consumers' ability to match purchases with individual preferences. It's not so much that we are buying a higher quality item (that's open to debate). Rather, we are more able to know and buy what we really want/need.
Perhaps for some people. But online shopping continues to grow. Furthermore, the better choices include items and services which are researched online but purchased offline.
I submit that the huge majority of folk don't order very specialized items like you're discussing - online or not.
I was referring not to quality changes but to improvements in consumers' ability to match purchases with individual preferences. It's not so much that we are buying a higher quality item (that's open to debate). Rather, we are more able to know and buy what we really want/need.
That seeems like hedonics from here - a quality improvement in selection & refinement capability. The quality of a TV with PiP is only in the enhanced "consuming experience".
A small part of the problem with something like PiP is that frequently one can't find a TV without it when one doesn't want it. That boils down to actual inflation for those who don't want or use PiP.
It's not hugely dis-similar to a computer that's 5x faster but doesn't allow one to get anywhere 5x more work done.
And the failure to account for reverse hedonics still exists.
bart: "That seeems like hedonics from here - a quality improvement in selection & refinement capability. The quality of a TV with PiP is only in the enhanced "consuming experience"."
I think you're misunderstanding me. The change I was referring to is not that products with different features are now available. It's that consumers have much better information and can choose better among the varied products available to them.
The hedonic adjustment made in the CPI is explained in the BLS FAQ:
"Hedonic quality adjustment refers to a method of adjusting prices whenever the characteristics of the products included in the CPI change due to innovation or the introduction of completely new products."
I was referring not to innovation but to improved consumer selection.
bart: "I submit that the huge majority of folk don't order very specialized items like you're discussing - online or not."
You can "submit" whatever you wish to. I don't agree that purchases of specialized items is insignificant.
You can "submit" whatever you wish to. I don't agree that purchases of specialized items is insignificant.
Oh good grief.
You can assert and promote and hope that purchases of specialized items is significant, but the truth is very likely different for the huge majority.
Fair enough on "selection" and "quality", it appears from here that it's nothing but semantic differences.
bart: " it appears from here that it's nothing but semantic differences."
I didn't think you'd understand what I'm talking about.
Let me try one more time, Bart.
The CPI is adjusted for differences which arise because of innovation and changes in quality. That's the hedonic adjustment you referred to.
The CPI is not adjusted to account for consumers making better choices. Even if the selection of goods had remained completely unchanged, consumers would still be making better choices about purchases as a result of the internet. By "better choices", I mean they would be able to choose - from among the millions of goods and services available - exactly those goods and services which met their needs and desires. Far fewer dollars are wasted today on goods and services which turn out to be unsatisfactory.
Is this feature of today's information age significant? IMO, the improved decision-making resulting from instant information is the single most important benefit of the internet.
I didn't think you'd understand what I'm talking about.
I didn't think you'd even vaguely try either, considering the concept of fixed ideas - regardless of actual facts.
Yes, hedonics is strongly related to quality (the derivation is related to pleasure) - and you're more than welcome to not call that "selection" area as having little or nothing to do with quality.
I'm not going to take any bait and discuss the benefits of the internet - especially when the topic is CPI and its lies, as I've documented.
The huge difference between the BLS and private health insurance indexes is at least 20x the effect on CPI or inflation than things like Dropbox or specialty foods.
The lying/understated BLS one is up ~16% in 6 years, the other almost 50%.
With all due respect to everyone involved in this conversation, I think both sides have it wrong.
CPI is an indicator of inflation. It is not inflation itself. It has taken me a long time to realize this.
CPI does not over-state or under-state inflation any more than a barometer over-states or under-states the weather. It just gives an indication of where it is heading.
We misquote CPI all the time. We call it the inflation rate. We call it the cost of living. We tie so much to it, but that is a recipe for disaster! Would you tie all of your weekend plans to the temperature? Of course you wouldn't. But you do use it to get an idea what the weekend weather will do. That is what CPI does. That is what the PPI does. They are just one indicator of many that help us to gauge what prices are doing.
The CPI is a classic example of a good statistic gone bad. Just like GDP.
methinks-
funny you should mention clothing.
at +5.1%, apparel had the highest inflation of any category in the last CPI report.
but i think you are sidestepping the issue a bit. people may well want lower quality clothes at lower prices, but that does not change the fact that they are lower quality. you need to buy them much more frequently. in terms of cost of living, having to buy something more frequently is not really any different than inflation.
jet-
the hedonic adjustments in cpi are so utterly subjective that they do little but inject bias. they are almost all in one direction and make assumptions about quality that are completely arbitrary in terms of size.
but they are not the real killer in terms of making cpi worthless. geometric weighting is.
the assumption that you buy more of things that drop in price and less of those that rise seems intuitively at first pass, but, in fact, it's more often than not totally wrong because it makes the wrong assumption about causality.
it assumes a supply driven world. if price changes because demand changes, then an increase in price is actually indicative of MORE demand and consumption, not less. this is the more common driver of price and causes the bls adjustments to have the wrong sign. this is how healthcare winds up 50% understated and rent becomes far too small a part of OERs.
a simple (and real) example makes this really obvious. i've used this before, so i apologize if you're heard this.
the movie sideways promoted pinot noir and denigrated merlot. this had very significant real world effects. demand for pinot shot up and demand for merlot plummeted. the price of pinot rose and the price of merlot dropped.
the bls would call these substitutes, look at the lower price of merlot and assign a greater portion of the consumption basket to it and drop the representation of pinot, precisely the opposite of what was really happening.
take a look at how they have handled meat. all the prime cuts have been dropped from the basket entirely (because they were soaring in price) and replaced with cheaper cuts and lower grades of meat. the basket is deliberately altered to remove the items that go up in price. we can argue about the merits and drawbacks of various inflation measures, but i think it's pretty undeniable that if you deliberately remove the items that go up in price, you're not being honest about trying to gauge the price level.
CPI is an indicator of inflation. It is not inflation itself.
Fair enough and true... but do you have a better inflation measure?
Bart: "It's not only true that the CPI is the best we have on attempting to measure it, but also true that giving up and not trying to measure it at all is foolish."
While this sentence seems to defend the CPI, the rest of your comment appears to explain why it's not very useful. :)
Why is it necessary that we pay for an aggregate measure of something that is unique to each of us?
"Why is it necessary that we pay for an aggregate measure of something that is unique to each of us?"
ideally to provide a benchmark for lending, bond yields, and as a guide to setting interest rates and money supply.
the only successful way to run a central bank with a fiat currency is to inflation target. the volcker fed and the bundesbank did great jobs on this. target low inflation and nothing else.
as soon as you add the dual mandate for jobs/growth, the CB has contradictory goals and inevitably gets politicized and pushed to try to goose the economy and control the business cycle, things it cannot do.
but you need to have an inflation aggregate to target to.
the problems the us has had for the last 15 years have a great deal to do with that target getting screwed up.
new cpi reads far lower than old cpi, yet we target the same nominal inflation. this has led to vastly more expansionist monetary policy and led to bubble after bubble and horrendous debt accumulation in response to what would before have been recognizable as negative real interest rates that were made to look positive by a lowered cpi.
all the targeting rules we had were based on the old cpi and we did not alter them when we changed the calculation.
this is a bit like replacing a 1/2 cup measuring cup with a full cup but using the same number of scoops and wondering why your baking is coming out so badly.
While this sentence seems to defend the CPI, the rest of your comment appears to explain why it's not very useful. :)
I probably should have broken that up into two posts, since I was responding to two separate other posts.
The point is both that it's the best we have AND that it's flawed.
Why is it necessary that we pay for an aggregate measure of something that is unique to each of us?
I don't have a clue how to answer that, other than an average is far better than nothing and perhaps it helps to judge one's own experience against an average.
It's a bit like asking why should I pay for (x) when I don't benefit from it - or why should S&P publish an index of 500 stocks when folk only buy one of two of them on average? Or why should SAT averages be published?
I think the CPI has lots of positive and beneficial uses, especially if it weren't so flawed and inaccurate.
Jon M: "CPI is an indicator of inflation. It is not inflation itself. It has taken me a long time to realize this."
Thanks, Jon, you are correct, of course.
Fair enough and true... but do you have a better inflation measure?
I think you may have missed my point, Bart (or I may not have expressed it clearly). You do not want to rely on just one indicator to measure inflation. You want to look at multiple: CPI, PPI, personal incomes, energy prices, food prices, personal consumption expenditures, etc. Any one of them, when interpreted in a vacuum, can lead to false conclusions. It can make things rosier or bleaker than they are.
A lot of the arguments here seem to steam from folks having issues with a statistics measurement, collection, methodology, etc. But that is never a reason to discount a statistic. What you want to do is look at that stat and see what else is going on around you. That is why that idiot Lakshman Achuthan is dead wrong about a recession in 2012. He focuses entirely on his weekly leading indicator. He is missing the many other signs of an ongoing recovery.
But I digress.
Look, in the past week and a half, we have all argued about the merits of different economic indicators: GDP, CPI, trade statistics, employment numbers, manufacturing numbers, etc. This only goes to prove my point. You can;t focus on just one indicator, no matter how good it is. It will send off false signals. You need to look at a myriad of indicators to get a better picture.
jon-
clearly, any inflation index is going to be an estimate and will have issues, but i think we can look at various ways of calculating such a measure and compare them.
the new post greenspan cpi differs greatly from the old one. it reads much, much lower by using statistical manipulation and subjective adjustment that, to my mind, makes if a far less good approximation of the price level than it used to be.
it was deliberately adulterated for political reasons (such as reducing the social security and medicare COLA).
"And I thought that inflation was always and everywhere a monetary phenomenon."
not at all.
consider the effects of a crop failure. prices spike because supply went down. that's inflation, but it's not monetary in nature.
You are absolutely right, Morganovich. Part of the reason why I am arguing against using just one measure. When you tie something to one stat (in this case, COLAs) you can easily manipulate it to suit your needs.
Another baseball example (I'm in a baseball mood): sometimes, in a player's contract, a team will but in "performance incentives" and base his pay upon those. For example, they may say "get X number of at-bats and your pay will rise by Y." Well, what will sometimes happen is the manager will only let the player bat X-1 times to save the team Y money.
Focusing on one stat, and worse, linking something to one stat is just foolish.
But this is a problem throughout our culture, not just among us economists. We only focus on one thing. We focus on sound bites, or bright lights, or headlines. We never read the details. I understand why that is. We're busy. But when we elect someone who will, in theory, make laws and rules that will affect our lives, I want him to spend every second of every day looking at the details.
When we don't look at details, we get these "one size fits all" solutions. We don't want to increase spending, we want to increase the right kind of spending. We don't want the education rate to rise, we want quality education. We don't want increased production, we want the right kind of production increased. We don't want to raise home ownership, we want the right kind of home ownership. We don't want to raise trade. We want to raise the right kind of trade. We don;t want our ball players to have at-bats, we want them to have quality at-bats. This is what is lost. We look at "one size fits all" and say "it's perfect." But one size never fits all. It hardly ever fits most. We have to divorce ourselves from one stat or one sound bite and look at the bigger picture.
You do not want to rely on just one indicator to measure inflation.
I never said you should just rely on one indicator.
And I do track every one of those other indicators, and virtually every one points at CPI being severely low.
What I did say, and have seen no answer, is what better single indicator exists that is better than corrected CPI?
The disturbing part of all this discussion of CPI being low is that I've answered or countered *every* single objection to CPI being correct - but virtually no one has even commented on all the evidence I've presented that shows CPI-U IS too low, and not by a little.
"And I thought that inflation was always and everywhere a monetary phenomenon."
not at all.
consider the effects of a crop failure. prices spike because supply went down. that's inflation, but it's not monetary in nature.
That's more like a demand issue.
One valid inflation definition is a *general* rise in price levels.
There are no instances in all of history history of which I'm aware (with a significant period of inflation) that was not preceded with an excessive level of money creation - whether by coin trimming or outright currency printing or similar.
Geoih says:
"The concept of economic aggregates is silly...You might as well inventory the colors of a fixed set of items, aggregate these colors together, proclaim how red or blue the world is, and then pat yourself on the back for your profound scientific insight."
One difference between your fingerpainting analogy and economics is economics maximizes the bright colors and minimizes the dim colors simultaneously.
Also, I may add, it's amazing the same people continue to assume the CPI is understated, even after I shown them more than enough proof it's either unbiased or overstated.
I guess, old habits are hard to break.
That's more like a demand issue.
At the risk of opening up a tangent, how is this example a demand issue? Demand is remaining constant. It is supply that is falling, causing prices to rise.
At the risk of opening up a tangent, how is this example a demand issue? Demand is remaining constant. It is supply that is falling, causing prices to rise.
Call it a supply issue then - they're tied together, with the proviso that demand does not fall.
What I did say, and have seen no answer, is what better single indicator exists that is better than corrected CPI?
None.
The inverse of that question is "what single indicator that exists is worse than corrected CPI?"
Answer: none
Indicators in and of themselves are neither good nor bad. They just are. It is up to the interpreter to determine how much weight to give them.
For example, when discussing economic conditions, I don't give the stock market more than a passing glance. I find it to be a terrible indicator. Others love it. The value of certain indicators is in the eye of the beholder.
Call it a supply issue then - they're tied together, with the proviso that demand does not fall.
Demand will not fall. Price does not cause demand to fall. Price causes the quantity demanded to fall.
"The concept of economic aggregates is silly...You might as well inventory the colors of a fixed set of items, aggregate these colors together, proclaim how red or blue the world is, and then pat yourself on the back for your profound scientific insight."
False analogy and cognitive dissonance - the comparison is logically invalid. I'd be happy to look up the specifics and provide them, but they're on my site.
One can easily find a price difference from month to month on Idaho potatoes or a pint of sour cream or apples to apples insurance policies - etc. etc. etc.
Also, I may add, it's amazing the same people continue to assume the CPI is understated, even after I shown them more than enough proof it's either unbiased or overstated.
I have addressed and shot down every single one of your 'proofs', but have as yet to hear anything valid on the myriad of facts I've presented - like declining purchasing power of seniors, CPI vs. GDP share of medical care (unless you believe that corporations are actually people and use medical care), the recent health insurance set of charts shwoing that BLS numbers are 1/3 of private health insurance indexes, OER BS, the lack of reverse hedonics and many many more.
All you have are assertions or 'appeal to authority' type links.
What I did say, and have seen no answer, is what better single indicator exists that is better than corrected CPI?
None.
Cool
Call it a supply issue then - they're tied together, with the proviso that demand does not fall.
Demand will not fall. Price does not cause demand to fall. Price causes the quantity demanded to fall.
Ok, so shoot me - I used the wrong word. -g-
My point was that your example wasn't inflation, by the definition I cited.
History shows that excess money creation *always* precedes a significant period of inflation
Ok, so shoot me - I used the wrong word.
Sorry, Bart, to have made an example out of you. I understand what you were saying, but the wording you used is one of the more commonly repeated economic fallacies. It's a pet peeve that I have to correct when I see "demand" and "supply" misused.
Bart, I'd explain it all again, but I doubt it would do you any good.
PT, I'd explain it all again and post charts and the incontrovertible proof, but I KNOW it would not do you any good.
Glad to hear you're giving up, basically in defeat though.
Sorry, Bart, to have made an example out of you. I understand what you were saying, but the wording you used is one of the more commonly repeated economic fallacies. It's a pet peeve that I have to correct when I see "demand" and "supply" misused.
No worries. I do get in a hurry sometimes and use the wrong word, or neglect to use a better one.
Jon M: "For example, they may say "get X number of at-bats and your pay will rise by Y." Well, what will sometimes happen is the manager will only let the player bat X-1 times to save the team Y money."
Not to go OT here, but why would any player agree to base their pay on something they have no control over?
Bart: "It's a bit like asking why should I pay for (x) when I don't benefit from it - or why should S&P publish an index of 500 stocks when folk only buy one of two of them on average? Or why should SAT averages be published?"
I'm sorry I wasn't clear. I guess my question should have been "Why should I be forced to pay for something I don't benefit from - and in the case of CPI actually causes me harm by understating inflation?"
"I think the CPI has lots of positive and beneficial uses, especially if it weren't so flawed and inaccurate."
Yes. My old power saw would be pretty handy if it weren't broken. :)
Bart: "There are no instances in all of history history of which I'm aware (with a significant period of inflation) that was not preceded with an excessive level of money creation - whether by coin trimming or outright currency printing or similar."
Exactly right. There is no possible way for ALL prices, or even MOST prices to rise without an increase in the money supply.
morganovich:
I'm not comfortable referring to a single price increase as inflation, as in your crop failure example, although I know it's common practice. Why not just refer to a price increase in product X, so I'm not led to believe that's a part of a general increase in prices?
I'm sorry I wasn't clear. I guess my question should have been "Why should I be forced to pay for something I don't benefit from - and in the case of CPI actually causes me harm by understating inflation?"
Ah, I see the light now... said the blind man. -g-
Yes. My old power saw would be pretty handy if it weren't broken. :)
http://www.nowandfutures.com/grins/rimshot.mp3 !
Peak: "One difference between your fingerpainting analogy and economics is economics maximizes the bright colors and minimizes the dim colors simultaneously."
Do you mean the study of economics is an attempt to misrepresent the real picture? And here I thought ecomonics was a study of how people interact with each other. Now you're telling me economics is a policy tool.
And you wonder why some people don't trust economists!
I would say you have accurately described the calculation of the CPI.
Peak: "I guess, old habits are hard to break"
Is this what you mean?
Ron, why don't you ask Geoih what happens when you add more bright colors to less dim colors.
Not to go OT here, but why would any player agree to base their pay on something they have no control over?
In baseball, if you have an oft-injured player, he'd be willing to sign a contact for a relatively low contract (say, $1M) with performance incentives that could total $4M. He knows, at the very least, he'll make that 1M.
Peak, you ask him! I'm pretending I already know.
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