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The Magic Of 100%+ "Hedonic" Deflation In One Chart
In a NYT article which perhaps was meant to boost poor Americans' spirits that despite their horrible economic plight (because, you see, the past five years of Fed monetary easing - which explicitly allowed US politicians to avoid engaging in much needed and very unpopular fiscal reform - only focused on helping just the wealthiest - sorry very much, better luck next time) things really are quite great because, through the magic of hedonics, most things are really cheaper than ever.
To wit:
Since the 1980s, for instance, the real price of a midrange color television has plummeted about tenfold, and televisions today are crisper, bigger, lighter and often Internet-connected. Similarly, the effective price of clothing, bicycles, small appliances, processed foods — virtually anything produced in a factory — has followed a downward trajectory. The result is that Americans can buy much more stuff at bargain prices.
They can.
The only problem is they don't, because while one can use hedonic adjustments all day long to make it appear that one gets more bang for the buck, one still has to spend several hundred to over a thousand for a simple television set every few years, regardless of whether it is 1080p, 4K, 3D, or any other fleeting fad.
The NYT does touch on this amusing sleight of hand used by economists always and everywhere to make inflation appear tamer than it is:
“If you handpick services and goods where there has been dramatic technological progress, then the fact that poor people can consume these items in 2014 and even rich people couldn’t consume them in 1954 is hardly a meaningful distinction,” said Gary Burtless, an economist at the Brookings Institution. “That’s not telling you who is rich and who is poor, not in the way that Adam Smith and most everyone else since him thinks about poverty.”
Indeed - because between soaring food and energy prices, and stagnant or outright declining wages (the average weekly wage this month was $24.31; the average weekly wage last month was... $24.31), and the indigestability of the iPad (a new version of which is offered every 8-12 months with new features, which somehow also makes it hedonically cheaper) America's poor couldn't care less about how "cheap" those things they simply can never afford, allegedly are.
And the other problem, and an indication of just how ridiculous hedonics really is, is shown on the chart below, which is what economists use to "justify" that inflation really is very tame.
The punchline: apparently the "hedonically adjusted" deflation in Television costs over the past ten years is over 100%.
Huh, deflation of more than 100%? How is that possible? Just read the fine print:
Data is collected from retail stores and adjusted by specialists to reflect changes in quantity offered in a product or an increase in quality. Much of the drop in prices for electronics reflects an increase in quality over the past 10 years.
Ah, so the drop in prices in not actually a drop in prices which very well may be rising... but simply "an increase in quality."
By that logic, 99% of Americans are wealthier because the US household net worth chart showing really just the wealth of 1% of Americans (those whose paper wealth is tied to the stock market) moves from lower left to upper right. Courtesy of Mr. Chairmanwoman's money printer. And if not that then, well, there is always the trickle down effect.
Isn't modern "hedonically-adjusted" economics just grand: after all, since the quality of that money in your pocket is so much higher, you are now richer. Just ignore the fact that in proportion to all the outstanding money, what you have in your pocket is now worse than a joke.
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Adjusted by specialists, like Janet Yellen.
Joe Shotgun: "Boss, we gotta problem. We gotta rig the inflation index."
Bath House: "Tie it to PMs, Joe, they get bitch-slapped all the time!"
Yes this "deflation" angle is bollocks. Need someone to weigh in from the consumer electronic manufacturing side...but reduction in component pricing, especially di chips, is what all mnfctrs build into their production plans, attaining volume based economies of scale. Product roadmaps are formulated accordingly. They also rely (product dependent) on their "early technology adopters" customers who are guaranteed to take up the latest icrap etc in the first 3 months of release & normally keep the initial price high which allows some R&D cost recovery. Most of these "DEFLATED' goods above are in this mass consumer / brown good arena. So bollocks it is especially if you consider a products lifespan & the so called new improved models at different pricepoints which are simply a tweak upon the original product platform.
Ahem guys, the fine print reads "Change in prices [in percentage points] relative to a 23% increase in prices for all items, 2005-2014"
So if 'New and used cars' have decreased -18% relative to the overall +23%, then the resulting absolute price change was +5% over the last 10 years (if you believe those numbers).
And if televisions have decreased -110% relative to the overall +23%, then the resulting absolute price change was -87%.
The chart is just the usual mess-up with percentages.
Percentages, the biggest deception in mathematics as it describes factors in what seems to be additive numbers (but by 5% is actually by factor 1.05)
Nice catch - i love percentages when i can manipulate them.
I am a 100% sure we are in deep s**t.
If TV prices have deflated by +100% then the shops selling TVs would be paying YOU to purchase their TVs!
Yea, according to John Williams (Shadow Stats) it was that POS A Greenspan who introduced 'hedonic adjustments' into government statistics under Reagan, I believe. Maybe it was Clinton, but what difference does it make? 'They' all work for the same masters.
Screwflation: the stuff you need to survive rises in price, and all the petty paltry passing desires of stuff you don't need falls in price.
Health care only up 20%?
Someone tell Obama, never was a problem there after all.
(a more accurate accounting would see it up more like 200%, from the price for the same drug over that period, to parking at the medical center)
Where's the energy prices?
I will say this. I purchased a 42" plasma HDTV (1080i) back in 2004. It was a low to mid range priced HD television for the time. It cost me $2,800.
Last fall I purchased a 42" LED 1080p set. It came fully loaded with all smart TV features. Cost was $650.
That is a 77 percent decrease in price before accounting for any "hedonic" improvements.
To me this only proves you bought HDTV too early.
Got a top notch 46" Plasma 1080p for $1000 in 2009. I hope it lasts until OLED sets become really affordable.
Second hand, Sony Grand Wega 42 inch - which was several thousand new I grabbed for 100 bucks. I might have to spend $30 on it for a new globe sometime in the next 5 years (rear projection LCD) but hey whos complaining.
I never buy anything new. Fuck em. If I can get something at 5% of new price with only 5% less performance then I'll take it; and I always do.
1998 EL Falcon fairmont. New around $35,000 but picked it up for $1,500 (With recently replaced alternator, radiatior, power steering pump and tyres).
People need to stop thinking *new*
If you were a real patriot you would buy a new GM vehicle and support government subsidized unions and company.
To jpc578:
1.) And what PERCENTAGE of your TOTAL INCOME over those 10 years does that $2,800 represent?
Now, compare that percentage to the PERCENTAGE of your total income spent over those same 10 years for FOOD, GASOLINE, ELECTRICTY, RENT and other EVERYDAY PURCHASES.
Prices for items purchased VERY INFREQUENTLY amount to a tiny percentage of the typical person's expenditures and thus inflict little (if any) pain. It is items purchased VERY FREQUENTLY that comprise the bulk of people's spending and therefore should be the ones on which emphasis should be placed in order to gauge the true burden placed on people re: inflation.
Besides, knowledgeable people know that "first adopters" of any new technology always pay the highest prices - it is called "economy of scale" (as production and sales of an item expand, the costs of production and therefore the price go down).
2.) "HEDONICS" is a FRAUDULENT concept. The PRICE of something is how much I must spend to obtain that item, regardless of its features or improvements. If I spend $100 for item X, I have 100 fewer dollars than I had prior to the purchase. Period. To believe otherwise is self-delusion, AKA, "bullshitting oneself".
After much thought I have come to the conclusion that while inflation appears tame and is not showing up in a big way the seeds have been planted, and the number of them is somewhat shocking. Inflation lurks beneath the surface and is hidden away in the dark corners of our future. Want to know where the real cost of things is going, just look at the replacement cost from recent storms and natural disasters. The article below delves deeper into some of the ways inflation hides away.
http://brucewilds.blogspot.com/2013/06/inflation-lurks-beneath-and-hidde...
Prices of technology items and things that can be made offshore have dropped no doubt. But, in our lives, the big costs like healthcare, education, housing and taxes (some actual taxes and some in the form of unrealized bills known as deficits) have increased. The same goes for food and energy.
While most technology product are definitely cheaper, iPads are a special case. I'm not sure the prices really drops. A state-of-the-art iPad is basically the same price it was years ago. One could argue that there's been no inflation or deflation.
So it's just like global warming. The "experts" "adjust" the data until everything comes out the way they want it. Doubt the adjustment? How could you? They're experts!
http://www.youtube.com/watch?v=yoy4_h7Pb3M
One Word................................NECESSINFLATION
CNBC refuse to use the word.
“Necessinflation”, which he defines as, “Everything that is ‘necessary’ to life is increasing in price: Shelter, energy, food, utilities, medical.”.............who cares about the crap we dont need going down in price!
Going forward what you pay for something may become a big deal. The value of "something" is not an issue to take lightly. Value is not a constant and can be derived from several factors such as supply and demand or utility value, things can spoil or become obsolete making where you invest very important. Value is not as constant as many people think or always destined to rise. The whole concept of value is also deeply rooted in "relevance" meaning drinking water is very valuable to a man dying of thirst. More on what constitutes "real value" and why it is important in the article below.
http://brucewilds.blogspot.com/2014/05/value-and-worth-constantly-change...
This is very interesting because Jim Rickards has been making the comparison with two tectonic plates rubbing against each other which causes earthquakes sometimes. One tectonic plate being Inflation and the other Deflation. Prof. Antal Fekete talked about "pockets of deflation" while we clearly can see pockets of inflation too.
Are Hedonic charts compiled by Hedonists? Just asking. :-D
Never before has mankind diverted such a large percentage of wealth into intangible products or goods. I contend this is the primary reason that inflation has not become a major issue. The modern economy is loaded with interwoven contracts reeking of contagion. If faith drops in these intangible "promises" and money suddenly begins to flow into tangible goods seeking a safe haven inflation could soar even as debts go unpaid and promises are left unfilled. Like many people I worry about the massive debt being accumulated by governments and the rate that central banks have expanded the money supply.
The timetable on which events unfold is often quite uneven and this supports the possibility of an inflation scenario. A key issue being one of timing. If the price of gas jumps to $8 a gallon overnight do you buy gas and not make your car payment or stop driving the twenty miles to work? Answer, it could be months before your car is repossessed so you buy gas. It is important to remember that debts can go unpaid and promises be left unfilled. More on how we have sowed the seeds for inflation to suddenly strike in the article below.
http://brucewilds.blogspot.com/2014/04/inflation-seed-of-economic-chaos....
Greenspan in 2005, paraphrased: "We can guarantee cash benefits as far out in the future and in any size you like, but we cannot guarantee their purchasing power."
http://www.youtube.com/watch?v=HxSLtC62RG0
That financial criminal knew of the sham/ponzi he created.
One report is not a trend but fridays jobs report showed 80k added to professional services and probably some went straight to health care and private colleges et al. Slack in every country and yet your dumb ass is still getting soaked? You are going to experience a slight discomfort and a desire to WORK HARDER finding your black Friday deals!
Not that BLS numbers are to be taken seriously or anything, but... If anyone actually clicks through to their page you'll see that that "average weekly wage" of $24.31 was actually the average hourly wage. The average weekly wage figure reported for April was $838.70.
I know the US economy is in deep trouble, but not that deep.
Notice the make up of the chart and where things fall in relation to the composition of how the matrix control mechanisms work to keep the sheep distracted, corralled and ignorant to maintain control.
TV's may be cheaper, but the service isn't. Used to be free to watch TV. Now it can cost a thousand or more per year!
Better Quality? My parents beast of a TV lasted 30 years. New TV's are disposable and break within a few years.
Same with appliances. Now many of the refrigerators, dishwashers and laundry machines are desighed to last 7 years before a major breakdown. Replacement electronic boards run several hundreds of dollars.
The refrigerator that used to last 25 years willl last less than half that now.
Many are so full of electronics and sensors people need warranties. Another source of continued revenue for the multinationals.
Purina One is selling 15 pound bags plus air pressure in 20 pound bags. It's a frickin' balloon with less product. A chicken shrinks in the oven WAY more than it used to.
It comes down to this. Why "service" a few million consumers when you can sell to Billions in China?
I call for an elimination of "limited liability" and protections provided by incorporations. If they cheat me or poison me, I want the decision makers in jail or fined personally until they have to live in a single wide eating McDonalds Silly Putty McNuggets.
A chicken shrinks in the oven WAY more than it used to.
They either inject it with water or a 'solution' to increase the weight.
Old trick, back in another lifetime I used to know a guy who used to use an eyedropper and water on his weed when selling dime bags. Everyone always used call him a cheap bastard since the bags were so small but when you put them on a scale, sure as shit they weighed exactly 1 gram. Once he was found out he got the nickname eyedropper and no one would buy from him except when they couldn't find an alternate person to buy from. As one would expect he eventually went out of business over this once he was exposed and couldn't force his product on people whether they wanted it or not.
The wonders of free market capitalism, supply and demand and not being forced to accept someone's diluted through stealth inflation product/money when you have competition and not only competition but the real competition not fake deceptive competition where they are all doing the same thing at the same time.
Real true FREEDOM of choice.
I get hedonically adjusted at the Korean massage parlor down the block.
Are "Hedonic" charts compiled by Hedonists? Just curious.