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The Magic Of CPI: Watch How Economists Transform A 400% Price Increase Into A 7.1% Decline
Submitted by The Consumer Price Illusion
Manipulating the Consumer Price Index: Hedonic Quality Adjustments
Have you heard the one about CPI?
Suppose that a TV manufacturer retires a product and replaces it with a newer, better, and much more expensive one. If the new TV costs 5 times more than the old one, how can we manipulate the hell out of massage the price of the old TV to make it look like the price fell? By using the dark arts of econometrics, my son!
If you believe the public comments made by the world’s central bankers, the prices that consumers pay for items are not rising fast enough; in some places like Europe they worry that prices might actually fall (a tragedy for the possessing classes, as their manic one-way long bets might not work then). Central bankers are terrified of this outcome. Setting aside for a second the apparent insanity of this logic for your average consumer, who experiences price rises on a near continuous basis, let’s examine in detail one of the jokes gauges economists use for measuring prices: the Consumer Price Index (CPI).
Ostensibly, the CPI is a linear combination of the “prices” of things/stuff consumers could actually purchase weighted by a percentage that the “ideal consumer” spends on any particular stuff/thing in his “ideal” basket. The main problem here is that the “prices” used are not the prices a consumer would actually pay; instead the real price for an item is scaled by what the BLS calls a “Hedonic Quality Adjustment (HQA)”. The HQA was designed to solve a real world problem economists face: the market keeps pumping out new and better devices. In practice the HQA is used to artificially depress the prices used in the calculation of the CPI.
Intuitively, the HQA scales prices by their “perceived” quality. We’re not talking about human perception here, but that of a kitchen sink regression model created by BLS economists. Essentially it throws every quality an item might possess into a linear model and performs a regression of these qualities against the prices found in the market for a given product. The prices that feed into the CPI can be intuitively modeled as:
This means that as far as the CPI is concerned, prices can “decrease” for three reasons:
- The price actually decreases, holding quality constant
- The “quality” as measured by the Hedonic Quality Regression (HQR) could go up, holding price constant
- The “quality” goes up by more than prices go up (<<<<<< WE’RE HERE RIGHT NOW)
In a time of rapid technological development, the quality as measured by HQR will increase by orders of magnitude more than prices. Consider Moore’s Law, which correctly postulated that the number of transistors on computer chips would double every two years; prices can’t possibly keep up with that kind of quality increase (save for hyperinflation, more on that later).
The BLS neatly illustrates this effect with an example from their website (emphasis is mine):
Item A is a television that is no longer available and it has been replaced by a new television, Item B. The characteristics in bold differ between the two TVs. There is a large degree of quality change and there is a very large (400%) difference in the prices of these TVs. Rather than use the 400 percent increase in price between Item A and Item B, the quality adjusted rate of price change is measuredby the ratio of the price of Item B in the current period ($1,250.00) over an estimated price of Item B in the previous period – Item B’.
Here is an example of a hedonic regression model (including coefficients) for televisions.
This is just an OLS linear regression model. The dependent variable is the natural log of prices for televisions, the explanatory variables and their coefficients are listed in the table below (most are dummy variables)
Where PB,t+s-1 is the quality adjusted price, PA,t+s-1 is the price of Item A in the previous period, and is the constant e [SIC], the inverse of the natural logarithm, exponentiated by the difference of the summations of the ßs for the set of characteristics that differ between items A and B. The exponentiation step is done to transform the coefficients from the semi log form to a linear form before adjusting the price.
To put it another way, the HQR extrapolates a price for the new TV using the Hedonic Quality model estimated from the population of old TV’s
To derive the estimated price of Item B’, we use the following equation:
For our television example, [the equation above] looks like this:
When this quality adjustment is applied, the ratio of price change looks like this:
The resulting price change is -7.1 percent after the quality adjustment is applied.
Oh good! You see, my neighbor, John Q., thought that prices were going up and was about to riot in the streets because he couldn’t buy anything now. How relieved he was to live next to an economist and mathematician; I merely explained that even though he couldn’t afford the new TV (or anything else) it was actually less expensive once quality was taken into account. Boy was his face red. He went home and explained it to his wife and kids and they laughed and laughed about their mistake.
Few modern people would consider progress to be a bad thing. Quality improvements should be celebrated and technological change embraced. Yet when a policymaker says that she wants inflation to pick up and trots out the CPI as evidence, she doesn’t care whether that comes about from actual price inflation or quality decreases. Given the accelerating pace of technological improvements, it’s hard to imagine an outcome besides hyperinflation that will satisfy central bankers and their slavish dependence on indicators which have been so far abstracted from reality as to have little actionable value.
Alternatively, causing a complete economic meltdown by manipulating the price of money and inflating the mother of all bubbles will probably slow down technological development, so either way, fuck you John Q well played.
Since economists are largely concerned with “real” prices (actual prices scaled by inflation as measured by the CPI), any error in the calculation of real prices introduces a bias that propagates to every corner of economic thought. This is a central flaw in economics that largely explains the gap between actual human experiences (“Wow! Things are expensive!”) with central bankers gambling our collective future on fighting deflation.
More than likely the deflation is used as cover for the agency problem faced by central bankers every day. Most market practitioners know we are in a classic debt-fueled bubble initiated by wildly loose monetary policy – central bankers included. Given that the public will rightfully blame policymakers when the bubble bursts, no central banker wants to run the risk that it pops on their watch. That would make them look stupid, and might endanger their future lives as highly paid consultants. In that context printing endless supplies of money makes perfect sense.
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My head hurts
That's only to take your mind off of your ass hurting, because you've been raped.
Sodomizing Merikans, one at a time.
I don't have a 42" Plasma, or any television.
However...
C=Cow
B=Bull
H=Horse
G=Grass
T=Taxes
HM=Horse Manure
S=Sunshine
R=Rain
SP=Sweet Potato
SC=Sweet Corn
M=Milk
B=Butter
SR=Short Ribs
PC=Pressure Cooker
D=Dinner
H+G+S+R+T=HM
HM+S+R+T=SP+SC
C+B+G+S+R+T=C2+M+B ; C2+G+S+R+T=SR
SR+PC+SP+SC+M+B=D
SUM_$(C,B,H,G,HM,S,R,SP,SC,M,B,SR,PC,T)/365*D/Year<$1.00/D
YOY_Delta_SUM_$ >95% ?_Correlation with Delta_T
Anyone want to bet that some of the Fed's economists would like nothing more than to investigate hedonics with one of our sweet potatoes?
Pressure Cooker?.....(blows whistle) TERRORIST!!!!
I've rerun the analysis and came up with an equation that properly captures the circumstances.
We+Are+Fucked
Here's an algo for the tards.
IF TV has base quality of mindnumbing engaement of the senses via sight/sound,
THEN every additional "quality" variable is a net NULL value as there is no additional stimulation, other than the tractor beam of idiot lights, which only rise and fall in brightness............
I would like to make the case that the additional light from the pixels decreases overall regular working hour productivity due to eye strain and fatigue.
There, fixed it for em'.
I really would prefer if we had a function that used basic consumable staples to measure inflation.
A gallon of milk
A pound of rib-eye steak
a six pack of PBR
a quart of Jack Danny's
A six pack of Coke -or- Pepsi
A 4x8 piece of plywood
A gallon of gas
100 yards of copper wire used to build a house
etc.
You get the idea. these things really are not manipulated, and would tell us the real measure of inflation.
"That's only to take your mind off of your ass hurting, because you've been raped."
So what if he got 'skull fucked'?
That's a whole lotta mathematical mumbo jumbo to make nothing look like something, and vice versa. Kind of like all dem Economics textbooks.
edit: I almost forgot to chime in about seeing a commercial on the teevee - Best Buy, I believe (or someone similar, if I'm wrong), was airing commericals advertising teevees on a $/week plan. $19.99/week.... $24.99/week. It's approaching guys - the end of the current econo-financio-monetary system. It's almost here.
Watch as three years later, I post a similar post saying that the end is approaching, when they air a $3.99/day commercial for teevees.
okay that one hurted my brainses. I feel a mathematical coma coming on.
Can't I just ask my iDiot phones with "okay Google" to please calculate hedonic and linear regression models (including coefficients) for TV's or to calculate the gravitational pull that Kim Kardashian's enormously fat ass is going to create over time as it expands exponentially??? That thing is going to cause tidal issues one day here pretty soon! I think her ass is why Malibu Beach is eroding so badly these days. There's gotta be a mathematical correlation for that...it can't be coincidence.
I'd actually rather just talk about stacking more phyzz in all honesty. I mean, that sh*t's on a freakin' fire sale, bitchez!!! Go out and gitchyew some!
So for something much more interesting, here's a killer interview between Chris Martenson and Uncle Ted Butler.
http://www.tfmetalsreport.com/blog/6291/interview-ted-butler
They put in all that effort to take into account the higher quality of today's TVs and totally ignored the exponential increase in crappiness of the TV shows.
You might be looking at a dog turd in 52 inch 200Hz 1080p instead of 27 inch 50Hz 625i and you may have five-speaker surround sound instead of a single, tiny little mono speaker but you're still watching a dog turd.
Don't bother auditioning actors or paying screenwriters to make a story. Don't bother buying any props. Just film the audition, film someone at work (or at home) and call it a "reality show".
Singers don't even have to bother writing their own songs any more. Just rehash some crap that was popular in the '60s to '80s, that'll do.
Shouldn't we be saying that inflation has gone up due to the increased crappiness of TV shows?
Of course, when the price stay the same but the contents are less......the price is the same!! What a farce ALL Government data have become.
Of course, when the price stays the same but the contents are less......the price is the same!! What a farce ALL Government data have become.
" I almost forgot to chime in about seeing a commercial on the teevee - Best Buy, I believe (or someone similar, if I'm wrong), was airing commericals advertising teevees on a $/week plan. $19.99/week.... $24.99/week. It's approaching guys - the end of the current econo-financio-monetary system. It's almost here."
Hey Skate, I see now you can get a $600 cell phone from verizon et al now for $XX.XX a month no money down, Mattress' for $XX.XX a month no money down, and now you see a big box retailer offering teevees for a monthly payment (not on a credit card)? EVERYTHING IS GOING """""""BUY HERE , PAY HERE""""". Buy here pay here phone, mattress, tvs. whats next? Houses?????
But if the politicians couldn't buy votes with deficit spending paid for by the inflation tax, then they would be elected on their qualities and capabilities, and guys like Congressman Hank Johnson would be out of a job, which might be considered racist, just like the gerrymandering of his district to artificialy create a black majority. What kind of nation would we have if the government didn't manipulate everything?
If I inflate based pon the notion that you will be able to pay off your debt quicker (again based on fixed contracts that are never restructured) and simultaneously the price of real consumables goes up, offsetting the percieved increase in debt payment capacity, then............ again we have a net of FUCKING ZERO!
This requires the printing of additional dollars in excess of population growth; therefore, screwing you again via devaluation of currency. (double pumper)
Damn. That 8-9th grade math class where they showed both sides of an equation is a real bitch.
Almost like it's been backed up by mathematical laws or something.
Try the Big Mac yardstick -1970 change back from a dollar for the Big Mac meal. Food inflation is 700 to 800 percent.
Or go to the Caterpillar Handbook. Diesel in 1973 when I started as a Pedlar for a Cat dealer.
Diesel 16 cents per U.S. gallon. Yes- 16 cents. Inflation 1800%.
Big Mac still tastes like shit and diesel is exactly the same.
Basic common staples? That's too easy. You wouldn't even need to pay an economist to figure that one out.
And that is why I say that modern Economics is simply not Economics. It is purely propaganda and nothing else.
plus the fact with this example is that your brain can only "see" in a certain FPS (frames per second) anything beyond that is useless.....i dont see the variabe for that.....you derive NO extra utility by going beyond a certain point. Its like buying a 200 megapixel camera, your brain can only tell the difference up to maybe 10 megapixels.
but we all know the CPI calcs are bullshit no matter who calcs them
Porn must have improved over time, but I am assuming that the price has gone way down because now 1/3 of the population is required to do it for money to make ends meet, so to speak....
hedgeless horseman gets my vote for chair of the Fed... then he can shut its doors and run the world on the the calculation described above. all the linear algebra and differential equations that go into econometric forecasting has become little more than mental masturbation... because multivariate modeling really is to the real world what masturbation is to sex.
Here's an example:
"Multivariate Mapping of Hedonics: Mapping Hedonic Data"
http://ifpress.com/wp-content/uploads/2013/09/Mapping-Hedonic-Data.pdf
If selected as Fed Chair, my first four orders of business are...
Of course, I would be suicided-by-nailgun before the end of my first day.
I smell what the author is cookin' and agree with his analysis of the folly of 'hedonic' adjustments, but he chooses a really poor example using consumer electronics.
For instance, my first home computer in 1983 was an NEC-APC (a superior machine to the original IBM-PC). The APC had an Intel 8086 processor running at 4.7mHz, a 640x480 8-color display with an extended graphics card, two 8" 1.2mb floppy disk drives and 640k memory.
The cost? $4,000
Today you can buy an HP for $199 that kicks the APC's ass:
http://www.bestbuy.com/site/hp-stream-11-6-laptop-intel-celeron-2gb-memory-32gb-emmc-solid-state-drive-horizon-blue/9195102.p;jsessionid=3F0712934C834185F2C07E50FAB8E74C.bbolsp-app02-200?id=1219398344673&skuId=9195102&st=categoryid$pcmcat247400050000&cp=1&lp=1
So much for home electronics being used to show the effects of inflation...
[PS: What the author should have done was use automobiles for comparison...]
I imagine that even though you paid $199, if you run the numbers through the model it would appear that you got paid $25,000 to take the HP...
"If selected as Fed Chair, my first four orders of business are..."
If you elect me, my agenda is more simple:
1. END THE FED
2. RESIGN
Sure, but the USA's fifth central bank is likely to be even worse, if the trend continues.
While the statistical probabilities most definitely would result in, yet another, jew surge to fill the power vacuum in the wake of my resignation. I'd still consider my mission complete. After all, I can't be responsible for new generations of blind sheep who were handed a clean slate & ended up fucking up themselves & generations of their heirs because they chose to placate the annoying jew next generation carpetbagger in exchange for simple [albeit temporary] piece of mind
Which functions of the Fed do you think would be missed, and what would you replace them with?
I think that's a very interesting subject. I never see it discussed.
None that couldn't easily be handled by the United States Mint or the Department of the Treasury.
The difference between the FED or no FED boils down to how much 'counterfeit' printed money you wish to keep stuffing into the pockets of European Jewish families, & for how long, to continue living in a world whereby [said] entities continue to perpetuate a world of contrived terrorism as the main cash cow for crony capitalism.
There are no other arguments until you get past that one.
The rest of this shit is all just 'passa tiempo'... Fun & laughs on the part of the slaves [who, in their desperate hold on dignity & humanity, have to laugh & make jokes about SOMETHING to avoid going utterly insane].
silicon-based technology is inherently deflationary
carbon-based technology (aka lifeforms) is inherently inflationary
if you could balance those 2 together in just the right way, you would hit HH's magic 0% inflation rate.
(as for autos, one could argue that if not for gov't mandates & subsidies, an auto would actually be cheaper (in real terms) than it was back in the Model T days. but then again, you didn't build those roads. you just paid for them, over and over and over and over again.)
If you did that, it's amazing how fast you would commit banker suicide.
ya got my vote hedge. +1 for no more watering down the currency and no more socializing losses. Which is just another way of saying - just do the right fucking thing!!
Why not opt for the accidental drowning from your twelve ounce cup of morning coffee?
That way, you don't have to work the whole day.
First..
Hey, and where the fuck is the gold, horseman? Where is the gold?!
I'd vote for you. I would add a negative inflation target of between 0.5-0%.
A) Deflation rewards savers and lenders.
B) It promotes the currency as a world asset/currency further strengthening the currency.
I like that you call it Hide the sausage. :D
The two processes that explain much of modern thought (this includes economics, but sadly also many practitioners of other physical sciences as well...)
1) Real data --> Model (=mix real data with bullshit) --> Bullshit
2) Bullshit --> Model (=mix bullshit with bullshit) --> Even More Bullshit
Computer technology has accelerated the process of creating "models" exponentially. Thus we are now surrounded by an incredible amount of bullshit. The baseline observations are now so obscured and are held in such disregard that no one recognizes reality anymore. Reality TV shows are more real to people than what they see around them with their own two eyes. Thus when shit goes down, there will be many people genuinely surprised. Not such a strong commentary on the "evolutionary superiority" of the human animal...
That's a truly fine looking plate of food!
HH..
No tulips? No knock-off roses? No mums?
Planting flowers is a sign of living in the present and enjoying the nowness of life.
even more enjoyable when those flowers are edible.
even more when they are medicinal as well.
long live chrysthanemums, fuck mums.
Holy Rootball Hedgeless, that's a Mighty Yam!
check out the purple Chinese yams -- crazy amount of nutrition per calorie.
They forgot the coefficient for the new TV having a Youtube app adding to its quality over the old CRT so it might even be a 10.3% decline instead of the 7.1% decline mentioned in the article!
/sarc
And my new toaster beeps when it's done!
That's gotta be worth an extra 1500% right there!
But the toast is still the same....
That little beep comes from a Piezo element. Those are great little microphones. A single Piezo element in your kitchen can be hijacked to spy on your neighbors whispered conversations. I'd say a 1500% improvement is seeling it short.
Are you saying that some retail, off-the-shelf appliances are being mf'd with the necessary circuitry built-in or is this the "special" wedding gift toaster someone gives you?
With tv, your brain is toast.
Brains? BRAINS??? BRAINS!!!
Think of how much deflation will happen as all of these things start needing to be updated on a 2~3 year cycle since the REAL QUALITY has gone down so much.
Two of my home appliances that are less than 4 years old have gone tits up for one reason or another. Which means I am forced to go invest in the next hedonically improved appliance instead of being able to save the money. Inflation will be fixed forever as we are all forced to buy new shit as everything is made to self destruct in no time at all.
It costs more in labor to fix your appliance than it does to just buy a new one. My dad had a nice side job doing small appliance repair back in the late 50s and early 60s. Folks from the area brought him their broken irons, toasters, drills, and such and he made repairs averaging $10 to $15. ...and made fair money. Today that hour of labor would simply buy you a new gadget at the going labor rates. The appliances were better made then and had the added advantage of being built with the disassembly being easy to do in case it needed repair. Today they are assembled like it will be the first and last time they'll be in pieces, and usually they are. I still tinker with this stuff and getting the crap apart is the hard part; fixing it is easy. I miss the old Radio Shack inventory!
2-3 years? been liucky to get a 2-3 month life cycle on some of this shit i got this year. got to the point where i got so fed up with dealing with warranties, return policies and other assorted legal mumbo jumbo that i started ripping these things apart to see what makes them tick, even though i'm an complete idiot when it comes to this stuff. you're right -- it's deceptively simple to fix. guess there's a reason RS is hitting the skids.
nice to see ya rock.
Also, the "smart" TVs have a built-in spy feature. You're really getting moar value! ;-)
It's a demonstration of the full retard, goal seeking, gibberish speaking, monetary high priests.
Prices are naturally deflationary. We are subsidizing shitting products through the inflation tax
A magic number for eveything so that everything has a magic number. I'm such a Knuckledragger I still do double entry bookkeeping in a paper ledger, guess I'll go dinosaur hunting.
Sorry.
Season ended Nov 1 dude..
Double post
Watching the double post Headbanger .gif's banging in perfect sync is mesmerizing. MOAR double posts please!
That's the point. They try to "shock and awe" with math in a futile attempt to make their false assumptions true.
We shall beat the math into submission.
Nah, the math was sound. It was the arbritrary coefficients applied to arbritrarily chosen hedonic criteria that was bullshit. Eventually you'll add enough criteria to hit your desired answer. Or you could just get lazy and adjust the coefficients until the number is hit.
I wonder how often they have to change their criteria? What people want out of a TV largely depends on the price point it's being sold at. I don't know why I'm bothering to think about it -- the whole thing is bullshit anyway.
Shrinking food containers at the grocery store may maintain the same price, but it's still inflation.
Does CNBC have its own real-life Ron Burgundy?
http://tinyurl.com/k9pqe7l
If you think that was bad, tomorrow Tyler will have a post on Owner-Equivalent Rent (a major CPI component) and dynamic basket substitution effects.
No one said this inflation stuff would be easy boys and girls.
If you thought that was bad, tomorrow Tyler will have a post on Owner-Equivalent Rent and dynamic consumption basket substitution effects on CPI.
Class Dismissed!
+100 for Owner-Equivalent Rent and dynamic consumption basket substitution effects on CPI. Brilliant!!
oops...double post
Doesn't matter.
Truth will out. The Sheeple know they are getting fleeced. But it's fun to watch them run back and forth between the Two Parties and even try out Third Parties hoping against hope that their vote will materially change their fate every 2-4 years.
Never knowing they need to kill the Banksters.
And the CNBC punditry is funny to watch also as they scratch their heads in disbelief that we are still stuck at stall speed in the economy and yet inflation is so low according to the government. Here's a clue fucktards.......inflation leaves us with no extra cash to juice the consumer economy. But believe what you will from the Fed/Corp/Gov you idiots and keep spouting bullshit about green shoots and thus keep right on watching your ratings take a dump.
Truth will out.
...and for a passer-by not from around here, what's the BLS?
mutherfuckers trickin us
Completely spot on but the big question is; what is Joe Public to do about it? He's busy opening up another chargecard after having filed Bankruptcy on the last ones, losing his home and new job at minimum wage.
Here are three ideas...
http://www.zerohedge.com/contributed/2013-02-28/rabbit-hutch-kills-fasci...
http://www.zerohedge.com/contributed/2013-01-18/twelve-steps
http://www.zerohedge.com/contributed/2013-10-02/take-hedgelesshorseman-c...
This scam has been going on for decades (since 1980 at least). At least 60% of car price increases are attributed to quality improvements.
If you adjust US GDP for fake GDP adjustments, US GDP is barely $8 trillion. So US debt to GDP is about 220%. And US unfunded liabilities to GDP is about 1700%
But then, it would be so unpatriotic to side with the truth.
Between 1980 and 1981, for example, the average transaction price of a new car rose from $7,574 to $8,910, an increase of $1,336. Based on that, it is possible to calculate the rate of car-price inflation for 1981, at 17.6%, a very substantial increase.
But the wizards at the BLS got rid of most of that increase. In a BLS document, "Quality Changes for Passenger Cars, 1969-99," the BLS initially attributed 99% of the price increase to "improved quality." Then, after it made further adjustments, the BLS finally attributed 66% of the 1981 increase in the price of a car to "improved quality," and 34% to actual price increase. The BLS reported to the BEA, that only $454 of the $1,336 price increase in 1981 was actually an increase in price. Thus, the BLS threw away two-thirds, or $882, of the price increase you paid in 1981. It reported an auto-price inflation rate of just 6.0%.
http://www.larouchepub.com/other/2000/ref_quality_adj_2742.html
"Cheese Gromit"
When China Will Utilize Its Gold The Price Will Rise - YouTube
But it looks pretty scientific to me - it must be right.
Same with Global warming, er Climate change. I mean, there is a capital P, with a small capital B (but below the P, i see a sigma, an alpha, a beta.
Jeez - those guys are SMART
You can accomplish the same feat by diluting your kids milk with water, if you add chocolate to it he'll never notice the difference. WHIP INFLATION NOW!!!!
You can afford milk? You must be one of those 1%'ers!
What is milk? I buy the straight melamine from my favorite chink web site.
grievances aplenty
but comparing a 27" CRT with a 42" HDTV?
that isn't apples to apples
fwiw, i bought a 36" Sony Trinitron CRT in 1999 for $1600
replaced in 2010 with Samsung 55" LCD for $1400
edit: that samsung now WELL under $1000
I bought a Sony Trinatron in 1999...then quit watching TV.
I feel fine.
I've still got my 1999 Trinitron so hedonic adjustments must mean CPI has gone 100% negative on the basis I haven't bought a new 75" plasma with you tube and an integrated holographic vacuum cleaner. All's well in the world, move along..
People...
Don't any of you know that you need a 100 inch 'curved' TV to watch 'OW My Balls' in full cinematic effect?
I've tried watching porn on one of those uber-screens. I got whiplash...
nom nom nom iPads.......
If the quality of stuff keeps increasing, pretty soon it'll be free
Toys gets cheaper and surviving gets expensive, things are obviously going well.
the same way they hedonicked steak to ground beef down to alpo
Living large eating Alpo, we had to go full austerity and get Old Roy.
the horror...
quantifying qualitve increases like 'picture quality', but in the end the newer TV still takes a higher percentage of my pay check to purchase.
That math exercise hurt my head.
Thats the point, so nobody would understand it.
What about food, then? Is an egg of higher quality now than 30 years ago? It could be argued an egg is lower quality now considering all the crap they feed the chickens in the US...
actually its pretty hard to find those old agribusiness eggs, they're all vegetarian and free range now.
I have notice that the quality has fallen on a lot of stuff I have recently bought....According to this, shouldn't that be inflationary?? (If the price remains constant)
only if it is not obtained from a hedonistically adjusted boot sale, this is for new stuff with built in redundancy of a products life cycle using all sorts of (reversible) Phillips (screw driver) curves.
I always found it odd that "hedonic regression" used the root of "hedonism".
Now I understand.
All these fucking lying cunts should do the honourable thing and nail gun themselves in the back of the head .... Twice!
Watch the ruble and you might miss this:
Black Sea Fleet's large antisubmarine ship Kerch likely to be scrapped Interfax
About to get real?
TASS
The Kerch to be scrapped?
A ship built almost 50 years ago.
Must be the sanctions.
How can they possibly report the coefficient of plasma vs. CRT at 0.72483? Everyone knows it was clearly defined as 0.71399 in the seminal study Precise Hedonic Measurements of Visual Entertainment Technology Trends published by M. Watanabe and R. Devious in the Journal of Applied Psychoeconometrics.
How then can we trust ANY of the BLS data??!
good catch---after further study I found that five Senators where involved in fraudulant activity which consisted of changing the numbers--of those that were implicated none where found punishable-- re: Keating Five--
ultimately you could take the CRT out of A and stand behind the cabinet and have a puppet show. oh look honey its time for the president to speak, ok, better get my sock puppet
We used to call those "fudge factors".
How about real quality, like the changes in durability. I find most of the crap from china with the exception of some emectronics to be, well crap. a Sears dehumidifyer I had from about 1980 lasted over 20 years. since that one broke I have had to buy 4, at about $225 each, new ones have never lasted more than 5 years and most break before that, some after 12-18 months. So they have more features, timers etc, doe the CPI say they cost less. I say the real price of a dehumidifyer is about $900. You nedd 4 of them per every one of the old one. Same for many items. Only a few things have acutally increased in quality. Cars for example.
Also, how can you use theses adjustiments if the old modle is not avalible? You have to by the new even if you don't need the new features.
+1 - It ain't just dehumidifers either.
+100
"Quality" these days is sadly how many useless gadgets an item contains rather than about how long it will last and how durable and reliable it is.
But durability and reliability won't bring you back into the store every 3 years to buy a replacement. That doesn't help EBTmart's bottom line.
This is a feature of an inflationary system. it's called planned obsolescence and is an absolutely deliberate policy.
In a deflationary system, quality tends to improve... See Japanese cars vs American cars for example.
So where originally you might have gotten 20 years out of a low end product, now you have to buy a mid-high range product to get the same level of durabilty. Where the mid range might be 4-5 times more expensive. More inflation.
quantifying qualitative increases like 'picture quality' is what makes econ a pseudo science. and in the end the newer TV still takes a higher percentage of my pay check to purchase.
Yep, I wonder how they determined the values of those coefficients. Probably just pick them out of the air, or, at best, surveyed a few undergraduate students on what they think quality is. Try that in any other science and your paper will be laughed at then promptly thrown in the trash. Not so with economics.
It also happens in climatology, psychiatry, biology, [insert field here] too. What passes as "science" today is laughable at best. As long as grant money comes in from upstairs, the conclusion comes first and the fabricated statistics to come up with that result come second.
First it was Hagen Das quietly switching to 14 oz (pints) and now this. Oh what a world, what world..., Im melting
Ah, but that’s not all…
The bureaucrats have been manipulating the CPI since 1970, lest they embarrass themselves.
And their manipulations have cheated some 130 million American private workers – both retired and active.
Some 50 million are receiving retirement checks now. The amount they receive is adjusted every year according to the CPI. According to current formula, the CPI is around 2%; but, by the 1970 version, closer to 8%-10%. And there is the cheat, or unconstitutional swindle (yes, I know, I repeat myself); for, it is a basic principle of natural and constitutional law that a contract, or law, must be interpreted according to original terms (or definitions).
Not only is this a cheat against retired workers, but active also (130-110 millions; for, they expect to receive such check when they retire.
Here is a grievance that should be redressed. But, how?
Current alternatives include, raise taxes, cut benefits, or throw more debt (necessitating more taxes) on future generations.
Absent from their choices is a much more logical solution: recovery of $9-$11 Trillions that went missing from DoD, HUD, and SSA.
I mean, what could be more pleasing than to recovery booty from those who took it… rather than from those who didn’t? (Complete article)
And, don’t forget, you’ll enjoy this redress much more if you had the health and vitality that you should have had as a teenager. My health regimen has allowed me to REDUCE – not SLOW the aging process – fifty years. As a result, I have the coordination, health and physical condition of a professional athlete around the age of 20; I am over 70 years of age. My validation is the best evidence possible: physical performance (video and webpage – each leads to the other).
You had me until your shameless self promotion.
I am offering to others the opportunity to reduce their biological age up to 50 years... the opportunity to no longer be lame, no longer ill, or crippiled... and you call it shameless?
Tell me, Gimme... what should I do? Should I tell people that I have a regimen that will give men the health and physical condition they should have had as a teenager... and refuse to tell them where to find the information?
Krugmanism
Yeah, that's a much better term. JMK never said anything in his life about 'hedonic adjustments'. Why is every thing that the current group of idiots do or propose (GOP/DEM/Lib/Con/doesn't really matter) blamed on Keynes, when they haven't even followed the first and most basic tenet of his philosophy: run surpluses in good times so you can afford deficits in bad times?
I'm not suggesting Keynes was correct about everything, but blaming the current crop of economic problems on his work is like blaming Einstein because cold fusion doesn't work.
+100 Hedonics is just another attempt by economists to actually use something that is entirely out of their discipline, quantify it (because they were no fucking good in the math program they originally enrolled in), then recommend it for policy that has reall life consequences. Their static modeling doesn't even bother to take into account changing preferences, or, subjective valuations. Its all conjecture wizardry. So, its all bullshit. Ask the FED chair to ectually explain how the CPI is arrived at and in particular how do they verify the accuracy of their hedonic price indexing. She will not, because she cannot.
Here's the fucking deal. When the price of beef doubles, eggs, coffee, the entire grocery bill doubles, then, in the absence of a wage increase commensurate with COL increases, indivuals actually have to work more to remain "whole". This necessarily implies a "giving up" of those things that hedonics relies on to reduce CPI (like quality, etc.), or, at the very least a "giving up" of time to use those items. Either way, hedonics becomes increasingly less relevant as the cost of living rises becuase people cannot take advantage of the hedonic "savings" because they are too busy trying to fucking make ends meet.
So it still applies - even more so - FUCK THE MONEY CHANGERS!! END THE FUCKING FED!!
Here we go again with the economist bashing. Wouldn't it be great if people who were informed were writing articles. Rather than finger-pointing idiots who made widespread generalisations.
So You say that economists are Informed? How so?
It is not Science...........and the Playing Board changes............Unlimited money dumped into a broken system and insider rights given with profits from the taxpayer's Blood. Most would like to see the FED ENDED and those in these positions of trust along with their minnions Jailed.
Economists as Bankers do non productive calculating but remove wealth from the system.
Let me put it this way:
1. Large parts of this model, were built by an econometrists. Thus, you are talking about an applied statistician NOT an economist. Economists tend to be far more qualitative.
2. Confirmation bias- When people look around at the world, they tend to filter out data that doesn't supports their view. Thus folks look at economists. They see one particularly clueless economist talking from an armchair in an ivory tower and then expand that opinion to fit all data points. All of a sudden every economist is a moron, or a devil spawn. None are ever correct. They study hoodoo and profane arts and are put on the earth to manipulate people right?
3. The notion that people who have never studied an economic paper, or been within those circles, are suddenly more informed than everyone within that world is, quite frankly, laughable.
4. The folks who manipulate this data often work for a GOVERNMENT statistics bureau. So you know.. the model might be sound in principle. It doesn't matter what model you have, if you plug crap data into it, you obtain a crap output.
I am an economist. I have always argued that hedonics is subject to all sorts of retarded biases. Lots of people do. When my friend got his diploma in economics ('09) economists were BITCHING OPENLY about the bank bail-outs in lecture halls. I have been sat on the sidelines for years, watching the world go to shit. Hell, you know why I got a degree in Economics? Because I wanted to see if the study was really as retarded as folks made it out to be (second degree, the first being a science.)
There is no such thing as a bad model. The model just is. You can have bad individuals pulling strings. Bad researchers, bad data. All of which will lead to a poor outcome. But don't generalize that ALL economists adhere to a particular school of thought. We're not all retards marching the people to their doom. You'd have to look to politics for that.
PS: in today's politically correct society, I find it hilarious that people will jump on you in a heartbeat for generalizing about race, gender, or sexuality. But almost without fault, everyone bitches about economists. They are the dummies. The guys riding the short bus. Right? Well no. Wrong actually. Politics colors the subject and filters the critical thinkers out in many cases. For every moron economist you hear talking like they don't have a clue, expect at least 10 dissenters standing behind him out of view, being muted.
OK, I admit I may be somewhat of a dullard, but let me explain it to you in terms than you, econometrists, economists, etc., can understand. If I pay more today for items that I buy on a regular basis (food, housing, energy), than I paid yesterday, there is inflation. If I pay more today for a TV that is a far superior product than the one I purchased 4 or 5 years ago, that may, or may not, be a sign of inflation. But to put these types of items into an inflation or CPI model is completely idiotic as they do not represent a real world view of what consumers purchase on a regular basis.
I don't believe you are a dullard. I do believe that the public generally, is not informed about what the study of economics actually entails. Why do I say that? Because I lived that myself. Going from a science degree into an economics degree. I also thought economists were retarded back then.
Bear in mind that I have already stated that hedonics (and now we can add the CPI to that list) are subject to all sorts of biases. Just like all government statistics. Furthermore, even if the mathematical equations were designed to be completely unbiased, plugging biased, or poor data into the model is always going to give poor results. 100% of the time. Without fail.
If I pay more today for items that I buy on a regular basis (food, housing, energy), than I paid yesterday, there is inflation.
This is a causal assumption, and let me explain why (and no, I do not believe that this makes you a stupid individual.)
Inflation does increase price in nominal terms and it does drain wealth from society (via a reduction in purchasing power.) However, inflation may not be the reason why prices are going up. This assumption sometimes holds, but not always. They could also go up as a function of the real economy. I will furnish an example and take money out of the equation entirely to prove that I am not flawed in this logic, as inflation is a monetary phenomenon. It is a function of the supply of money floating around in the economy.
A long-winded scenario to explain the difference between nominal and real:
Pretend that I am a producer and refiner of crude oil and you are a consumer of gasoline, (obviously gasoline is a derivative product of crude further downstream in the production process). You are also a farmer and you pay me in eggs. Today I have to drill 200 yards into the earth's crust to obtain crude. To operate my rig which is designed to punch through that ground, I need five guys.
So I show up on your doorstep with 10 gallons of gasoline. We haggle and eventually I demand 10 eggs payment. 5 for my guys to eat. 5 for me and my family. (Note: 10/10 = 1- the price of a gallon of gasoline in eggs)
Within a year, my oil well starts to dry up. I explore and find a new oil reserve but it is 500 yards underground. Suddenly I need more men to operate a bigger rig. I hire 5 more guys making 10 men.
At the end of the month I show up with 10 gallons of gasoline. We haggle again. You expect the old price of 10 eggs. But I need to pay my workers 1 egg each to eat and survive. If I paid 10 eggs, then my profit is zero and my family would starve. We argue back and forth and eventually we settle on 13 eggs as you still need the gasoline. (Now: 13/10 = 1.3- the price of a gallon of gasoline has gone up.)
Note that there is NO money. And that is why pinning down the real price of things is so important, and also so difficult. Because in a world flooded with money (a medium of exchange), the real price of goods is concealed.
So yes. Inflation makes goods more expensive by screwing with your purchasing power. But the real economy can also make things more expensive. Uncoupling inflation from the real economy is -very- difficult to do accurately.
(Also. I would draw your attention to the role of technology in this example. My bigger rig might have only needed 2 guys* to operate because of technology gains. So the real price of oil could have also gone down.)
That technology change is what hedonics is supposed to measure. Regardless, it is measured using government data and government employed statisticians, all on a government payroll. Plus at some point the model itself was probably created by a government funded researcher. So is it impartial? Maybe. But I'd be reluctant to assume that.
*Also as a kind of interesting note- if we were the only businesses in the economy then 3 workers would have been laid off. Unemployment would have risen. Despite folks in certain economic circles touting "the Luddite Fallacy" as irrefutable proof that technology is always super awesome.. it can easily cause a rise in unemployment.
I understand the concept. But my point is that when you get into these types of analysis, then you're really talking semantics. The average person on the street isn't interested in the economists’ definition of inflation (excess supply of money, velocity of money, etc.), they are simply interested in the traditional definition of inflation (the decline in the purchasing power of a single unit of money). As such, for the government and its economists to use these models to claim that CPI is under 2%, when the price of virtually everything we buy on a daily basis has increased many times that percentage, is tantamount to fraud.
The average person on the street is concerned with their own survival (and that of their family). Do you think because I am an economist, I somehow am immune to the forces assaulting the average citizen? Just how much do you think I make? I'm in my mid-twenties with a student debt and very limited job prospects. Just like many other people my age. And all I hear from people in older generations is "well, you have to make your own opportunity*". I'm worried about being able to eat between now and the next five years.
Please Bob. Try to understand that I'm really not talking in semantics. Yes. Assumptions were made above. But people did barter before money even existed. If we were in the Stone Age, long before the advent of money, and there was a drought, the real cost of water would rise due to scarcity. That has absolutely NOTHING to do with inflation. It would cost a lot more arrow-heads, or rabbits, or sexual favors, or any other commodity, to "buy" water from someone who had some.
*That's great. So what exactly do they mean by that? Shall I sell drugs? Thieve? Commit fraud? Smuggle? If there are no positions of employment, there are no positions of employment. Making my own opportunity could, just as easily, get me incarcerated.
Still didn't address my point. Do you, or do you not, believe that current government CPI models are fraudulent?
Well no. Now you're skirting around your original argument, which was to do with the difference between real and nominal price changes. The fact is that both real and nominal price changes can completely destroy someone's ability to afford to live.
Still didn't address my point. Do you, or do you not, believe that current government CPI models are fraudulent?
From my previous post:
"That technology change is what hedonics is supposed to measure. Regardless, it is measured using government data and government employed statisticians, all on a government payroll. Plus at some point the model itself was probably created by a government funded researcher. So is it impartial? Maybe. But I'd be reluctant to assume that."
I don't know if they are fraudulent. I wasn't the original guy who designed them and I don't know if he got a sly wink and a pay rise for doing so. I do think assuming that they are completely impartial and unbiased would be dangerous and irresponsible though, given their source.
Edit: And guess what? If I have to do any kind of analysis, I take a look at all historic inflationary measures. Yes, there are many different variants. I'll use government data if I have no other data to work with, but if I can find independent data, I'll use both. Better yet, I would like to take my own data, but unfortunately that is something of a skill in itself. Well beyond my (current) training and often well outside my budget. And I absolutely defy you to try and find someone with my views working for a government agency. Absolutely positively defy you. I would not last through the first 15 minutes of the interview process.
So yes.. bash away at economists, just remember that often nobody is bashing other economists more than people with formal training in economics.
Be an entrepreneur, Bro. You're obviously bright and motivated so why try to "find" a job when you can work your ass off for yourself, and possibly make it?
Yeah. I think that is the way to go.
"And I absolutely defy you to try and find someone with my views working for a government agency." HA HA :-) Maybe because you had actual science training. All the "economists" I have personally met are salesmen (some with college degrees in economics), and are less interested in science than in - well - living a hedonistic lifestyle.
Survive first. Gain experience, knowledge, and wisdom. Plenty of time to fight later.
Yeah. I was kind of making the point that you would never find an honest, or a shrewd economist in the public sector. Anyone who would cause a fuss, or not fit the job description, would end up getting filtered out.
I have studied some public sector economics. It's a fun subject, to be honest from an academic viewpoint, but when you drill the concepts down to their core, they are all arguments for increasing public sector revenues and expenditures.
I don't really read too much Krugman (if I can help it), I mean I've read his papers but I just don't enjoy his opinion, or stance on many issues. I believe he hails from a public sector economics background.
I was openly derided in my class for suggesting that leaving the free-market mechanism alone to price interest rates was ideal. On the basis, of course, that there are bad people out there who will loan-shark and scalp borrowers etc. The big "we need to protect the people from themselves, because we know so much better than them" argument.
Of course the public isn't informed on most economic matters, it's a stuffy academic study that bores most folk, but they sure as hell are closer to information about their own individual lives, costs, trials, tribulations.
I'm not against educating the public more in economic concepts in mandatory schooling, for instance, but ffs let the free-market set its own rates. Otherwise you end up with a gigantic bubble of debt because you're setting interest rates lower and lower to kick the can down the road. Classic big government response.
This example still follows the Law of Supply and Demand.
As you say, if we accept the definition of inflation (as I do) as an increase in Currency causing an increase in prices (aka Weimar) then the example is not inflation.
So what is it? As 7 billion people use up the planet's more easily obtainable resources, forcing producers to substitute resources which cost more to obtain, then the price of those resources will naturally increase. In effect, that is a decrease in Supply. If Demand remains the same, the decrease in Supply results in an increase in price.
If economists feel disrespected, but know that Wall Street Neokeynesians hiding behind the term "economist" are fleecing the public, then it seems to me that the burden is on the economists to show the public that there is a difference. I think a few economists are actually doing that. David Stockman. Marc Faber. Others. If more economists were to publicly note the difference between what their work says and what Neokeynesians say, perhaps that would be a public service, and earn them more respect.
Until then, to put it in the immortal terms of The Life of Brian, "what have the economists ever done for us"?
I believe, in all honesty, it hinges on real energy costs. When you stop to think about it, at least two factors of production are energy price dependent. That would be capital, and labor. If you consider enterprise as a factor of production, then there is also an argument to be made there also.
Rising real energy costs will absolutely impact the real price of just about everything needed to survive, and there is only so much that can be done to divert that outcome.
We'll see moving forward. The relationship need not hold this year. It might genuinely be inflation as Bob mentions. Going forward though, watch this space. Energy prices will likely rise from here without a paradigm shift in technology and the global institutional environment.
PS: For a number of reasons, the correlation between real energy prices and economic growth, seem to have broken down over many decades. It very much strikes me as a Phillips Curve type relationship, as mentioned by Pareto below. (The correlation between the inflation rate and employment held for many decades and economists hypothesized that inflation was good for employment. Until one day they decoupled. Milton Friedman wrote a lot about this, debunking the myth. I miss Friedman to be honest. He was someone worth listening to.)
See Rothbard (1977) on trying to quantify and objectivy and aggregate the subjective - a critique of the neoclassical methodology of indifference curve analysis. Even Samuelson (1950) recognized the problems of aggregation during the great social welfare debate arguing that "turn your pencil over, erase the price matrix and write a new one in". All dependent on assumptions about preferences in aggregation. I.M.D Litte (1947 I think), brilliantly made short work of the utilitarians in this regard as well.
Then there is the Phillips Curve, a correlation that looks more like an ink blot than a relationship - where even Friedman argues that such analysis has done more hard to the discipline than good. The relationship between employment and prices is tepid at best and now economists are actually demonstrating a much stronger positive upward sloping relationship - the exact opposite of the trade-off of say 2 and 6.5 - that when monetary or fiscal policy is enacted causes prices to rise and that becauase of Lucas (1976), cap ex does not expand since the price effect is not real, that is, not supported by volume (i.e demand) and that individuals recognizing fiscal expenditures will actually pare back consumption knowing they will have to give up consumption at a later date - they will actually save more!!! Thus the upward sloping Philips curve!!
Enough of the insanity!!
95% of economic forecasts ever have been WRONG and yet we pay them so much for being wrong virtually all the time. You can actually demonstrate their ignorance and folly in their modeling and they won't hear it - they fall on ALWAYS the assumption that the state makes efficient decisions.
Its embarrassing actually for as a discipline, in my opinion, we have lost our way. Its all about the model - when what used to be the classics - back to Menger - back to Cantillon - it was about behaviour.
Until the discipline returns its focus to actually recognizing its own limitations it will sadly become increasingly less relevant to anybody for anything - and I know this because I am one of them.
You can actually demonstrate their ignorance and folly in their modeling and they won't hear it - they fall on ALWAYS the assumption that the state makes efficient decisions.
This. So much this.
PPS: For someone acting high and mighty, and pointing the finger. Talking about economists making stupid assumptions. Let's talk about the assumptions you made:
1. No economist is informed.
2. Economists were the ones that dumped unlimited money into the system.
3. All economists support "insider rights".
4. Economists take taxes? (This one is particularly retarded.)
5. Economists are somehow synonymous with bankers? I mean.. sure some economists might be bankers. Just like some serial killers might be women. Not all economists are bankers though, and not all bankers are economists. There is a causal assumption here.
I agree that economics is not a hard science. It falls more into the realm of philosophy, or a "social science". Definitely fringe. An application of scientific method (sometimes incorrectly) to a subject that cannot easily be reduced to scientific principles.
This is insane. I still have to pay 400% more for a TV.
When BASF come up with a brighter red dye for clothes do they take into account that the clothes are now more red than they were? No? Why the FUCK not? Colour can be measured quantitatively, they can see the difference.
As I said. This isn't stupidity, it's evil.
Hey I don't mean to thread jack this discussion but has anyone noticed the increase of luxury cars on the road now? It seems like one out of 5 cars is either a late model Cadillac or Lincoln. I'm noticing alot more other high end cars like Accurra and Lexis. Maybe I'm just getting old but there seems to be a lot of nice new cars around lately. Saw on facebook where a distant relative bought a Hyundai Genisis. He's retired on a fixed income so I'm trying to figure out how.
subprime---
Boy the quality of eggs must have skyrocketed! Those new eggs that are three times what eggs cost a few years ago must cook themselves or something!!
But seriously. It is in the interests of government to underestimate inflation. When inflation is underestimated GDP becomes over estimated. In a low or no economic growth environment inflation is the only source of economic "growth." Whatever voodoo they can use to do it is justified by their egoistic want to pretend GDP is growing.
But really, economics is nothing but pseudo science anyway.
Of course they have silly. The new and improved, genetically modified chickens (that could probably kick the ass of your average MMA fighter), produce eggs that are far superior to those produced by those old hens, happily pecking around the yard.
You know what hasn't gone up in "quality" in many years? Pay checks. Run that through your regression model to see how the "ideal consumer" is doing.
It's so effing stupid that I can't stop laughing. I did, however, notice that the canned soup that I had for lunch had one of those top-pull things. Obviously brilliant...gotta be why the soup costs $4.
Simple - they are estimating the cost is old technology to do new thing, not a new technology to do old things.
Do not stop beating your head against the wall .
If you stop , it feels so good Hedonistic Quality adjustment means you will have to pay VAT on it .
Don't show this piece to Doug Short... Why?
http://www.advisorperspectives.com/dshort/updates/Inflation-Since-1872.php
October 23rd, 2014:
To wit:
"On a personal note, I believe the current BLS method of calculating inflation is reasonably sound. As a first-wave Boomer who raised a family during the double-digit inflation years of the 1970s and early 1980s, I see nothing today that is remotely like the inflation we endured at that time. Moreover, government policy, the Federal Funds Rate, interest rates in general and decades of major business decisions have been fundamentally driven by the official BLS inflation data, not the alternate CPI. For this reason I view the alternate inflation data as an interesting but ultimately useless statistical series."
And there you go -
Just one of the reasons I stopped going to his site.
So how do they factor in the incredibly bad quality of Chinese "goods" that cost MORE than the items they replace? For example, a few years ago I replaced an American made AC window unit that originally cost $300 and lasted 20 years, with a Chinese made comparable unit that cost $500 and proceeded to break down 7 times in 5 years and had to be replaced after 6 years with another $500 Chinese POS.
Is there a better choice here? Do we need the govt to provide statistics or can someone like ShadowStats do it in the future?