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Old 12-21-2009, 10:20 AM   #21
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Here's a chart of real electricity prices . . .

Annual Energy Review 2008: Energy Perspectives
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Old 12-21-2009, 10:36 AM   #22
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Well, for those of you don't see any logical reason to be suspicious of the CPI understating true inflation, note that health care is now about 15 percent of our GDP, but the CPI only weighted health care as 6.39% of the CPI-U in December 2008:

ftp://ftp.bls.gov/pub/special.reques.../cpiri2008.txt

How much higher would the CPI be if it weighted health care as the 15% of the economy it is, instead of as 6.39% of it?

This, even in the absence of all other funny stuff, is enough for me to suspect that the CPI smells bad as a measure of true overall inflation.

(And yes, I know the CPI doesn't include the health care costs to employers, but that's "voodoo economics" considering that increases in employer health care costs are passed on to the employees in one way or another. And it also shortchanges those who pay for their own health insurance without employer subsidies.)
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Old 12-21-2009, 10:43 AM   #23
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How much higher would the CPI be if it weighted health care as the 15% of the economy it is, instead of as 6.39% of it?
But CPI measures what consumers spend, not what we as a nation spend. What percentage of health care spending actually comes out of people's pockets? A very small percentage of that 15% is actually paid directly by consumers. The balance shows up in lower wages and higher taxes.


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(And yes, I know the CPI doesn't include the health care costs to employers, but that's "voodoo economics" considering that increases in employer health care costs are passed on to the employees in one way or another. And it also shortchanges those who pay for their own health insurance without employer subsidies.)
It's not voodoo economics to say that a "Consumer Price Index" should measure "Consumer Prices" and not a whole bunch of other things that aren't "Consumer Prices".

Another recurring theme with folks complaining about CPI (in addition to ignoring that we consume more stuff) is that they expect the index to measure all kinds of things for which it is not designed or intended (like the employers share of health insurance).
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Old 12-21-2009, 10:52 AM   #24
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As I understand it from this thread so far, consumer electronics should be excluded from CPI because they go down in price over time. We thought food costs went up and wanted to include those, but it looks like they've gone down too, so they're out. Same with electricity prices. But AH-HA! Health care costs have gone up, and by a lot. So if we define inflation as only including health care costs then we can prove that CPI dramatically understates inflation.

End of thread.
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Old 12-21-2009, 10:53 AM   #25
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As I understand it from this thread so far, consumer electronics should be excluded from CPI because they go down in price over time.
Now you are making things up. No one has suggested this.
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Old 12-21-2009, 10:59 AM   #26
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Now you are making things up.
I hate it when that happens.
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Old 12-21-2009, 01:50 PM   #27
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Uh, I *did* define "essentials." To wit, straight from the snippet you quoted:
Sorry, I didn't read well enough to notice that housing wasn't on the "essentials" list.

The point works just as well for food, though Leonidas already used one of my examples.

I imagine going through the supermarket and identiying foods that my parents bought. If I added up what it would cost to feed the average family with only those foods, I think we'd see a number that's a very small percent of total income. Even energy prices are somewhat subject to that approach. My folks had a lower electricity bill because they didn't use air conditioning. They spent less on gasoline because they drove fewer miles per year.

I'm not claiming there are no negatives. In particular, I think raw energy is one area where we could spend more per unit than my parents. But I think the "essential" portion is a small enough part of budgets that it's easy to conclude that even if that portion goes up, we're still going to do a lot better than they did.

(Medical care is complicated because we pay for it through lower raises instead of higher spending. Again, it's hard to do the comparison when I try to define "essentials". We spend money on treatments that weren't available at any price 50 years ago. Do we conclude that we're worse off because we're spending more money, or better off because we have better care?)
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Old 12-26-2009, 10:12 AM   #28
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How to factor quality of materials into the equation?

We have more electronic toys masquerading as necessities today, but the materials of which our lives are made have degraded.

I live with a suite of living room furniture bought, in a mall store, in 1978 on the salary of one government worker (who is now my husband). Some of it is solid teak with handmade tile insets, and the rest is solid wood with teak veneer.

Today, we'd be lucky to find such furniture in any store. The kind of store that my husband shopped in 30 years ago, today sells pressed-sawdust crap, covered with fake veneer, put together with staples.

A 4-year-old, $300 vacuum cleaner just had to be scrapped because of a small plastic part that broke off. The sew-vac shop quoted us $100 to fix it. Makes more sense to buy a new vacuum. In 1970, my family were still using a Kenmore solid-metal vacuum my parents bought when they married in 1940. The thing looked like an atom bomb on wheels.

Interested in others' thoughts on this aspect of the CPI debate.

Amethyst
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Old 12-26-2009, 05:54 PM   #29
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How to factor quality of materials into the equation?

I live with a suite of living room furniture bought, in a mall store, in 1978 on the salary of one government worker (who is now my husband). Some of it is solid teak with handmade tile insets, and the rest is solid wood with teak veneer.

Today, we'd be lucky to find such furniture in any store.

.....

Interested in others' thoughts on this aspect of the CPI debate.

Amethyst
We had a thread on this a while back. I think it is very selective to say things are not "made like they used to be". For most stuff, that's a good thing.

High quality furniture at decent prices is available. You just need to seek it out.

Dania - Tables - Petaluma Dining Table





How does $995 for that, compare with what you paid in 1978, adjusted for CPI?

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Constructed from a solid American ashwood base, the Petaluma dining table has an autumn and viola slate top.
As far as the debate on this thread, I'll just say that if someone asked *me* how to calculate CPI, I'm certain I could not come up with a method that would please all the people all the time.

-ERD50
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Old 12-26-2009, 06:08 PM   #30
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heh-heh- that just reminded me of another "cheap furniture" story we experienced very recently.

About 5 years ago, we bought one of the "cheap" IKEA coffee tables for my son when he moved into a frat house. I told my wife, this things looks pretty good, and I couldn't make one cheaper out of plywood from Home Depot. So we bought it, fully expecting it to be trashed by the time he moved out of the house.

Well, we recently helped my son and his wife get moved into their new apartment, they are replacing any old junk with nicer stuff now that they are getting "established" and also got some nice things as wedding gifts for the apartment. So it is looking pretty nice. The I see their coffee table, and I say "Wait, is that the table from your room in the frat house?" - Yep, one little scratch, otherwise the maple block (veneer, with solid legs) looks great, fit right in with the higher end stuff.

I think that thing was $32, maybe less. -ERD50
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Old 12-26-2009, 08:19 PM   #31
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I agree with Amethyst, though I really don't care enough to advance any arguments. I think it wonderful whatever anyone likes, Ikea or 18th century American walnut antiques.

It does make you appreciate older quality furniture when the dresser drawers still work smoothly 100 or more years later. However, I no longer really have room for any dresser, good or not. I use plastic boxes.

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Old 12-26-2009, 08:49 PM   #32
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Yup. I think people forget that these adjustments work both ways. If you replace an oak table with a plywood one for the same price, you're experiencing inflation that wouldn't normally get picked up absent some "hedonic" adjustment.
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Old 12-27-2009, 10:28 AM   #33
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I think that the furniture market has very good value at the low end, and decent value at the high end, but terrible value in the middle.

My wife and I went shopping for a nice coffee table and some end tables, and only place we could find real solid wood tables was at the Amish outlet (which was fairly expensive). Good stuff but you paid for it.

All of the stuff at the furniture stores we went to was the veneer stuff priced very very high, considering its low quality. Honestly, if you're going to buy veneer stuff, you might as well just buy the cheap stuff at IKEA or Target. The "normal" furniture stores sell junk at fairly high prices, IMO.


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heh-heh- that just reminded me of another "cheap furniture" story we experienced very recently.

About 5 years ago, we bought one of the "cheap" IKEA coffee tables for my son when he moved into a frat house. I told my wife, this things looks pretty good, and I couldn't make one cheaper out of plywood from Home Depot. So we bought it, fully expecting it to be trashed by the time he moved out of the house.

Well, we recently helped my son and his wife get moved into their new apartment, they are replacing any old junk with nicer stuff now that they are getting "established" and also got some nice things as wedding gifts for the apartment. So it is looking pretty nice. The I see their coffee table, and I say "Wait, is that the table from your room in the frat house?" - Yep, one little scratch, otherwise the maple block (veneer, with solid legs) looks great, fit right in with the higher end stuff.

I think that thing was $32, maybe less. -ERD50
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Old 12-27-2009, 10:36 AM   #34
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I think that the furniture market has very good value at the low end, and decent value at the high end, but terrible value in the middle.

My wife and I went shopping for a nice coffee table and some end tables, and only place we could find real solid wood tables was at the Amish outlet (which was fairly expensive). Good stuff but you paid for it.

All of the stuff at the furniture stores we went to was the veneer stuff priced very very high, considering its low quality. Honestly, if you're going to buy veneer stuff, you might as well just buy the cheap stuff at IKEA or Target. The "normal" furniture stores sell junk at fairly high prices, IMO.
There is a real difference between furniture made with hadrwood veneer plywood, with good dovetail joints, glued and screwed backs, and the typical particle board and cardboard stuff with very inadequate joinery found at Ikea.

IMO, the only good thing about Ikea is that you feel great to heave it into the dumpster when you move.

Earlier this year I had an Ikea bookshelf implode. The sides warped, the back worked loose, and the shelves just collapsed. I've never seen any of the old oaken cases like those belonging my relatives in the east fall down.

Ha
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Old 12-27-2009, 11:37 AM   #35
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Originally Posted by Amethyst View Post
How to factor quality of materials into the equation?

We have more electronic toys masquerading as necessities today, but the materials of which our lives are made have degraded.

I live with a suite of living room furniture bought, in a mall store, in 1978 on the salary of one government worker (who is now my husband). Some of it is solid teak with handmade tile insets, and the rest is solid wood with teak veneer.

Today, we'd be lucky to find such furniture in any store. The kind of store that my husband shopped in 30 years ago, today sells pressed-sawdust crap, covered with fake veneer, put together with staples.

A 4-year-old, $300 vacuum cleaner just had to be scrapped because of a small plastic part that broke off. The sew-vac shop quoted us $100 to fix it. Makes more sense to buy a new vacuum. In 1970, my family were still using a Kenmore solid-metal vacuum my parents bought when they married in 1940. The thing looked like an atom bomb on wheels.

Interested in others' thoughts on this aspect of the CPI debate.

Amethyst
The people who collect price information for the BLS would say that they look at identical items. If there is a change in quality, they adjust for it directly or look for an alternate product. So they would catch something as obvious as replacing solid teak with veneer over composite.

OTOH, if the difference doesn't show up until 4 years after you've owned the vacuum, it's hard to see how they can adjust for that (other than looking at original construction, but that's chancy).
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