For you critics of hedonic regression in the CPI....

It's not possible. Don't you know, everything is worse today?
 
I would imagine that all of the article's examples are dwarfed by the increased cost of housing and energy to a lesser extent.
 
This guy seems to like this theme. Here is another post he did elsewhere that I found when I was looking for the time cost for non-electronic goodies (can't link to image): CARPE DIEM: Time Cost of Goods: Yesterday vs. Today

The time cost for automobiles was very interesting, 4,696 hrs in 1908 vs. 1,365 today. The choice of dates seems a little odd, though, I wonder what it would be for the 1950s or 1960s.
livingcond1.bmp
 
There's a pretty interesting disconnect between the long-term price history of discretionary "stuff" and the long-term price of essentials. Much of it reflects a long history of wages outpacing inflation for a few decades in the boom after WW2, but that train appears to have left the station.

I do expect tech to continue to get considerably cheaper in real terms, but I have a hard time seeing how the cost of household essentials like food, energy, utilities, health care and taxes can do anything but match (or exceed) wage growth overall for the foreseeable future. I hope I'm wrong, but I don't see it. Past performance is no guarantee of anything, and we're not living in the "worker utopia" of the first 2-3 decades after WW2 before global competition kicked in big time to begin changing the rules and ended the "wages beating inflation" expectation.

I'd be interested to see what would happen if the price and "hours worked for X" were plotted for the essentials, and starting from (say) the mid 1970s. I suspect the results would be drastically different than technology items plotted from the '50s.

In summary, I expect to see a continued disconnect between the price of "essential stuff" and the price of "discretionary stuff" for quite some time.
 
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I think part of the problem that so many people have with saving money is that there is so much more "stuff" to buy, and therefore more choices to make. For example home computers and the software to run on them didn't exist at all in the '50s. It's not hard to spend $5k+ on a high-end gaming system.

Fancy accessories for your car? No upper limit there either.

Air travel was reserved for the wealthy and adventurous. Where I grew up a trip to Disneyland was something for "rich people" and we didn't even dream of it. I've been to Disney World 5 or 6 times by now but I'll acknowledge that I didn't pay for the trips (work related) and the last two times I didn't even pay to get in the park because my nephew works there. (Then I whined about the $3.00 hamburger!)

And even with the recession I'd wager credit is still easier to get than it was in the '50s. Who had a wallet full of credit cards and the bills to match back then? Charging a trip to Hawaii on a cc was not even possible for most people.
 
Walt34 said:
Air travel was reserved for the wealthy and adventurous.
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True, and in real terms there is no question that airfares have come down sharply in the last 40-50 years.

The problem is that if one looks ONLY at the base fare for a coach ticket, and they don't account for the reduced quality of service (which has vague but very real "value" attached to it) or the increased nickel and dime taxes and fees, they are significantly overstating how much cheaper it has become. Some of the reduction in cost is offset by an increase in taxes and fees, and some of it is offset by a significant reduction in the "value added" services on a typical flight (particularly on coach). And I don't know that the CPI reflects that -- if you keep the price the same but the quality of service declines, in a very real way you're getting less value per dollar but the inflation metrics are not likely to reflect that.
 
LARS said:
Assuming normalized interest rates, housing affordability would tell a much different story.
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Agreed. If we assume facts that are different than they actually are, you are entirely correct.
 
. . . Yrs to Go said:
Agreed. If we assume facts that are different than they actually are, you are entirely correct.
Click to expand...
Facts or a cherrypicked subset of facts that skew the overall picture of how things actually have gone recently?

For sure, the price of a lot of stuff has gone down, but only showing the most extreme examples in the tech area is, IMO, definitely cherrypicking.

And what the price of TVs has done in the last 50 years (or computers in the last 25) has very little to do with the price of food, energy and health care relative to wages in recent times.
 
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ziggy29 said:
I'd be interested to see what would happen if the price and "hours worked for X" were plotted for the essentials, and starting from (say) the mid 1970s. I suspect the results would be drastically different than technology items plotted from the '50s.
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See chart at bottom . . .

Despite Higher Food Prices, Percent of U.S. Income Spent on Food Remains Constant - Amber Waves September 2008


The reality is that productivity makes things cheaper, especially commodity products like agriculture. Our farmers are way more efficient today than they were in the 70's. With continuing improvements in biotechnology there is no reason to think that progress will stop.

What I wonder, though, is why so many people are convinced that things were better in decades past when so much of the evidence points to the contrary?
 
ziggy29 said:
There's a pretty interesting disconnect between the long-term price history of discretionary "stuff" and the long-term price of essentials. Much of it reflects a long history of wages outpacing inflation for a few decades in the boom after WW2, but that train appears to have left the station.

I do expect tech to continue to get considerably cheaper in real terms, but I have a hard time seeing how the cost of household essentials like food, energy, utilities, health care and taxes can do anything but match (or exceed) wage growth overall for the foreseeable future. I hope I'm wrong, but I don't see it. Past performance is no guarantee of anything, and we're not living in the "worker utopia" of the first 2-3 decades after WW2 before global competition kicked in big time to begin changing the rules and ended the "wages beating inflation" expectation.

I'd be interested to see what would happen if the price and "hours worked for X" were plotted for the essentials, and starting from (say) the mid 1970s. I suspect the results would be drastically different than technology items plotted from the '50s.

In summary, I expect to see a continued disconnect between the price of "essential stuff" and the price of "discretionary stuff" for quite some time.
Click to expand...

Maybe you could define "essentials". Housing is certainly an essential, but what kind of house? My folks, living in the "worker utopia" of the 1950's, raised three kids in a house with a 24' x 26' footprint. No air conditioning, no garage, one bathroom.

Maybe I'm misunderstanding your post. I think the ordinary person has a much higher material standard of living today than they did 50 years ago. But, it's just a little better than 25 years ago. I don't expect a lot of improvement in the next 25 years, but I don't expect us to regress to the 1950's either.
 
Independent said:
Maybe you could define "essentials". Housing is certainly an essential, but what kind of house? My folks, living in the "worker utopia" of the 1950's, raised three kids in a house with a 24' x 26' footprint. No air conditioning, no garage, one bathroom.
Click to expand...
Uh, I *did* define "essentials." To wit, straight from the snippet you quoted:

but I have a hard time seeing how the cost of household essentials like food, energy, utilities, health care and taxes can do anything but match (or exceed) wage growth overall for the foreseeable future.
Click to expand...
 
True, airfares have recently undergone pricing scheme shenanigans that make it difficult to do comparisons, but some of that is economics and a lot of it has to do with taxation being directly passed on straight to the consumer and labeled as such. The fees for luggage, pillows and food goodies is just some silliness that airlines have come up with to confuse the consumer. Some of it is also due to our demand for air travel at cheaper prices and the natural regression toward decreased services to meet that expectation. When you expect to fly for Greyhound prices, you can expect a Greyhound experience.

I think that technology has not only brought prices down in terms of hours of labor needed to purchase good and services, but has dramatically increased what we get for the money. Remember when there were actual seasons for most of the produce in the grocery store? If it wasn't grape season, you weren't getting any grapes. Now, I can buy grapes year round because technology has improved harvesting, processing and transportation so that I can access markets in places like Chile and find grapes in the produce section practically year round. Shrimp? Who cares if there is a season, because I can access farm raised shrimp, or shrimp imported from Vietnam.

Taxes present an interesting question, and the first thing that leapt into my mind is what capabilities are we expecting and receiving for our tax money as compared to 30 years ago. And how has technology improved what we get?

I remember 30 years ago having a training officer who was obsessed with finding stolen cars driving down the road. He had a special way of folding the daily "hot-sheet" (list of recently stolen cars by license plate) and held it in his hand the entire shift while constantly reading license plates. We never found one in the 30-days I rode with him. Within 10-years most police cars had data terminals that allowed him to check well-beyond the limitations of the hot-sheet and even expanded his abilities to check for wanted cars, suspicious cars, and wanted persons associated with certain cars.

Now, 30-years later, look at the capabilities he would have (he's retired now)- 1,500 license plates checked per minute:

YouTube - Va State Police Use License Plate Reader to Stop Car Thieves

EDIT: As a result of improvements brought by technology that make cars harder to steal and easier to recovery, auto theft rates are at a 20-year low.
 
Independent said:
Maybe you could define "essentials". Housing is certainly an essential, but what kind of house? My folks, living in the "worker utopia" of the 1950's, raised three kids in a house with a 24' x 26' footprint. No air conditioning, no garage, one bathroom.
Click to expand...


And it's not just bigger houses. We're eating more too.

So this chart shows US food expenditures declining as a % of income from 1970 to present.

While this one shows us eating 16% more per-capita than we did in the 1970's.

So we're paying much less, to eat much more. I think that is the primary source of all of the claims about rampant inflation, particularly those who try to calculate a rate of "Personal Inflation". People consume tons more of everything today and wonder why they are paying more for it.

So the solution to this "rampant" personal inflation is pretty simple. Just push the plate away fatty.
 
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.requests/cpi/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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ziggy29 said:
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?
Click to expand...

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.


ziggy29 said:
(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.)
Click to expand...

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).
 
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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