Hedonic Regression

[imoldernu]

Floating a trial balloon here to see if there is any interest in the subject. The last discussion on ER seems to be around 2009.
I have spent a few days reading on the subject, so find it interesting but also confusing.
Inasmuch as it has so much to do with Social Security, Pensions, and the relationship of international Gross Domestic Product between nations, I can't help but wonder what effects this may have on the US economy in a five to ten year time frame.
The uniqueness of the US in the matter of home ownership is a secondary concern.

Perhaps as well to let a sleeping dog lie?

 

[MichaelB]

What is the question?

 

[imoldernu]

What is the question?

For discussion purposes, I see hedonics as one of the major factors in planning for the longer term retirement.
In particular, decisions on housing, but also to establish a DEW line for major shifts in the economy. A good example of this, the current policy movement among the international Central Banks.
Understanding long term interest rates as a precipitating factor for growth, decline, deflation, inflation or hyperinflation is a step beyond market movement and the stability of the market itself.
Subjects such as housing as a percentage of GDP, and (in another thread) the aging population, the effects of medicine, and climate change are just a some of the factors what will be rebalancing in a "Globalized" world.

We, as a nation, have been through a very long period of relatively stable economy broken by relatively small recessions, and mostly affecting stock market losses. Long forgotten and misunderstood are the periods of real hardship from 1929 to the of recovery in 1941.

There are current arguments that the CPI (before chained CPI) has created a gap between stated and real inflation. (Shadow Statistics). Whether that is true or not, the basis behind the establishment of the value of goods and services is only as good as the basis of the currency underlying the calculations.

I am reminded of the saying: "A rising tide lifts all boats".
By the same token the corollary that receding tide could earlier strand and damage those boats with greater draft, with a loss of much cargo. Therein lies the thought that early recognition and preparation could avoid running aground.

So... what?
Where to live?
What to pay?
Rent v. own?
Corporations stability and outlook relative to the economy.
Bond v. Stocks v. other Material investments.
Timing?
Widening understanding of alternate investment strategies.
Gold?
Emerging nations?
Commodities?
Population explosion related factors
Environmental concerns.
And the rest of the litany of risk reward factors.
.........................................................................................................

Down to the basics: How is value established?
Will the Michael Jordan Fleers Bubble Gum card be worth $20K in 2024?
Will an extended drought in the West drive up food prices?
Why did property values in Detroit and Las Vegas change? Where else could this happen in ten years?
What could happen with a collapse of the Euro?
Can copyright laws be enforced?

What has value today?
What will have value tomorrow?

Think Pensions, Social Security, Education, Welfare, and especially TAXES.

As food for thought, three minutes spent on this page

World Debt Clocks to look at DEBT, should give a picture of the inequality between nations. For a quick comparison, look at public debt to GDP and outside debt to GDP.
Note where the percentage decimal place is!

Check
US
UK
India
China
Russia

So... a wider definition of hedonic... the value we place on what makes up the security part of our lives.... and regression... the actual on-balance measure of what the future may bring.

 

[haha]

i'm, isn't there something else you might flesh this out with?

 

[aja8888]

I think you are over-thinking the problem.

 

[M Paquette]

If you are trying to actually use Shadow Statistics the website as a reference, you should be aware that:

In a personal phone call with economics blogger James Hamilton, Williams admitted the his calculations of inflation were simply...inflating the official statistics and not a rigorous recalculation of said statistics:
“”I’m not going back and recalculating the CPI. All I’m doing is going back to the government’s estimates of what the effect would be and using that as an ad factor to the reported statistics.

-- James Hamilton. Shadow Stats Responds. Econbrowser, Oct. 12 2008.

Hedonics itself is just a way of controlling for changes in product quality, particularly over time. For example, we no longer have to budget an annual expense for vacuum tube replacements in the operation of a computer. Wool is no longer a driving factor in the price of winter coats, with the introduction of synthetic fabrics. The price of oil is a smaller factor in the overall economy than it was 50 years ago. "Dirt carting" and the removal of horse carcasses are no longer major city sanitation expenses.

Stuff changes over time. Economists have to control for that.

 

[Senator]

I do not really believe that we are as bad as the list. We can print money, as fast as we can, and pay off any debt. We even can refinance it.

As long as other countries print money, or promise benefits, as fast or faster than we do, all is well.

We have many natural resources. We have a continuing influx of people willing to work, for less.

Will the debt be a problem at some point, possibly. But not for a long time.

 

[Amethyst]

I'd be more interested in discussing the long-term cost and availability of human-derived services, which an aging population needs. I'm talking about people you pay to fix/clean your house, do your yard work, look after your physical needs when you no longer can.

Will all but the wealthiest have to settle for poor or no services/being neglected/giving up our homes and becoming institutionalized? Or will technology (robots, etc.) take up the slack?

Amethyst

 

[Options]

"People often see order where it doesn't exist and interpret accidental success to be the result of skill"

"People often treat the highly probable as certain and the improbable as impossible."

"Investors typically give too much weight to recent experience."

"There are no good economic forecasters, and the right strategy is to ignore all of them and stick to your plan."

"The four most dangerous words are This time it's different."
--Larry Swedroe

 

[Meadbh]

I had to look this up.

Hedonic regression - Wikipedia, the free encyclopedia

So.....we value what we like?

 

[MichaelB]

I had to look this up.
./.
So.....we value what we like?

I think this is one of those threads where you can write just about anything and still be on topic.

 

[REWahoo]

I think this is one of those threads where you can write just about anything and still be on topic.

Yep, can't be accused of thread drift on this one.

 

[aja8888]

I'd be more interested in discussing the long-term cost and availability of human-derived services, which an aging population needs. I'm talking about people you pay to fix/clean your house, do your yard work, look after your physical needs when you no longer can.

Will all but the wealthiest have to settle for poor or no services/being neglected/giving up our homes and becoming institutionalized? Or will technology (robots, etc.) take up the slack?

Amethyst

No, you could always adopt and train.

 

[imoldernu]

It's called: "Casting a wide net".

Thinking of our personal future in a broader scale. Trying to understand WELTANSCHAUUNG.

 

[CaliforniaMan]

For discussion purposes, I see hedonics as one of the major factors in planning for the longer term retirement. ...

Somehow I read this as hedonistics, and was thinking, wow, what a great retirement idea.

 

[LOL!]

There has always been a problem finding someone to fix your house. The solution will be the same as it has always been: raze the house and build new. When folks write "they don't build houses like they used to", they are wrong. They still build houses like they used to. Houses are built to fall apart and be replaced. The old houses left standing suffer from survivorship bias, so they don't really count.

 

[ERD50]

I think this is one of those threads where you can write just about anything and still be on topic.

Oh good-y!

This is sort of on-topic though, a while back I think there was some threat of bacon prices going sky-high? We don't eat much bacon, and when we want it we buy it, so tracking the price was never a conscious thing. So anywhooo...

This summer I found a recipe that sounded great and tasted better:

Take a sweet onion (Vidalia or equiv), cut in very thick rings, ~ 3/4" thick slices, and push out just enough of the center to keep about a 1/2 thick ring ( a 1/2" delta R for the geometry enabled).

Brush with Sriracha sauce.

Wrap bacon in a spiral around the onion ring, use toothpicks to hold in place as needed.

Grind a hefty amount of black pepper all over.

Cook ~ 250F for 90 minutes (or an hour and a half, if that works better for you). I did this on the warming rack of the gas grill, on a piece of foil, but an oven would work too.​

Then enjoy. The long cooking time will melt much of the fat, the onion becomes melt-in-your-mouth tender, it is all sweet and salty bacon-y goodness, and the heat of the Sriracha and black pepper is pretty muted by the cooking time, and adds a just-a-right-amount of heat/spice. So it all just blends together in an awesome, hedonistic pleasure.

Goes well with anything. Just about any good beer will match up - a wit, a malty anything, or a nice aggressive IPA.

I'm hungry.

-ERD50

 

[imoldernu]

Reductio ad absurdum:

Consider a differentiated product market
• i = 1, ..., I products
• t = 1, ..., T time periods
• xit = [xi1, ..., xiK] are the K characteristics of
product i

The application can be applied to any item, product, concept, or activity, keeping in mind the important factor of time.

 

[Amethyst]

I feel a spell of the vapors coming on.

 

[imoldernu]

I do not really believe that we are as bad as the list. We can print money, as fast as we can, and pay off any debt. We even can refinance it.

As long as other countries print money, or promise benefits, as fast or faster than we do, all is well.

We have many natural resources. We have a continuing influx of people willing to work, for less.

Will the debt be a problem at some point, possibly. But not for a long time.

For me, a difficult subject, given the concept of globalization and free trade.
How can we, with an external debt of 100% to GDP, deal with Russia @ 33%, China @6%, England @466% and Ireland @ 1,000+%.

How does printing money become an infinite solution? In the same vein, within the US, balancing unfunded liabilities such as pensions and SS without dealing with tax increases?

Using a 10 year outlook, how do we stay in the game, and not be subject to massive inflation.
.....................................................................

More important than the hypotheticals, what practical actions to take if Senator's time frame is shorter than expected?

Though at my current age, I have no direct concerns, four sons are in the age brackets of many here on ER. My thinking is to build a type of "prepper" plan that lists concerns... and potential offsets to avoid the "regression".
ie.
Investment - timing shift to bonds, foreign bonds, or commodities
Housing - Right-size, Right location today and tomorrow
Energy- Serious review of cost vs. efficiency on all sources
Health- Fact based actions, Knowledge based risk reward, accelerated learning curve for self diagnosis and protection.
Actual hedonism - cost of vanity, travel, entertainment - Direct alternate plan.
Timing- Determining trends, watching financial forecasts, cutting through hype to fact
A defensive loss of income plan
Analytical approach to support for education, relatives, charities... measuring wants vs. needs.
Knowledge of and direction for national interests:
-infrastructure
-armed forces
-critical SCOTUS decisions
-law re: environment, global warming, energy
international commitments.
(The latter national interests to be quantified for personal economic directional decisions... ie. "dark clouds forming".)

Agreed that much of this is motherhood... and like... "What's different from what I'm doing already?" ....BUT that's the real purpose of calculating hedonic regression. To establish real value in the face of changing dynamics. Not just a 2007-2008 type market event, but wider causes such as the above mentioned global economic balances.

We now return you to your regularly scheduled program.

 

[MichaelB]

ERD, that onion and bacon recipe sounds enticing, and I love a good IPA. Thanks!

 

[NW-Bound]

Oh boy! Right now, having survived painful surgeries last year and getting a new lease on life, I am having very selfish and more direct thoughts of enjoying the current moment.

I am not thinking too hard about the future, because I may not be in it. And if I am, I will worry about it at that point.

 

[Senator]

For me, a difficult subject, given the concept of globalization and free trade.
How can we, with an external debt of 100% to GDP, deal with Russia @ 33%, China @6%, England @466% and Ireland @ 1,000+%.

How does printing money become an infinite solution? In the same vein, within the US, balancing unfunded liabilities such as pensions and SS without dealing with tax increases?

Using a 10 year outlook, how do we stay in the game, and not be subject to massive inflation.

More important than the hypotheticals, what practical actions to take if Senator's time frame is shorter than expected?

You are assuming that China and Russia are accurately reporting the debt. And assuming their economic systems will not collapse. Do you think China does anything legitimate? Look at their issues with baby formula, tooth paste, Sheetrock, dog treats, child toys, etc.

We stay in the game by continually loaning money to China or ourselves. When we buy goods, the Chinese have US Dollars. They can spend them, or invest them. They choose to buy government bonds rather than spend the money in the USA.

So, perhaps their bonds become worth less, over time. That is the risk the Chinese take. They should have invested in the USA instead, or bought more goods from us.

The USA could pay off all the bonds, owned by all parties, just by returning the cash. The treasury would borrow enough from the Federal Reserve to pay them off. And then default, or print money to pay back the Federal Reserve.

It is a game played out over time, throughout time. I am more worried that crime goes unpunished, and hard working people give up due to high taxes and lack of incentives. Once Chaos reigns, monetary policy is moot.

 

[donheff]

I can't get excited about any of this. I am about as well prepared to ER as is reasonable and figure that fretting over what might lead the world to crash down around me won't make a difference and will miss the black swan that gets me in any event.

 

[marko]

Many years ago, I was in a meeting and someone brought up "hedonic regression"...our boss, who was sooooooo much smarter than any of us idiots thought we were talking about "hedonism" and asked that we stay on topic.

A true Dilbert moment!