Measuring Inflation: Hooked on Hedonics

Posted On: Saturday - May 18th 2019 6:12PM MST
In Topics: 
  Economics  US Feral Government  Inflation

Modern-Day "Substitution"
"LET DEM EAT SNAILS!" - Marqueshia D'Antoinette":

In the process of composing a different upcoming post on the truly low inflation years of the mid-1990's for about a decade thereafter (can't explain now, cause that's an upcoming post), I felt I needed to post some background info. on some of the complications of the measurement of inflation.

One office of the cabinet level US Department of Labor in the US Feral Gov't that has the job of measuring, keeping track of, and publishing info about, inflation, unemployment, and other economic indicators is the Bureau of Labor Statistics. (I guess it started out just about Labor, but mission creep happens.) Peak Stupidity has, and shows, no LUV for ANY branch of the US Gov't, but I have a soft spot for the people that just want to do their non-political, non-power-struggle-involved work. There ARE some, indeed, and in this agency, I'd expect to find some Negative-Actioned, green-eyeshade (explained here) accounting types that just like to do what they do, in a nice no-pressure, non-fireable environment, with hopefully a minimum of affirmative action types in odd positions that are somewhat ignorable. It's a life. It's not just all bookkeeping, as complications set in pretty quickly when you are tasked to come up with numbers that show how less far American's money goes for given stuff each year. I would think a creative accountant could really get into a BLS job.

The thing is, people don't purchase the same goods and services that they did a decade ago or a century ago. The "basket of goods and services", a term that was in widespread public use back when there was officially lots of inflation (I only recall late 1970's through early 1980's*), not only changes yearly due to fads and people's desires, but even the "same" items are better or worse so can't be compared apples-to-apples. Hell, even the basket for the goods is not made of wicker anymore but probably out of 2 pieces of molded plastic. Additionally, people tote their goods in the back of the crossover rather than a basket these days and their services (don't get me started) are on their phones.

Nobody cares what the price of a buggy whip** is these days. We don't carry them from the country store in our crossovers. Likewise, there were no electronic tablets in the baskets of yesteryear either. OK, so there must be some substitution now and then of modern goods/services that may simply be new, desired things, for stuff and services we never or hardly ever use anymore. The "basket" must reflect what the average consumer uses, or it will mean nothing. However, is it that people don't want things like steak anymore, or have they been substituting chicken, or, yuckkk!, snails, BECAUSE OF inflation in price of the former?

"Hedonics" is the term used for the re-evaluating of goods and services based on their improvements over time. I would not hesitate to add that I really hope these creative accountants (I don't use that particularly pejoratively here) take ruination of products and services, such as with the ubiquitous Cheap China-made Crap into account in the same way. It can be used to justify high prices of cars due to all their wonderful new features, but then, do we have a choice to not have the improvements? Often the answer is "no".

A perfectly fine computer - in 1986.
"Hedonics" says Windows 10 makes an improvement so ...

BTW, the computer above makes a perfectly good example of the use of hedonics, but I had to get that Microsoft crack in anyway, right?

The usefulness and the failings of these two inflation-measurement adjusters will have to be covered in 2 more posts, I think. I find this stuff interesting, but I'm no green-eyeshade guy. There's just a bunch more to say about this, so this will serve as a simple introduction. SAVE THE BLS! (That can be part of the 1% of the Feral Gov't that we leave alone.)

* When Jimmy Carter-appointed FED chairman Paul Volcker put the kibosh on the high inflation by letting or forcing (I'm not sure, so I'll have to read up on that) interest rates to the high teens to clamp down on cheap money creation.

** Buggy whips are the item that economists seem most enamored with - what do economists do behind those closed office doors, anyway?

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