The Solution for Dilution is Substitution

Posted On: Thursday - May 23rd 2019 7:28PM MST
In Topics: 
  Economics  US Feral Government  Inflation

"Dilution" of the value of a dollar, is what we mean here, in the inflation calculations of our creative government accountants. I'd like to expound a bit more on one of the 2 components (at least that I know about) mentioned on Peak Stupidity in the post Hooked on Hedonics last week. Let's talk "substitution" in this post, and the problems with it, and get to hedonics tomorrow ... and the problems with it ...

Whether it's buggy whips (always one of the favorite subjects of economists and their mistresses around the world), abacuses (abaci?), or LED watches, or, in terms of services instead of products, chimney sweeping, blood-leeching, or hi-fi stereo repair, there are definitely items that should no longer be in the imaginary "basket" of goods and services in inflation calculations. People don't pay for these items anymore, for various reasons, and therefore their prices are not a good measure of anything regarding the value of our dollar, if one can even find out prices for them anymore. It's not just a one-time deal to keep up with these changes, of course, and any competent inflation-measuring organization ought to indeed keep up with the changes regularly.

Hi-Fi device - that's High Fidelity - for enjoying music.
Not ordinarily seen in current-era (CE) people's baskets of goods.

Wi-Fi device for enjoying music.
Yeah, a tablet should be in a current-era basket of goods.

Decent set of speakers (200 W/channel?).
Won't even fit in a basket of goods!

Lame ass way to listen to music.
Sure, turn it up to 11 ... lotta good it'll do ya'.

OK, that was pretty much an aside to rag on modern music-listening practices, and for some nostalgia for those huge stereos that rocked the house. Man, it's just not the same on a headset, much less earbuds! And no, contrary to what my parents warned me, I can still hear very well, thank you.

Yeah, now, this substitution process has got to be done, sure. It does lend itself to abuse, however. I wouldn't say it's all intentional, as some things can be chalked up to AA and normal government incompetence. However, there are a lot of BIG people in and behind the US Feral Gov't that would like the inflation numbers to stay low, low low. Peak Stupidity hasn't really been on the Global Financial Stupidity topic very much lately, but if the reader will recall, or go back and read about, the CPI number is used for indexed distribution payments, whether Social Security (more here), government-employee cost-of-living increases, and even more importantly, in my opinion, calculations to demonstrate how well the American people are doing financially, which the FED can use to show they should keep interest rates low, etc... I'm gonna guess there's lots of pressure on these good accounting folk.

Therefore, if one were to get into detail, and read what the BLS does with this ever-changing basket of goods and services, one may see more chicken in the basket rather than sirloin or rib-eye steak. Now, I will admit that "tastes" do change, maybe not actual taste-bud tastes in this case, but the understanding of saturated fat's effect on the arteries, etc. However, could it not be the case that the reason people are putting more chicken in their proverbial basket is because steak is GETTING TOO EXPENSIVE? It's a game then, in that case. Prices go up, Americans can only afford to get something of lower quality or desirability, and that becomes a bigger component of the basket of goods and services used in CPI calculation.

Eat Mor Spam.
BLS inflation substitution, or just more tasty?

Come on guys! It's all saturated fat nowadays!

One other example that I've noticed is the switch, by mostly young people, from motorcycles to scooters for in-town driving (sometimes even out of town, a really dangerous thing). This happened when gasoline prices (more here) went through the roof just over a decade back. OK, I do get that those Vespa-looking scooters are a hit nowadays with the soy-boys, and then maybe the DUIs are pushing other young men into the scooter world. However, it was the very-expensive gas that made people switch, and who wouldn't want a real motorcycle, with some power (for fun AND safety) over a scooter? What goes in the basket now is not so much weight on the motorcycles, which themselves are getting pricier and more weight on the scooters. Your average scooter is cheaper than a bike, so that component helps bring the CPI down.

Tomorrow Peak Stupidity will discuss that other component, the "hedonics", that can be used to fudge the inflation numbers to the low side. Beware the BLS.

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