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Thinking Twice About TIPS
Others take issue with the methodology used by the Bureau of Labor Statistics to calculate the CPI—for example, its decision to register a decline in price for newer computers that cost the same as an old version but offer more capabilities. That’s one reason independent economist John Williams, who runs Shadowstats.com, argues the CPI underestimates inflation’s true impact on Americans by as much as three to seven percentage points.
Perhaps the independent economist John Williams would like to take me up on a little offer. Since he is arguing that there hasn't been deflation in computer prices, I'd be more than happy to sell him my old TRS Model III computer (assuming I can still find it, since I loaned it out many years ago) for the same price my girlfriend just paid for her new laptop. I paid slightly more than she did, so he should be getting a bargain.
Here's what he can expect from that "laptop" of the past.
CPU: Zilog Z-80, 2.03 MHz
Memory: 48k
Hard Drive: 0 bytes (there was no hard drive)
DVD Players: 0
Monitor: 12-inch B/W monitor (64x16 text resolution)
Wireless: N/A
Battery: N/A
Bundled Software: N/A
Here's the similar laptop of the present.
CPU: Intel Core 2 Due processor T6500, 2.1 GHz
Memory: 4GB
Hard Drive: 320GB
DVD Players: 1
Monitor: 14.1-inch color monitor (1280x800 resolution)
Wireless: 802.11b/g WLAN
Battery: 12-Cell Lithium-Ion Battery
Bundled Software: Microsoft Office
Her new laptop is at least 1,000 times faster, has nearly 90,000 times more internal memory, has infinitely more hard drive space, includes a DVD player, has a vastly superior monitor, can actually receive wireless communication, can be used away from an electrical outlet, comes bundled with Microsoft Office, AND comfortably sits on a lap. Other than that, these two machines are clearly pretty much identical though.
I wonder when I can expect a check for $799 (plus shipping and handling)?
If my offer isn't enticing enough and/or I can't scrounge up a Model III, then I might be willing to upgrade him to a superior TRS 80 Model 100 (or something even nicer, who knows!). It was actually designed to be a laptop. It would be $799 well spent!
Tandy TRS 80 Model 100
And just two years ago, I bought a genuine TRS 80 Model 100 through eBay. It cost me US$50 (the original retail price was A$1299). It was, and is, in perfect nick, still in the box and working like a charm.
RADIO SHACK TRS-80 MODEL 100 VINTAGE LAPTOP WORKS 100%
Current Bid: US $7.76
Real Estate Newsletter Articles this Week: Existing-Home Sales Increased to
4.15 million SAAR in November
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At the Calculated Risk Real Estate Newsletter this week:
[image: Existing Home Sales]*Click on graph for larger image.*
• NAR: Existing-Home Sales Increase...
11 hours ago
10 comments:
Mark,
I cannot agree more on computer outright depression deflation! I bought a new computer just last June (I think) and it was both 5X more powerful as my 3 year old one and it was STILL CHEAPER! Nobody can argue electronics are not getting cheaper all the time.
Stag, GYSC,
Check out the Table of hedonically adjusted GDP components. Approximately 20% of GDP is hedonically adjusted. That's a significant percentage. They better get it right.
Personally, I'm against hedonics.
First, it leads to consumers being cash poor and hence dependent on credit (DEBT!). Sure the government says your new car only cost $15,000, but you paid $17,000 in cold hard cash. All thanks to extra bells and whistles you rarely if ever use that cost an arm and a leg to repair. Things are so damn complicated now, you can't even do your own maintenance.
Second, I believe the "lowered" inflation measures lead to senseless credit creation now that we are off the gold standard. And I'm certain that has negative social and economic consequences.
And third, we seemed to do better without hedonics. Consider. If hedonics is legitimate as some claim, then inflation was actually much lower in the past. Perhaps it was even negative! Wouldn't that be something. It would absolutely disprove this entire deflation boogey man. It would also expose for all to see the historic credit creation rip-off scheme banks and crooked eCONomists have CONcocted for personal gain. Imagine, we'd all have to produce to earn. The free lunch inflation gatherers and their political clout wouldn't even exist.
Friedman and Schwartz estimated that prices in general fell from 1869 to 1879 by 3.8 percent per annum. Unfortunately, most historians and economists are conditioned to believe that steadily and sharply falling prices must result in depression: hence their amazement at the obvious prosperity and economic growth during this era. -- Murray Rothbard
Oops! Here's the link with the table:
http://www.bea.gov/papers/pdf/hedonicGDP.pdf
mab, nice find!
mab & GYSC,
Hedonics is just part of the measuring tool. Perhaps it isn't the measuring tool that's the problem.
It sounds to me like you are mostly against the introduction of inflation to counter the natural deflationary tendencies.
In other words, technology SHOULD be making our lives MUCH better but since the government keeps injecting inflation into the mix all we can do is mostly just tread water.
You know what? I actually agree.
Stag,
The Consumer Price Index (CPI) assumes, ever since the Boskin Commission during the Clinton administration, that if prices of items go up consumers substitute cheaper items. This is certainly the case, but this way of measuring inflation means that the CPI is no longer comparable to past years, because the basket of goods in the index is variable. - Paul Craig Roberts, Former Assistant Secretary of the Treasury.
The American people are being swindled six ways from Sunday. I see inflation as the root cause of the swindle, the dependable enabler. And it's not just CPI inflation. The most damaging inflation comes from non-CPI credit. It allows a minority to gain unswayed power. This power leads to yet more power. Hedonics, is a part of the swindle. But like all good cons, it's not obvious. In fact, it's packaged and sold as the opposite of what it really is.
Am I paranoid? I don't think so. I just don't let people piss down my back and then tell me it's raining.
This country produces plenty of wealth. But the shenanigans that are tolerated (through "legal" means) in order to allow a small minority to siphon the wealth from the majority are high crime imo.
I've concluded (rightly or wrongly) that depressions are caused by banks and the abuse of credit. And depressions are prolonged by politics.
So what have we done in the past few decades? We've abused credit like never before.
Stag,
Financial leverage (debt for "investment" primarily) absolutely soared when we left the gold standard. Why? Here's a thought. Because with a policy of inflation now achievably in place, the stage for government guaranteed exponential growth was set. Financial debt (leverage) was/is a way for banks and finance to make claim to the future inflation. And a too big to fail policy or the threat of systemic risk makes it the greatest one-way bet in history.
And what happens when the anticipated future credit inflation (non-economic debt creation) fails to materialize? The rules are changed and even more leverage is added. This cycle of financial "innovation" was repeated until it reached critical mass and debt money system started to collapse inward like a black hole.
But no worries. Central Banks the world over are always there to explain away the underlying problem, reflate and guarantee the banks your piece of the future inflation (senseless credit creation).
Is it any wonder why the FIRE industries have flourished while most everyone else has taken a step back financially?
Do you see any real attemt to fix the flaw in the system? All I see is insiders jockeying for a piece of the bailout.
mab,
I'm obviously not quite as down on the CPI as most are. It probably has a lot to do with how I view the advancements in technology.
I could be wrong, but never before in the history of man has a product improved at such an amazing exponential rate as the personal computer. Clearly I am going to be a bit biased on this because it was also my profession.
Without hedonics, a Playstation 3 game would be no better than a Playstation 1 game. If that was the case, I would have never upgraded my Playstation 1 to a Playstation 2, then upgraded my Playstion 2 to a Playstation 3. It wasn't like the Playstation 1 wore out. I've still got it and two more Playstation 2's. They are all just as useful as the day I first bought them.
In ancient times (and as seen in third world countries today), the largest item in the "basket of goods" was simply food. A banana is a banana. Hedonics obviously does not apply.
In sharp contrast, to say that the computer on my desk has not experienced deflation of epic proportions misses at least some of the big picture. I find John Williams' assertions that hedonics should not be applied to computer products beyond laughable.
We'll just have to agree to disagree on that.
As for your thoughts on leveraged credit, I do agree completely though. I just see that as a separate issue.
Stag,
to say that the computer on my desk has not experienced deflation of epic proportions misses at least some of the big picture.
CPI is what it is. A measurement. But to me the big picture is acknowledging that we made changes and then looking at the results. Did it benefit the majority?
And I am in no way saying that computers haven't experienced epic deflation. I'm also not minimizing the fact that we've had incredible advances in technology. Frankly, I think the advancements have exceeded expectations. Yet the life of leisure and wealth that should have accompanied such advances never arrived.
My biggest beef with CPI is OER, but I don't like hedonics either. I'd rather let the quality benefits accrue to society at large than hand them over to the FIRE eCONomy via lower inflation measurements which are then offset by senseless credit creation and asset inflation. I view all the CPI "innovations" as excuses for the FIRE eCONomy to create more non-economic debt for self gain. Their free lunch comes at the expense of the productive economy and the well being of the majority.
If you look at the flow of funds, the growth in financial debt and household debt have been beyond disturbing. The CPI measurement changes helped enable the ruinous household and financial debt growth. The same debt growth that robbed tens of millions of Americans of their houses and retirement savings.
The foolish notion of forced exponential debt growth must end. And forcing that absurd notion on the the majority via CONsumption debt was pure idiocy. A crime.
Just look at how much foolish debt it took to keep CPI positive (2.5%) over the past 20 years. Currently, it is taking trillions in public debt just to keep CPI positive and GDP from tanking. And to what end?
Capitalism and free markets don't have to be this way.
mab,
Your arguments convinced me many months ago that although I was okay with OER as it applies to my investments (and still am), I should not be okay with OER in general. I'm not. It was a mistake of epic proportions. The bubble could have been dealt with much sooner. It wouldn't have grown so huge and it therefore it wouldn't have popped so violently. All in the name of what? A smoother CPI?
Mission Accomplished. *sarcasm*
"The foolish notion of forced exponential debt growth must end. And forcing that absurd notion on the the majority via CONsumption debt was pure idiocy. A crime."
There is something terribly wrong if an economy REQUIRES growth in order to prosper. Agreed.
How can we possibly pay our debts? No problem. We'll just crank out more children and grandchildren to pay them on our behalf.
Locusts believe in unsustainable exponential growth policies too. It never ends well for them.
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