I guess my wife and I are not very good shoppers. For example, when we buy a television, we’re interested in reliability and price. Any gadgets – a vchip, flat screen, etc. – are of little concern to us. Yet to the Bureau of Labor Statistics (BLS), which, among other things, compiles the Consumer Price Index (CPI), is very concerned with the gadgets – they call them an improvement in quality of the tv – in coming to a conclusion as to whether the price of televisions has increased this month.
Now, you and I might conclude that if the price were $300 last month and is $350 this month, there has been a price increase. That doesn’t cut it with the BLS. Its possible that the price, from a CPI point of view, has actually decreased when you consider that these gadgets may have improved the quality of the tv in the judgment of the BLS analyst who specializes in televisions.
You have to admit that determining whether prices are rising or falling in a market where innovation occurs almost daily is extremely difficult. In these markets the BLS uses something called hedonics, which involves using some arcane – very arcane – statistical techniques to determine whether the tv is rising or falling in price. However, the final determination of its price change is made by a human being, like you and me. And you know how wrong we can be.
The use of hedonics is becoming more prevalent. In 1995 .2% of items were priced this way, now it’s more than 3%. What will it be in tomorrow’s wired world? In the meantime we old folks on Social Security can take little comfort that the size of a portion of our monthly check is a function of someone’s judgment. And they're making these judgments based on things that I care not one whit about.
1 comment:
As presumably these prices are calculated on the basis of how much pleasure we all derive from the products, perhaps it's time they used hedonics to calculate Social Security payments? That would upset George's plans for SS!
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