Hedonics, in economics, is essentially the idea that if something is better than it used to be, it is effectively cheaper, so inflation is less than it seems.
In comments, BDBlue posted this:
In Queens, New York, on Friday, William Dudley was bombarded with questions about food inflation, and his attempt to put rising commodity prices into a broader economic context only made things worse.
“When was the last time, sir, that you went grocery shopping?” one audience member asked.
Dudley tried to explain how the Fed sees things: Yes, food prices may be rising, but at the same time, other prices are declining. . . . “Today you can buy an iPad 2 that costs the same as an iPad 1 that is twice as powerful,” he said referring to Apple Inc.’s latest handheld tablet computer hitting stores on Friday. “You have to look at the prices of all things,” he said.
This prompted guffaws and widespread murmuring from the audience, with one audience member calling the comment “tone deaf.”
“I can’t eat an iPad,” another quipped.
And that bit about an Ipad2 being twice as powerful, as if that means it has twice as much utility, is why hedonics are complete bullshit. I have a computer today that is so much faster than the computer I had 10 years ago that that computer is a snail in comparison. What do I do with it? Write, go on the internet, play games, use spreadsheets, basically. At none of those things is it all that much better than my computer in 2001. The graphics in my games are a lot better, but they aren’t better games because of it (Deus Ex is better than anything I’ve played this year, and it was published in the late 90s.) My word processing software is not enough better that I notice, the spreadsheet is essentially identical, the browser is certainly better, but not that much better. This computer just does not have that much more utility than my old one.
Adding computers to physical processes gives you about a 50% gain max. Adding computer to most service or clerical activities gives you almost nothing in terms of productivity, it just lets management have more control and more detailed reports (supply chain management is the big exception). The gains are NOTHING compared to what attached an internal combustion engine did, which gives you about 10X gain compared to manual labor, or even what steam power did for those things it could be used for. Computers today may process 100s of times faster than those of even a few years ago, but they are neither hundreds of times more productive, nor do they improve happiness (utility) by hundreds of times.
Hedonics are largely bullshit. They are a way to reduce what inflation is measured as, so that all the things which are indexed to inflation (like many pensions) cost less.
And yes, you can’t eat an iPad, so food inflation matters more.
Our lords and masters (h/t Americablog):
Those trends came as real income dropped 0.5 percent for the month.
The Labor Department said its Consumer Price Index increased 0.5 percent after rising by the same margin in February. That was in line with economists expectations.
Core CPI is vindication for officials at the Federal Reserve who have viewed the recent energy price spike as having a temporary effect on inflation.
Food and gasoline rose 0.8 percent, the largest gain since July 2008, after increasing 0.6 percent in February.
When thinking about inflation, think of individual’s (or companies) surplus income, that is, how much income do they have left to spend after their necessities. Necessities include food, housing, heating and transportation. To a lesser extent, clothes, though most people don’t need to buy clothes every month.
Goods inflation, that is to say, core inflation, is mostly in items that you don’t have to buy. Sure, you might want to, but you don’t have to have a new toaster, or TV, or computer. Food, on the other hand, you have to have. If you live off rapid transit, and most Americans do, then fuel for your car is something you have to have otherwise you can’t get to your job: you must buy it, at whatever price it is selling for. Heating oil is something you have to have, freezing to death is bad.
If you earn $2k a month and your fixed bills come to $1,600, your expendable income each month is $400. If oil and food rise enough that you have to spend an extra $50 you’ve lost 12.5% of your income. If they rise enough to cost you $100 a month, 25%. That margin is what matters to most people. And for people close to the line, the extra money they must spend may kick them from surplus into a personal deficit, at which point they have to start borrowing money, usually at usurious credit card rates of over 20%.
The day laboring class is particularly vulnerable to this. A bit of drying up of work, an increase in the price of food, and they can reach the point where they can’t afford to eat enough every day. When that happens you either get a revolution, or you get famines. This was particularly a factor, by the way, in Egypt.
Inflation in what people must have is what matters to most of the population. But it isn’t what matters to your lords and masters. Food costs and fuel costs, are, for them, roundoff errors. If you’re really rich, spending $1,000/day on food doesn’t even show on the scale. So, by and large, goods inflation is what matters to them, personally, though they may have business concerns about fuel inflation (and note that inflation in oil leads to food inflation very directly. Modern agriculture is how we turn oil into food, essentially.)
So when someone talks about core inflation being the most important form of inflation, check your wallet, it’s likely lighter than it used to be.
Just to note the obvious, this budget will throw the US back into a depression (well, ok, really you never left the depression, but you know what I mean), and contrary to all of Obama’s “jobs, jobs, jobs” talk, it will cost jobs. Also, as long as we’re at it, ignore the unemployment rate, it tells central bankers something useful (about the potential for a tight labor market), it tells you nothing useful, it’s a lie to you. Look at the percentage of the population unemployed, that cuts out all the bullshit, and it shows the US is still in a hole. Inflation may be officially around 2%, but that’s a lie too, Shadow stats shows it at almost 10%, which is what it would have been if they hadn’t changed the inflation measurements from how they were done in the eighties. So what you have, is stagflation – high unemployment combined with high inflation, and on top of that wages are flat even using 2% inflation, and in freefall if you use something closer to the real inflation rate.
Combined with the fact that virtually every other first world country is going into austerity, the fact that oil prices are through the roof, and that nothing is being done about any of these things, well, you can take off your shades, because the future’s so dim you need night-vision goggles.
In February, the Fuel Surcharge (FSC) on shipments was 26%. It is now 31%. It keeps climbing with no end in sight. It’s not always a straight formula though, as I saw an invoice from the steam line the other day, where the customer’s freight rate is $1400, but the added FSC was about $1800. Adding a margin? Lol. But really what I want to add here could be best captured by this title: Cynical, naive, or just dumb?
In July 2010, the government instituted a tax incentive to businesses to get exports moving. I would guess their motivation was to encourage exports to increase profits to get companies to hire more workers. You know, work on that unemployment thing. So they give a tax break to exporters, and reduce their tax on profits from 35% to 15%.
My customer in Australia imports a lot of pork. They are owned by a U.S. company that supplies about 60% of their product. They got their product delivered FAS Long Beach, meaning free along side. The supplier paid for all expenses up to the side of the ship; rail to long beach, transloading, and delivery to the ship. My customer paid for everything from that point on – I acted as their agent, and so I was “technically” the exporter. Starting in August, the supplier wanted to sell the product, in order to take advantage of the tax incentive, DES – delivered ex-ship. Meaning they paid for all expenses up to the point that the ship tossed the container overboard at the foreign port. The supplier was now the exporter, in name, where they hadn’t been so before.
Was there any increase in exports? No; same business being done as before. Did the supplier hire new staff to handle the “new business?” No, in fact they let staff go; I’m still managing the shipments and getting my same ‘cut.’ So on paper, it looks like the supplier increased business by about 700 containers a year, and get a reduction of 20 points in those profits, but they haven’t really increased business, they just get the tax break.
This is just ONE business in the U.S. How many others are doing the same thing? So is the administration cynical, naive, or just dumb? Didn’t they do their homework on this? It took me about 5 minutes to figure this scheme out. How come the geniuses at Department of Commerce didn’t see this coming? Or did they? Is this just another way to get around the repatriation of foreign earned profits taxes by ‘reimbursing’ them at home (after all, money is fungible isn’t it?)?
If you value what Corrente and Lambert do, and you can afford it, consider tossing Corrente some money. Blogging isn’t free, someone’s labor is always involved. Corrente punches above its weight, the big dogs in the blogosphere may not link to it, but they definitely do read it, it’s sort of the guilty pleasure of many a-listers. Ideas which start in Corrente do circulate out, and within Corrente there is a community which actually gets things done, as when they were the movers behind an alternate conference on the debt and deficit.
Times are hard for a lot of people, and if you don’t have the money, of course don’t give, but if you can afford it and you think Corrente does good work, help them out.
Folks, this won’t pass this year, but a version of it will pass:
That plan would transform Medicare from a government insurance program to one in which seniors would chose from private, federally subsidized coverage. Americans 55 and older would stay in the current system.
Remember, Obama’s health care reform was essentially the Republican plan from the 90s. The Republicans, whom everyone was sneering at for running crazies, have put in place a team of hard right ideologues, who have moved DC significantly to the right even of where it was. At some point they will pass this, because they want it badly, and the Democrats have no alternative vision other than “right wing, but not as right wing”, which goes nowhere.
I’ve said this before: get out. If you can’t get out, get your kids out. This is not going to end well. Obama has institutionalized Bush rather than rolling him back, and in some areas, such as civil liberties and unilateral Presidential war powers, has actually moved further to the right than Bush was. It is not impossible that this will get better in the next couple decades (as 5 year old Ian once argued, almost nothing is impossible), but it is unlikely. Americans spent the last 35 years spending their retirement, their children’s retirement and running infrastructure and capital into the ground, and they were good with that. Every effort to repeal Prop 13, for example, failed miserably. America is the culture of the free lunch, what Americans don’t realize is that they’re the free lunch.
That doesn’t mean the US couldn’t fix its problems, in theory, but the point is that socially and politically, the US does not want to fix its problems. It wants to continue to make them worse. Yes, a majority of Americans may prefer different policies on some issues, but they aren’t willing to MAKE it happen or to actually pay for it (see Prop 13 above). They aren’t willing to die for it, and at this point, that’s what it would take because your elites see no reason not take everything you have and turn you into slaves in all but name. You will be debt slaves, who own almost nothing, not your house, not your phone, not your car, not your books. Anything which can be rented to you, rather than than sold, will be.
Welcome to the Repo culture. Everything you have, everything you are, can be taken away from you, and you are nothing but a series of revenue streams to your lords and masters. Fail to pay, and you won’t even be allowed to be a debt and wage slave, you’ll be in a cardboard box or a debtor’s prison.
Modern Americans are mostly descended from people who didn’t say “this pisshole country is worth fighting for”, they’re descended from people who said “screw this, I’m outta here”. Emulate them and leave, if you can’t leave do the other thing they were willing to do: prepare for a revolution and be willing to die in it.
Or accept your fate as slaves.
Your choice.
But the people running England, or at least London, certainly think it is. CCTV cameras are everywhere you go, in large numbers. On one Underground platform today I counted 13. Of course, with that many CCTV cameras there is no way they can actually effectively be monitored in real time, so they prevent crime only by threat of being caught later, and thus have no preventative effect that I can see against anyone who doesn’t care (like, say, suicide bombers).
But, of course, if you have nothing to hide, I’m sure you don’t mind the government recording everything you do, eh?
Oh, and men with submachineguns at Parliament? Don’t make me feel safer, quite the reverse. But, of course, they aren’t meant to make me or any other ordinary person feel safe, just like Britain’s government policies aren’t intended to make ordinary people more prosperous.
Other than that, very much enjoying London. Cool Britannia’s days may be numbered, but it ain’t quite dead yet.
