Best of the Week
Most Popular
1. US Housing Market House Prices Bull Market Trend Current State - Nadeem_Walayat
2.Gold and Silver End of Week Technical, CoT and Fundamental Status - Gary_Tanashian
3.Stock Market Dow Trend Forecast - April Update - Nadeem_Walayat
4.When Will the Stock Market’s Rally Stop? - Troy_Bombardia
5.Russia and China Intend to Drain the West of Its Gold - MoneyMetals
6.BAIDU (BIDU) - Top 10 Artificial Intelligence Stocks Investing To Profit from AI Mega-trend - Nadeem_Walayat
7.Stop Feeding the Chinese Empire - ‘Belt and Road’ Trojan Horse - Richard_Mills
8.Stock Market US China Trade War Panic! Trend Forecast May 2019 Update - Nadeem_Walayat
9.US China Trade Impasse Threatens US Lithium, Rare Earth Imports - Richard_Mills
10.How to Invest in AI Stocks to Profit from the Machine Intelligence Mega-trend - Nadeem_Walayat
Last 7 days
IBM - Investing in AI Machine Intelligence Stocks - 25th May 19
Seasonal Dysfunction: Why Generations of Gold and Silver Investors Are Having Such Difficulty - 25th May 19
Employment - The Good and the Bad of Job Automation - 25th May 19
Gold Mining Mid-Tier Stocks Fundamentals - 25th May 19
Buy This Pick-and-Shovel 5G Stock Before It Takes Off - 25th May 19
China Hang Seng Stocks Index Collapses and Commodities - 24th May 19
Costco Corp. (COST): Finding Opportunity in Five Minutes or Less - 24th May 19
How Free Bets Have Impacted the Online Casino Industry - 24th May 19
This Ultimate Formula Will Help You Avoid Dividend Cutting Stocks - 24th May 19
Benefits of a Lottery Online Account - 24th May 19
Technical Analyst: Gold Price Weakness Should Be Short Term - 24th May 19
Silver Price Looking Weaker than Gold - 24th May 19
Nigel Farage's Brexit Party EU Elections Seats Results Forecast - 24th May 19
Powerful Signal from Gold GDX - 24th May 19
Eye Opening Currency Charts – Why Precious Metals Are Falling - 23rd May 19
Netflix Has 175 Days Left to Pull Off a Miracle… or It’s All Over - 23rd May 19
Capitalism Works, Ravenous Capitalism Doesn’t - 23rd May 19
The Euro Is Bidding Its Time: A Reversal at Hand? - 23rd May 19
Gold Demand Rose 7% in Q1 2019. A Launching Pad Higher for Gold? - 23rd May 19
Global Economic Tensions Translate Into Oil Price Volatility - 22nd May 19
The Coming Pension Crisis Is So Big That It’s a Problem for Everyone - 22nd May 19
Crude Oil, Hot Stocks, and Currencies – Markets III - 22nd May 19
The No.1 Energy Stock for 2019 - 22nd May 19
Brexit Party and Lib-Dems Pull Further Away from Labour and Tories in Latest Opinion Polls - 22nd May 19
The Deep State vs Donald Trump - US vs Them Part 2 - 21st May 19
Deep State & Financial Powers Worry about Alternative Currencies - 21st May 19
Gold’s Exciting Boredom - 21st May 19
Trade War Fears Again, Will Stocks Resume the Downtrend? - 21st May 19
Buffett Mistake Costs Him $4.3 Billion This Year—Here’s What Every Investor Can Learn from It - 21st May 19
Dow Stock Market Trend Forecast 2019 May Update - Video - 20th May 19
A Brief History of Financial Entropy - 20th May 19
Gold, MMT, Fiat Money Inflation In France - 20th May 19
WAR - Us versus Them Narrative - 20th May 19
US - Iran War Safe-haven Reasons to Own Gold - 20th May 19
How long does Google have to reference a website? - 20th May 19
Tory Leadership Contest - Will Michael Gove Stab Boris Johnson in the Back Again? - 19th May 19
Stock Market Counter-trend Rally - 19th May 19
Will Stock Market “Sell in May, Go Away” Lead to a Correction… or a Crash? - 19th May 19
US vs. Global Stocks Sector Rotation – What Next? Part 1 - 19th May 19
BrExit Party EarthQuake Could Win it 150 MP's at Next UK General Election! - 18th May 19
Dow Stock Market Trend Forecast 2019 May Update - 18th May 19
US Economy to Die a Traditional Death… Inflation Is Going to Move Higher - 18th May 19
Trump’s Trade War Is Good for These 3 Dividend Stocks - 18th May 19
GDX Gold Mining Stocks Fundamentals Update - 17th May 19
Stock Markets Rally Hard – Is The Volatility Move Over? - 17th May 19
The Use of Technical Analysis for Forex Traders - 17th May 19
Brexit Party Set to Storm EU Parliament Elections - Seats Forecast - 17th May 19
Is the Trade War a Catalyst for Gold? - 17th May 19
This Is a Recession Indicator No One Is Talking About—and It’s Flashing Red - 17th May 19
War! Good or Bad for Stocks? - 17th May 19
How Many Seats Will Brexit Party Win - EU Parliament Elections Forecast 2019 - 16th May 19

Market Oracle FREE Newsletter

U.S. House Prices Analysis and Trend Forecast 2019 to 2021

The Great TV Price Inflation Scam

Economics / Inflation Apr 12, 2008 - 02:28 AM GMT

By: Tim_Iacono

Economics

Anyone wanting to better understand one of the primary reasons why we are in such an economic mess these days need look no further than the history of television prices over the last half-decade or more.

Actually there are two versions of TV prices - the real world "in"-flation experience and the government's "de"-flation version.


This point was made clear yesterday when we purchased a replacement for our 2002-era 32" CRT model - a replacement that not only proved to be more costly but, as an added bonus, less functional.

A quick recap is in order.

In one of the more egregious examples of quality adjustments at the Bureau of Labor Statistics (also see automobiles, computers, and, well, just about anything that is imported) television prices have been falling for years - not necessarily at Best Buy, but certainly at the BLS.

As can be calculated from the BLS data in the chart below, that $500 TV from 2002 - the one that is now awaiting a one-way trip to the recycling center - should have been replaced with one of equal "value" today costing only $178.

TV Prices

According to the government data, after factoring in the changes in price along with all the improvements and added features over the last five or six years, TV prices have declined by more than 60 percent.

What did we pay yesterday?

After much searching and gnashing of teeth, we paid $600 for a 32" HDTV which, for our application, is the equivalent of about a 27" model.

Yes, there have been improvements over the years resulting in "hedonic adjustments" that purportedly balance the "true value" of the item with its cost.

But in this case, it is truly an absurd adjustment - we just want to watch television and don't care if it has two connectors or 20 connectors on the back and would much prefer the older, larger picture size to the newer, smaller one (sorry, but we don't really need HDTV in every room of the house and we don't really want to write out an even larger check to the cable company each month.)

The same arguments can be made for the number of different wash cycles on washing machines, new car features that buyers don't want or need, and computing power for desktop and laptop PCs.

The consumer has no choice about most of these features and, in many cases, the manufacturers must remain competitive by providing them as standard features - in the BLS Consumer Price Index, this results in lower prices even when prices don't go down.

Back to the Mess

So, how does this help to explain the current economic mess we are in?

Over the last decade or two, systematic hedonic adjustments have helped provide "cover" for the Fed to make money much easier than it would otherwise be if inflation better represented "real world" experiences.

During the Greenspan term at the Federal Reserve, inflation was never an issue - at any inkling of trouble in financial markets or for the economy as a whole, the monetary spigots could be opened wide and, on many occasions, they were.

Combining quality adjustments for consumer goods with the complete omission of home prices in the inflation statistics during an era of cheap energy and cheap imports created a "witches brew" of latent price pressure and impending financial instability that any economist with any common sense would have understood at the time.

Unfortunately, economists with common sense are in relatively short supply, which is why you keep reading stories about consumers feeling "squeezed", losing buying power, and seeing their standard of living decline during an era of historically low inflation.

Surely there must be some reasonable middle ground between making no quality adjustments whatsoever and the complete farce that, in some cases, hedonic price adjustments have become.

At what point in time do economists stop being the unwitting dupes of a government that is hell-bent on "inflating away" all of its financial troubles by lying to the public about how much prices are really rising?

By Tim Iacono
Email : mailto:tim@iaconoresearch.com
http://www.iaconoresearch.com
http://themessthatgreenspanmade.blogspot.com/

Tim Iacano is an engineer by profession, with a keen understanding of human nature, his study of economics and financial markets began in earnest in the late 1990s - this is where it has led. he is self taught and self sufficient - analyst, writer, webmaster, marketer, bill-collector, and bill-payer. This is intended to be a long-term operation where the only items that will ever be offered for sale to the public are subscriptions to his service and books that he plans to write in the years ahead.

Copyright © 2008 Iacono Research, LLC - All Rights Reserved

Tim Iacono Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules