How Do Inflation Measures Account for Changes in Technology?
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  How Do Inflation Measures Account for Changes in Technology?
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Author Topic: How Do Inflation Measures Account for Changes in Technology?  (Read 556 times)
DC Al Fine
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« on: November 06, 2013, 09:46:41 PM »

Inflation measures appear relatively simple; figure out the differences in the price of a bunch of different things and calculate an inflation rate from those price changes. This works out well when the product is the same over a period of time (Ex: A kilo of rice is the same in 1970 and 2013), but what about when the product changes over time?

Say we're using a Chevy Impala as part of the "basket of goods". A 2013 Impala is safer, more fuel efficient etc. than the 1970 model. The 1970 model would almost certainly be cheaper than the 2013 model if it were made today which would affect your end result when calculating inflation.

How do the people who do these statistics account for changes in technology when computing inflation?
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Torie
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« Reply #1 on: November 07, 2013, 06:19:58 PM »

Oh there have been a host of studies on this, and prior to a change in the way the CPI was calculated, it overstated the true inflation rate due to not adequately accounting for higher quality and changes in basket of goods one buy's as relative prices change, by 1% annualized to some say as much as 1.5%. After the change (I think it was in the 1970's, but don't hold me to that), the over-statment is more on the order of 0.5%.  The Federal Reserve spends a lot of money doing these studies. It was one of Greenspan's favorite topics back when. The chained CPI concept for SS supposedly would get rid of all remaining overstatement bias - a bias that adds up over time when annually compounded.
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LastVoter
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« Reply #2 on: November 08, 2013, 04:29:35 PM »

Oh there have been a host of studies on this, and prior to a change in the way the CPI was calculated, it overstated the true inflation rate due to not adequately accounting for higher quality and changes in basket of goods one buy's as relative prices change, by 1% annualized to some say as much as 1.5%. After the change (I think it was in the 1970's, but don't hold me to that), the over-statment is more on the order of 0.5%.  The Federal Reserve spends a lot of money doing these studies. It was one of Greenspan's favorite topics back when. The chained CPI concept for SS supposedly would get rid of all remaining overstatement bias - a bias that adds up over time when annually compounded.
Social security payouts should be increased, it's the only thing keeping retired Americans out of the poor house after capitalists ruthlessly destroyed workers' pensions.
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DC Al Fine
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« Reply #3 on: November 08, 2013, 04:38:26 PM »

Thanks for the answer Torie.
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opebo
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« Reply #4 on: November 08, 2013, 05:08:45 PM »

Say we're using a Chevy Impala as part of the "basket of goods". A 2013 Impala is safer, more fuel efficient etc. than the 1970 model. The 1970 model would almost certainly be cheaper than the 2013 model if it were made today which would affect your end result when calculating inflation.

Hah, no.  The '70 Impala was a real car made of large amounts of steel, etc.  Similar to a Rolls Royce today.  The new cars all just plastic garbage with more complicated technology to break after 2-3 years.
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Link
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« Reply #5 on: November 08, 2013, 05:52:55 PM »

Say we're using a Chevy Impala as part of the "basket of goods". A 2013 Impala is safer, more fuel efficient etc. than the 1970 model. The 1970 model would almost certainly be cheaper than the 2013 model if it were made today which would affect your end result when calculating inflation.

Hah, no.  The '70 Impala was a real car made of large amounts of steel, etc.  Similar to a Rolls Royce today.  The new cars all just plastic garbage with more complicated technology to break after 2-3 years.

Yes I'm sure if you were to make a car today with the same amount of steel as 1970 Impala it would cost a lot more.  Plus a 1970 Impala was hand made by union labor and not bolted together by robots and people who live the lives of robots.
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DC Al Fine
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« Reply #6 on: November 08, 2013, 06:34:30 PM »

Say we're using a Chevy Impala as part of the "basket of goods". A 2013 Impala is safer, more fuel efficient etc. than the 1970 model. The 1970 model would almost certainly be cheaper than the 2013 model if it were made today which would affect your end result when calculating inflation.

Hah, no.  The '70 Impala was a real car made of large amounts of steel, etc.  Similar to a Rolls Royce today.  The new cars all just plastic garbage with more complicated technology to break after 2-3 years.

Yes I'm sure if you were to make a car today with the same amount of steel as 1970 Impala it would cost a lot more.  Plus a 1970 Impala was hand made by union labor and not bolted together by robots and people who live the lives of robots.

OTOH people like their car's to have A/C, air bags, and get more then 12 MPG Wink
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Link
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« Reply #7 on: November 09, 2013, 11:45:06 AM »

Say we're using a Chevy Impala as part of the "basket of goods". A 2013 Impala is safer, more fuel efficient etc. than the 1970 model. The 1970 model would almost certainly be cheaper than the 2013 model if it were made today which would affect your end result when calculating inflation.

Hah, no.  The '70 Impala was a real car made of large amounts of steel, etc.  Similar to a Rolls Royce today.  The new cars all just plastic garbage with more complicated technology to break after 2-3 years.

Yes I'm sure if you were to make a car today with the same amount of steel as 1970 Impala it would cost a lot more.  Plus a 1970 Impala was hand made by union labor and not bolted together by robots and people who live the lives of robots.

OTOH people like their car's to have A/C, air bags, and get more then 12 MPG Wink

That's immaterial.  The question was about cost of manufacturing.  You get to >12mpg by removing expensive steel and replacing it with cheap plastic.  If someone were to manufacture a car out of old school steel it would not be cheaper than making it out of plastic.  No way.

Now of course in the long run for a consumer a steel car could be more economical in certain situations.  There was a time in America when getting hit in your car at 6 mph didn't result in $1,000 worth of damage.
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opebo
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« Reply #8 on: November 09, 2013, 02:27:06 PM »

The '70 Impala was a real car made of large amounts of steel, etc.  Similar to a Rolls Royce today.  The new cars all just plastic garbage with more complicated technology to break after 2-3 years.

Yes I'm sure if you were to make a car today with the same amount of steel as 1970 Impala it would cost a lot more.  Plus a 1970 Impala was hand made by union labor and not bolted together by robots and people who live the lives of robots.

OTOH people like their car's to have A/C, air bags, and get more then 12 MPG Wink

Good lord man, virtually all cars made in 1970 had air conditioning, and certainly all full sized cars like an Impala.  You speak from ignorance apparently.

Its also worth noting that a large, full frame car like a '70 Impala is much safer with normal 3-point safety belts than the modern cars are with airbags, simply due to mass.
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barfbag
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« Reply #9 on: November 09, 2013, 04:30:35 PM »

Inflation measures appear relatively simple; figure out the differences in the price of a bunch of different things and calculate an inflation rate from those price changes. This works out well when the product is the same over a period of time (Ex: A kilo of rice is the same in 1970 and 2013), but what about when the product changes over time?

Say we're using a Chevy Impala as part of the "basket of goods". A 2013 Impala is safer, more fuel efficient etc. than the 1970 model. The 1970 model would almost certainly be cheaper than the 2013 model if it were made today which would affect your end result when calculating inflation.

How do the people who do these statistics account for changes in technology when computing inflation?

Well inflation is our number one economic enemy and it makes things more expensive including in the technology sector. This cripples our ability to produce new technology. Inflation and our debt are the most and least important issues in politics.
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opebo
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« Reply #10 on: November 09, 2013, 04:44:11 PM »

Well inflation is our number one economic enemy

No.
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barfbag
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« Reply #11 on: November 09, 2013, 11:26:17 PM »


The value of our currency is failing compared to euros as we speak.
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opebo
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« Reply #12 on: November 10, 2013, 07:42:33 AM »


The value of our currency is failing compared to euros as we speak.

No, its rising compared to Euros.
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