Williams’ Shadow Statistics – Thoughts?

[cr]

As far as the delflationary effects of globalization, I think we have passed the point where that will drive CPI down.

Globalization helped when the dollar was strong. Now the China RMB has gained 10% on the dollar in the last year, and that’s w/o the VAT.

It will take a few more months before that hits retail prices, but it will. India is gaining value over us too. About the only places that aren’t right now are arguably Japan and Taiwan.

Core inflation is a joke, and everything else here (health care, services, education, materials) are sky rocketing.

Inflation numbers are manipulated to make wall street feel like the net GDP numbers are okay.

[drunkle]

cpi is shooting up probably because of yuan appreciation as well as any yuan recoupling to euros instead of dollars…

how is credit accounted for in gdp? like, how do you accumulate 500 trillion in cdo’s over the span of a few years when gdp is only running some 13t per year?

[drunkle]

cpi is shooting up probably because of yuan appreciation as well as any yuan recoupling to euros instead of dollars…

how is credit accounted for in gdp? like, how do you accumulate 500 trillion in cdo’s over the span of a few years when gdp is only running some 13t per year?

[drunkle]

cpi is shooting up probably because of yuan appreciation as well as any yuan recoupling to euros instead of dollars…

how is credit accounted for in gdp? like, how do you accumulate 500 trillion in cdo’s over the span of a few years when gdp is only running some 13t per year?

[drunkle]

cpi is shooting up probably because of yuan appreciation as well as any yuan recoupling to euros instead of dollars…

how is credit accounted for in gdp? like, how do you accumulate 500 trillion in cdo’s over the span of a few years when gdp is only running some 13t per year?

[drunkle]

cpi is shooting up probably because of yuan appreciation as well as any yuan recoupling to euros instead of dollars…

how is credit accounted for in gdp? like, how do you accumulate 500 trillion in cdo’s over the span of a few years when gdp is only running some 13t per year?

[davelj]

Daniel, you wrote: “it [the CPI] measures changes in the price of the SAME goods or services.”

Actually, this is incorrect. Since the Clinton administration the CPI has made adjustments (always down, by the way) for “substitution effects.” For example, if steak filets increase by a large amount but rib-eyes don’t, the CPI statisticians assume that folks will to some extent switch over to the lower-priced rib-eyes. That’s just one of thousands of potential substitution examples. While there’s some logic to this, it certainly defeats the purpose of the CPI calculation because it specifically does NOT measure changes in the prices of the same goods or services.

Where your Cutlass example is concerned, essentially you’re getting at the issue of “hedonic adjustments,” which adjust prices in the CPI for changes in quality. Again, I understand the logic here. The problem is that it’s overdone where the average person is concerned. For example, computers have been showing substantial declines in price in the CPI for some time now because while the real prices have basically held roughly steady, the “perceived quality changes” have increased over time. While I buy some of the quality changes, I think they’re overstated. Most people, for example, don’t need any of the recent increases in available storage space, etc. That is, the average person is just using a smaller and smaller fraction of the total computer benefits available to them as each year passes. The same idea applies to many goods. We are forced to pay the same price or more for the goods whether or not we actually avail ourselves of any benefit from the “improvements.”

My guess is that the Williams inflation numbers are too high (Williams assumes zero substitution effects, no hedonics, no rental equivalents, etc.) and that the government figures are too low (they make unrealistic assumptions regarding substitution effects, hedonics, etc.). The answer is probably somewhere in the middle – maybe 4%-5% “real” inflation. Which isn’t very good. But isn’t the end of the world either.

[davelj]

Daniel, you wrote: “it [the CPI] measures changes in the price of the SAME goods or services.”

Actually, this is incorrect. Since the Clinton administration the CPI has made adjustments (always down, by the way) for “substitution effects.” For example, if steak filets increase by a large amount but rib-eyes don’t, the CPI statisticians assume that folks will to some extent switch over to the lower-priced rib-eyes. That’s just one of thousands of potential substitution examples. While there’s some logic to this, it certainly defeats the purpose of the CPI calculation because it specifically does NOT measure changes in the prices of the same goods or services.

Where your Cutlass example is concerned, essentially you’re getting at the issue of “hedonic adjustments,” which adjust prices in the CPI for changes in quality. Again, I understand the logic here. The problem is that it’s overdone where the average person is concerned. For example, computers have been showing substantial declines in price in the CPI for some time now because while the real prices have basically held roughly steady, the “perceived quality changes” have increased over time. While I buy some of the quality changes, I think they’re overstated. Most people, for example, don’t need any of the recent increases in available storage space, etc. That is, the average person is just using a smaller and smaller fraction of the total computer benefits available to them as each year passes. The same idea applies to many goods. We are forced to pay the same price or more for the goods whether or not we actually avail ourselves of any benefit from the “improvements.”

My guess is that the Williams inflation numbers are too high (Williams assumes zero substitution effects, no hedonics, no rental equivalents, etc.) and that the government figures are too low (they make unrealistic assumptions regarding substitution effects, hedonics, etc.). The answer is probably somewhere in the middle – maybe 4%-5% “real” inflation. Which isn’t very good. But isn’t the end of the world either.

[davelj]

Daniel, you wrote: “it [the CPI] measures changes in the price of the SAME goods or services.”

Actually, this is incorrect. Since the Clinton administration the CPI has made adjustments (always down, by the way) for “substitution effects.” For example, if steak filets increase by a large amount but rib-eyes don’t, the CPI statisticians assume that folks will to some extent switch over to the lower-priced rib-eyes. That’s just one of thousands of potential substitution examples. While there’s some logic to this, it certainly defeats the purpose of the CPI calculation because it specifically does NOT measure changes in the prices of the same goods or services.

Where your Cutlass example is concerned, essentially you’re getting at the issue of “hedonic adjustments,” which adjust prices in the CPI for changes in quality. Again, I understand the logic here. The problem is that it’s overdone where the average person is concerned. For example, computers have been showing substantial declines in price in the CPI for some time now because while the real prices have basically held roughly steady, the “perceived quality changes” have increased over time. While I buy some of the quality changes, I think they’re overstated. Most people, for example, don’t need any of the recent increases in available storage space, etc. That is, the average person is just using a smaller and smaller fraction of the total computer benefits available to them as each year passes. The same idea applies to many goods. We are forced to pay the same price or more for the goods whether or not we actually avail ourselves of any benefit from the “improvements.”

My guess is that the Williams inflation numbers are too high (Williams assumes zero substitution effects, no hedonics, no rental equivalents, etc.) and that the government figures are too low (they make unrealistic assumptions regarding substitution effects, hedonics, etc.). The answer is probably somewhere in the middle – maybe 4%-5% “real” inflation. Which isn’t very good. But isn’t the end of the world either.

[davelj]

Daniel, you wrote: “it [the CPI] measures changes in the price of the SAME goods or services.”

Actually, this is incorrect. Since the Clinton administration the CPI has made adjustments (always down, by the way) for “substitution effects.” For example, if steak filets increase by a large amount but rib-eyes don’t, the CPI statisticians assume that folks will to some extent switch over to the lower-priced rib-eyes. That’s just one of thousands of potential substitution examples. While there’s some logic to this, it certainly defeats the purpose of the CPI calculation because it specifically does NOT measure changes in the prices of the same goods or services.

Where your Cutlass example is concerned, essentially you’re getting at the issue of “hedonic adjustments,” which adjust prices in the CPI for changes in quality. Again, I understand the logic here. The problem is that it’s overdone where the average person is concerned. For example, computers have been showing substantial declines in price in the CPI for some time now because while the real prices have basically held roughly steady, the “perceived quality changes” have increased over time. While I buy some of the quality changes, I think they’re overstated. Most people, for example, don’t need any of the recent increases in available storage space, etc. That is, the average person is just using a smaller and smaller fraction of the total computer benefits available to them as each year passes. The same idea applies to many goods. We are forced to pay the same price or more for the goods whether or not we actually avail ourselves of any benefit from the “improvements.”

My guess is that the Williams inflation numbers are too high (Williams assumes zero substitution effects, no hedonics, no rental equivalents, etc.) and that the government figures are too low (they make unrealistic assumptions regarding substitution effects, hedonics, etc.). The answer is probably somewhere in the middle – maybe 4%-5% “real” inflation. Which isn’t very good. But isn’t the end of the world either.

[davelj]

Daniel, you wrote: “it [the CPI] measures changes in the price of the SAME goods or services.”

Actually, this is incorrect. Since the Clinton administration the CPI has made adjustments (always down, by the way) for “substitution effects.” For example, if steak filets increase by a large amount but rib-eyes don’t, the CPI statisticians assume that folks will to some extent switch over to the lower-priced rib-eyes. That’s just one of thousands of potential substitution examples. While there’s some logic to this, it certainly defeats the purpose of the CPI calculation because it specifically does NOT measure changes in the prices of the same goods or services.

Where your Cutlass example is concerned, essentially you’re getting at the issue of “hedonic adjustments,” which adjust prices in the CPI for changes in quality. Again, I understand the logic here. The problem is that it’s overdone where the average person is concerned. For example, computers have been showing substantial declines in price in the CPI for some time now because while the real prices have basically held roughly steady, the “perceived quality changes” have increased over time. While I buy some of the quality changes, I think they’re overstated. Most people, for example, don’t need any of the recent increases in available storage space, etc. That is, the average person is just using a smaller and smaller fraction of the total computer benefits available to them as each year passes. The same idea applies to many goods. We are forced to pay the same price or more for the goods whether or not we actually avail ourselves of any benefit from the “improvements.”

My guess is that the Williams inflation numbers are too high (Williams assumes zero substitution effects, no hedonics, no rental equivalents, etc.) and that the government figures are too low (they make unrealistic assumptions regarding substitution effects, hedonics, etc.). The answer is probably somewhere in the middle – maybe 4%-5% “real” inflation. Which isn’t very good. But isn’t the end of the world either.

[bubba99]

davej,

Say inflation is at the upper limit of the 4-5% range suggested – between Williams and the Govt. numbers. That would mean that we are in a recession and probably been in one most of 2007 – negative GDP and even more negative GNP.

If we are already in the second or third quarter of recession before the impact of housing and “Credit” crunch hits, it could be the end of our world as we know it.

[bubba99]

davej,

Say inflation is at the upper limit of the 4-5% range suggested – between Williams and the Govt. numbers. That would mean that we are in a recession and probably been in one most of 2007 – negative GDP and even more negative GNP.

If we are already in the second or third quarter of recession before the impact of housing and “Credit” crunch hits, it could be the end of our world as we know it.

[bubba99]

davej,

Say inflation is at the upper limit of the 4-5% range suggested – between Williams and the Govt. numbers. That would mean that we are in a recession and probably been in one most of 2007 – negative GDP and even more negative GNP.

If we are already in the second or third quarter of recession before the impact of housing and “Credit” crunch hits, it could be the end of our world as we know it.

[bubba99]

davej,

Say inflation is at the upper limit of the 4-5% range suggested – between Williams and the Govt. numbers. That would mean that we are in a recession and probably been in one most of 2007 – negative GDP and even more negative GNP.

If we are already in the second or third quarter of recession before the impact of housing and “Credit” crunch hits, it could be the end of our world as we know it.

[Author]

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