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« Weighing the Week Ahead: Any Bottom in Housing? | Main | Debunking the Myth of the QE II Rally »

May 16, 2011



Our country for now is suffering from high price commodities due to oil/fuel price hike. Our country now is tilting.


Yes, the price of some things have gone down. But the price of more things have gone up...way up.

As to hedonics and substitution, even if you buy into these dubious concepts, the idea that they could be quantified with any degree of accuracy is laughable.


No TV, no radio. $17 for a cylinder, and worth every penny. Otherwise, if you wanted music, you either went out or the musicians came to you. What a concept - music on demand. It must have seemed like magic. A relative has a player and a box of cylinders; that it works at all is amazing.

When my grandparents bought their house in the early 1900's (it's still in the family), it was plumbed for gas. My grandfather put in the electric wiring. There was an icebox. The stove needed coal, as did the furnace. Every morning someone had to go down to the basement and shovel coal into it. It was a big improvement when the furnace could pull coal from the bin by itself. But you still had to take out two garbage cans full of clinkers once a week.

As you say, we take much for granted.

I have been trying to estimate some very long term inflation rates using historical references (people living on five pound a year pensions in old England, Roman military pay rates, etc) but the data is very sparse, and life has changed a lot.


The problem with CoL indices is that it's frankly impossible to document the changes in cost of living - AT A GIVEN STANDARD OF LIVING - over time. The standard of living changes too much. Your 1910 joke listener *likely* *didn't* have air conditioning, indoor plumbing, or an electric refrigerator, traveled on lousy roads with unreliable and slow animal-based transportation, and had no media access other than the printed word on paper. This isn't a statement about the *invention* *date* of various improvements, but about their lack of ubiquity in the households of 1910.

That said, it's also inaccurate to document a simple cost of living, perhaps as a ratio to income, for some "median societal member" over time whilst ignoring the changes in that person's standard of living.

Could BLS do a better job? Certainly. One of my main disagreements about their use of hedonics is their inconsistency of application, which goes back to the dilemma above (CoL at constant standard Vs. ignoring standard changes).

Does BLS do a better job than most people think they do? Yep. But most people aren't even aware that they publish their techniques, and few have read anything they've written.

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