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Tuesday, March 15, 2011

Let Them Eat iPads

This story was hilarious.

The NY Federal Reserve President William Dudley gave a speech in Queens. He said "Inflation is low! The new iPad is awesome!" Someone in the audience retorted "I can't eat an iPad!"

Twenty years ago, such an incident would not be news. The mainstream media would not report it, when insiders make an embarrassing gaffe. Now, with the Internet, such incidents are discussed. I saw this mistake by the NY Fed President discussed on several other blogs.

State comedians have a joke called "hedonics". When calculating inflation, an increase in quality counts as a negative adjustment. With Moore's Law, computer quality doubles ever 1.5-2 years. Computers and software are one of the least-regulated areas of the economy. Thisleads to exponential progress.

State comedians cite Moore's Law as an example of 25% deflation. When calculating the CPI, food and energy are excluded. Food and energy have high sensitivity to true inflation. Therefore, they're excluded.

For another example, new cars now come with mandatory airbags. This counts as a negative adjustment, according to hedonics. You get an airbag now and you couldn't before. New cars are better than old cars. That's a negative inflation adjustment. However, it's illegal to buy a new car without airbags.

Here's another example of hedonics. When housing prices are skyrocketing, that's "implied income" for homeowners, due to equity gains. The equity gains due to rising prices is a negative CPI adjustment. When housing prices crash, houses are cheaper now, leading to another negative CPI adjustment!

Hedonics means "Interpet price data however we want, to come up with a low 'official' inflation estimate." It's one big farce.

The CPI is calculated using the geometric mean instead of the arithmetic mean. If you know basic algebra, this leads to a negative CPI bias.

The CPI is continually reweighted. By cleverly choosing the weights, this leads to negative CPI bias.

It's amusing. State comedians can say with a straight face "Inflation is low. The CPI is an accurate measure of inflation." They are completely out of touch with reality.

Articles like this one are making their way into the mainstream. The Federal Reserve seems less "politically untouchable".

"Anonymous" declared war on the Federal Reserve and Primary Dealers. I wonder if any of them read my blog?

That was an embarrassing moment for the Federal Reserve. "Let them eat iPads" is an excellent summary of the economy. Computers are nice, but you still have to eat.

That gaffe shows how the Federal Reserve is using hedonics to calculate a low CPI, while ignoring food prices and other necessities.

Given that the economy is collapsing, I need useful skills besides writing software. In a SHTF scenario, my current skills are useless.


dionysusal said...

The world needs (and will need) ditchdiggers too.

DC said...

I wonder if CPI will include the 25-50 X increase in the price of Iosat (radiation iodine tablet) during the last few days? Probably not. Lots of people on Amazon were leaving 1 star ratings for a company selling Iosat for $500 per pack ( I purchased them for $11.49 per pack last year). These people were complaining that the seller is engaging in price gouging. FSK what are your thoughts on this type of price increase?
I left a 5 star rating with this remark "All those complaining about price gouging are the ones who have neglected to make this simple, cheap preparation. Make some simple preparations! and stop complaining if you did not.
This seller can choose to charge what he wants for his item. If people think it is valuable enough they will buy it. It is not price gouging if his price is close to current market price ($250-$600 on ebay right now for one pack).
Yes it is rip off based on the cost of manufacture, but so are a lot of things you purchase.
One star ratings are not reflecting the quality or value of this product. They are just a bunch of people who have only now realized that they have failed themselves and their families by not taking even one simple step to prepare for a nuclear disaster. No warning? gee, what about Chernobyl? Did they think it would not happen again?

Please wake up!"

I do not know why I waste my time, perhaps to gather my thoughts on the subject.

FSK said...

There's no such thing as price gouging in a really free market.

If you stockpiled reserves, then you should be allowed to charge whatever you can get in an emergency.

Otherwise, what incentive is there for people to prepare for an emergency? If you aren't allowed to raise prices during a crisis, then there's no inventory.

Anonymous said...

Yes, FSK! You are right!

The only price gouging can occure by the government, such as current car registration fees are definite price gouging.


What if the price ain't close? Gouging? In other words the definition of gouging depends on how high are YOU willing to pay for the item?

DC said...

I thought that my comment on Amazon's Iosat prices was reasonable, plus it was intended to alert people to make some emergency preparations *before* an emergency. The responses I received were surprisingly hostile ( my comment has been removed by Amazon ) One person called me pompous, stupid and a buffoon and wished I would suffer the consequences of my terrible comment. Another commenter called me a liar.
The fact that my comment and most of the stupid one star comments have been removed from Amazon is interesting. Amazon is tightly controlling their comment section. I did not fully realize that before. Previously I tended to believe " they allow negative reviews, therefore the positive reviews must be true." I know, a bit naive on my part.

To Anonymous:
I think price gouging only occurs when you are forced to purchase something, or when the seller is being deceptive about the product.

FSK how do you cope with all the extremely negative feedback you probably receive?

FSK said...

Surprisingly, pro-State trolls get disgusted and leave. It isn't as big a problem as you might think.

Also, I'm pretty sure I'm mostly correct.

My policy is to publish all comments except obvious spam. It isn't that bad.

It'll probably be worse once I expand to other formats, such as vlogging or standup comedy.

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