[lbo-talk] hedonic pricing update

Doug Henwood dhenwood at panix.com
Sat Feb 7 10:20:41 PST 2004


T Fast wrote:


>All things being equal a $500,000 log loader made today is much more
>"productive" than a $500,000 dollar log loader purchased 20 years ago. How
>is this tracked?

They try. The theory of price indexes operating in both the BLS (which does the consumer and producer price indexes) and the BEA (which does the GDP-related ones) is to hold quality constant and isolate pure price changes. That's a lot easier with a simple, slowly changing gadget like a log loader (whatever that is - is it a Canadian thing?) than it is with computers. And they're not comparing a 2004 log loader with a 1984 one. They're stringing together comparisons of a 1985 model with a 1984, 1986 with 1985, etc.

My favorite counter-example is what's happened to the airfare components of the CPI since dereg. With more stops and tighter advance purchase restrictions, quality has declined markedly despite an apparent decrease in ticket prices. So the airfare subindex has actually risen much more than broader averages.


>This is not the first time there has been a steady growth in the quality of
>the means of production while at the same time a decrease in its cost.
>Steam power was initially expensive and of low quality and as we all know it
>later became ubiquitous in certain sectors both because its quality improved
>and cost came down. What makes computers so different that they require
>"hedonic" pricing?

Because of the speed and intensity of change. The late-2001 titanium Powerbook G4 I'm typing this on seemed pretty snazzy two years ago. Now it's seeming a little constrained & poky. So that has to be accounted for somehow. But it's far more apparent if I'm editing a large Photoshop doc than if I'm just typing an email. What's the "real" increase in output between a late-2001 vintage machine and today's? The BLS PC price index says it's 56% more. Is it really?


>Would not some review of the capital controversy help to think through what
>is at stake here?

Official statisticians are neoclassicals - they don't do the capital controversy. How would you apply it?

Doug



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