Originally published at: https://boingboing.net/2018/02/01/damned-lies-and-natl-statistic.html
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There’s an interesting take on the Six Million Dollar Man – what is he worth today?
On one hand, you could adjust the 1970s dollars for inflation and come up with $33 million.
Or, you could price him like technology, which has come down drastically - and get $12,000
https://www.npr.org/2015/05/15/406938658/planet-money-does-the-math-on-the-six-billion-dollar-man
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When I was 5 or 6 and started saving and spending allowance, a Hot Wheels was $1.00. Over 40 years later, a Hot Wheels still costs $1.00 (sometimes less). Whenever I try to process a price increase (e.g. “these crappy jeans are $33?! I remember when Levis were $20”) I just come back to the Hot Wheels comparison and can’t really process anything else.
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“Mainstream” economists are often questioning price indexes so they can argue that inflation is slower than it seems to be (and thus real income gains are higher), and we need to stamp harder on the poors. I have some beef with the Personal Consumption Expenditures (PCE) index, which is supposed to incorporate a broader range of goods in measuring inflation to account for (e.g.) employment benefits in measures of baseline well-being, but ends up being kind of a hustle because it includes health-care spending, which increases much faster than inflation. See this for a long review of the sordid history of trying to push “chained CPI” into our official economic measures for exactly this reason.
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Hotwheels are still $1 probably because they are made in some sweatshop in China now instead of a factory here with union labor, I’m guessing
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Or you could price him like medical technology and come up with $100 million.
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That illustrates the concern I have about price indexing it the modern day. So much has been done to optimize for economy of scale, lean on automation, and leverage the global labor market, that flat prices in manufactured goods should theoretically imply huge inflation. Everything’s theoretically being done ridiculously cheaply, but the floor hasn’t dropped out of prices. The market, basically, is scrambling up a crumbling rock face just to keep up with itself.
What hasn’t gone down in price is services that require large amounts of skilled first world labor. Namely, health care. How much of health care cost disease is in reality an expression of hidden inflation?
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And I thought the way money was totally broken had to do with fiat economies where wealth is being hoarded.
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I think that depends: if you follow a single line-item of functionality, the price drops along with most other technologies. The original pulse oximeters cost $6000ish in 1982, now you can buy the same level of functionality at Amazon for $18 – a measure of blood oxygen saturation and pulse.
However, if your standard is “what does the current fancy operating room box cost for monitoring patient anesthesia”? You end up buying a box that does a dozen things or more. It’s a similar problem to measuring the price of a smart phone.
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But Steve Austin’s mods are still beyond the bleeding edge of technology. I think that we can assume that they will cost top dollar.
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The dollar (for example) today is basically a weighted index bond representing every possible thing you could possibly buy with that dollar, anywhere in the world. The dollar maintains its (relatively) stable value because the government keeps a (relatively) tight control of supply with all the force of organized violence that implies. And yes, when they get loose with that it loses or gains value relative to the rest of the economy, most readily apparent by its changes relative to other currencies.
In contrast, the dollar when it was backed by a metallic standard – which is what people usually compare our modern “fiat” currency to – was a coupon promising that it was worth something because you could always take it to the government and ask them to give you a fixed weight of shiny stones – the supply of shiny stones at the time ALSO being tightly controlled by the government – and those are surely worth something because look how many dollars other people are willing to spend on them! Because they’re shiny! And assuming you have faith that the government will deliver.
Believe me, the modern notion of money is a lot more sane than anything backed by gold. Especially since there’s just not enough gold to go around to cover everything else in economy combined; and especially not if you need to dole it out in quantities small enough to be used for all trade.
The hoarding is a different matter. Suffice it to say, it always makes sense to hoard so long as you think the near-term is going to be shit and the long-term will be okay. That’s going to put a drag on the economy no matter who or what they’re hoarding. You don’t spend money freely when you see trouble ahead.
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I’m not advocating a standards based currency here but thanks for the defense of fiat nonetheless. I’m simply pointing out that in our fiat economy, hoarding wealth is damaging to the entire system even if only viewed as a function of decreased demand for goods and services.
As a side note, that paragraph which began with “Believe me”. Yeah, I completely skipped it because of that.
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Honestly, sounds like a viable strategy.
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Wait, if you’re complaining that mainstream estimates of inflation are too low, then wouldn’t including things-you-have-to-spend-money-on-that-increase-in-price-faster-than-average like health care be a good thing that corrects for such a problem?
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One thing we do know is that the Pentagon would spend $60 billion in development costs for 10,000 Six Million Dollar Men then, to “save money” they’d cut the order to 1,000, and everyone would be outraged that our Six Million Dollar Man project is already gone over budget by 10x; then, in an effort to save money, there would be a demand to reduce the order from 1,000 to 1,000 and – again – outrage on Capitol Hill that the Six Million Dollar Man is now a six hundred million dollar man project. Pretty soon we’d get one copy for $65 billion.
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Typical privileged tech nerd fretting about the effects of new better tech costing less than older worse tech, when by far the bulk of economic spending, and thus the bulk of the consumer price index and the economy as a whole, remains stubbornly focused on the cost of non-tech items with comparatively inflexible costs and inflexible value, like food, clothing, furniture, shelter when it’s not being monetized by wall street sociopaths, etc.
If only people would stop needing physical things to live, then the entire economy would start to obey Moore’s law!
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I may be confused as I am a biologist, not an economist, but basically the PCE index is proportional to the inverse of PCE; that is, CPI is generally higher than PCE index. PCE, by incorporating health benefits into your measure of income, is saying, “You got $5000 in health benefits while ten years ago you only got $500, therefore you had $4500 more in income that we should account for when measuring your wealth.” However, this does not account for the fact that my health benefit only went up because I am paying through the nose for the same level of care, and my life has not improved at all.
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The problem is that you’re trying to dis-entangle at least three different effects:
- the relative value of the common currency across a long time around the world – that is, the fact that a 1964, 1983, and 2017 dollar are not all the same value, their value at any time being based on their relationship to a very specific timeslice of the economy. You build this up by taking things that exist more-or-less throughout time, like bread, and building an index of them so that no one’s price changes over time dominate.
- the cost of living over a short time and small region – sure maybe the dollar has more buying power today than in 2001, but maybe we also consider more things critical to by, so we have less discretionary income that we actually have real choice in how to spend. This has to concern itself with market penetration and things like that to build an index. For example, at what point in history do we add the cost of a new television to the index because TV is nigh-ubiquitous…?
- the cost of a particular good or service that you want to investigate at any time and/or place – say, the cost of a mobile phone.
The interest rate is mostly concerned with the first point. For something big like healthcare costs, it may make up such a big part of the cost of living (second point) that it’s hard to find a basis for comparison that lets you accurately trace its cost in its own right over time (third point).
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Got it, thanks.
Look at the Economist’s Big Mac Index. Our Big Mac index shows how burger prices are changing
THE Big Mac index was invented by The Economist in 1986 as a lighthearted guide to whether currencies are at their “correct” level. It is based on the theory of purchasing-power parity (PPP), the notion that in the long run exchange rates should move towards the rate that would equalise the prices of an identical basket of goods and services (in this case, a burger) in any two countries. For example, the average price of a Big Mac in America in January 2018 was $5.28; in China it was only $3.17 at market exchange rates. So the “raw” Big Mac index says that the yuan was undervalued by 40% at that time.
Burgernomics was never intended as a precise gauge of currency misalignment, merely a tool to make exchange-rate theory more digestible. Yet the Big Mac index has become a global standard, included in several economic textbooks and the subject of at least 20 academic studies. For those who take their fast food more seriously, we have also calculated a gourmet version of the index.
This adjusted index addresses the criticism that you would expect average burger prices to be cheaper in poor countries than in rich ones because labour costs are lower. PPP signals where exchange rates should be heading in the long run, as a country like China gets richer, but it says little about today’s equilibrium rate. The relationship between prices and GDP per person may be a better guide to the current fair value of a currency. The adjusted index uses the “line of best fit” between Big Mac prices and GDP per person for 48 countries (plus the euro area). The difference between the price predicted by the red line for each country, given its income per person, and its actual price gives a supersized measure of currency under- and over-valuation.
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