Inflation Frustration: It’s More Than the Core
A few weeks ago, in the course of a few hours, I came face-to-face with the inflation conundrum which is, I believe, under-appreciated by the economic punditry.
It all started when the speakers from my faithful, yet ancient, stereo system died of old age. I guess I blasted “Purple Haze” and other boomer anthems one too many times (the big, clunky tuner is as healthy as ever and is living in my attic—I should give it to the Smithsonian). So I headed out to the big box electronics store to get a new high-quality system.
Having not been in the market for such an item for so many years, I wasn’t sure how much money I was going to need to spend, but I put aside at least $500. That was already a few hundred less than I spent on my old system in nominal dollars. In real dollars—adjusted for inflation since then—it was probably half as much.
Here’s the clincher: barring the purchase of a personal recording studio, I couldn’t get anywhere close to the amount I’d set aside. I found amazing systems, one of which now sits on my book shelf, for well under $200.
With the new system on board, I noticed my gas gauge on E. Fifty bucks later, I pulled into the supermarket, and, it seemed to me, spent about $10 more than I usually do to get a pretty standard package of groceries.
All of which got me wondering how people think about inflation these days. It seems to me—and I’m going to ask for your feedback on this—that there’s a pretty wide gulf between how most people experience inflation and how most economists, along with many in the biz press, talk about it.
There are two reasons why the economists are talking past the people: 1) the focus on so-called core inflation, and 2) the weighting problem.
“Core” inflation leaves out the prices of food and energy. It captures my trip to Best Buy, but not my other two stops. The rationale is that gas and food prices can be pretty volatile, month-to-month, but it’s also the case that these prices are considered to be largely out of the reach of Fed interest rate policy. The Fed can’t do much about a price spike from an early freeze zapping an orange grove, or geopolitically driven oil-supply shocks. So Fed watchers and reporters tend to focus on core prices.
In the most recent inflation report, for example, over the past three months, overall inflation’s up at an annual rate of 4.7%, compared to 2.3% for the core. Last Friday’s GDP report held similar numbers. The Fed’s favorite inflation gauge was up 2.2%; the overall GDP price measure: up 4%.
Over the longer term, the core and the overall have generally tracked each other, but that may be changing. Economists have been surprised and pleased by the extent to which price pressures in overall inflation have not bled into the core. Which, from consumers’ perspective, is fine as long as you don’t need to eat or drive.
The other thing contributing to the inflation-perception gap may be that we tend to weight some key items in our budgets more heavily than do the government's statisticians. In 2006, inflation was up just over three percent, nothing to break a sweat over. But the prices of lots of things for which we write checks every week went up a lot faster than that, including child care (5.4%), college tuition (6.7%), and energy (9.6%). Those of us with employer-provided health care caught a break last year, as premium costs grew at the slowest rate since 2000, a measly 7.7%.
You wanna talk housing? Monthly mortgage payments for middle income families in the median home were around $1,100 at the end of last year, up 9.4% from the previous year. And if you’re one of those people whose adjustable rate is resetting…well: ouch.
Of course, the reason overall inflation is running so much lower than these workaday items is because the cost of my music system, along with that of all kinds of other cool stuff with remote controls and keyboards, are falling in price.
Thanks to the still-tight job market, nominal wages have been posting decent growth rates lately, but the recent energy- and food-driven spikes in overall prices have gobbled them up. So, if you don’t share the economists’ sighs of relief that core inflation remains tame, you’re not alone.
And remember, when you get home from your third shift of your second job, you can kick back with some primo electronics and a kickin’ internet connection.
(Dear fellow Café patrons: I’d like to hear from you about your experiences with all this. How has the cheap electronics/expensive health care (etc…) dynamic played out in your economic life of late, if at all?)
Comments (127)
Information technology has prices of information related products and services of all sorts racing to less than a commoditized bottom. And more and more things fall under that umbrella. Your audio equipment is now mostly digital electronics, and that's why it's so inexpensive while of such high quality.
That's part of the benefit of modern technology. This isn't news to the technologically informed. A typical modern cell phone makes a mainframe computer of 25 years ago (if not more recently) look small and slow by comparison, in terms of computing speed and storage capacity. Productivity increases, quality improves; prices fall. That's the good news. The bad news is that wages and jobs fall, too. There is such a thing as an economy being too productive, and too much productivity becomes a double-edged sword.
For people like me that work in a related industry, the effect has been that the job market is deeply negatively impacted. With a Ph.D. in Computer Science, I've been paid for less than 6 months in the last 5 years - I'm effectively obsolete, in capitalist economic terms, though I've been an open-source software developer for the last 15 years, so I'm not at all obsolete in societal terms.
I'm not a Luddite; but I'm not a believer in capitalism anymore either (for years now). Technology is killing capitalism, and your cheap new audio system is a sign of that. Do the math. People can't compete where both people and machines can do the same work - machines will just keep getting faster, smarter, and less costly; people will stay pretty much the same. So a capitalist idea of value will eventually place very little value on even the highest skilled workers in all sorts of industries, including those that might seem most immune, as the downward competition of a technology-based economy gets more deeply entrenched.
We're communicating now via technology. Think about how much of it is the technology, and how much is the people involved. Think about how little you personally understand how it all works; how little of it you actually created. Then imagine getting rid of the part the machines are doing. Also consider that what the machines are doing doesn't need all that much human support or intervention, and will need less as time goes on. People don't need to get smarter to use the technology; that's covered by the technology itself (indeed, on average, they can increasingly be less intelligent and still be "productive"). That's not only making its creators obsolete, but puts them at the head of the list for obsoletion.
We've got to start considering other economic models. A good place to start that thinking would be the so-called Marxist Creed (which, I believe, really comes from more ancient sources): "From each according to ability; to each according to need." Otherwise, our progress will destroy all of us.
The software industry is already doing this. Trouble is, we can't do it alone; we all have to get the message.
One other thing. Your old speakers wore out. Physical technological artifacts wear out and need replacing; but much of modern technology, particularly software, will never "wear out." Your new system, properly cared for, is likely to outlive you.
April 29, 2007 8:08 PM | Reply | Permalink
I'm one of those rare birds who has never driven. No reason, really, just never learned how. I'm conscious of the rise in gas prices because friends of mine talk about it, and because I see the prices at the pumps.
I get by by walking and taking public transportation. I don't think there has been an increase in the basic public transportation cost in my state (Rhode Island has a statewide system) for ten years or so. I pay $1.50 and a dime for a transfer if I need one. One would think that the cost of public transport would go up...it is a bus system, after all. My sense is that as gas prices have gone up, ridership on busses has increased, and the increase in passengers has meant that there has been no need to increase fares proportionate to increased costs for fuel. My only evidence for this is anecdotal. The busses are more crowded, and occasionally I've found myself standing, which never happened five years ago.
aMike
April 29, 2007 8:18 PM | Reply | Permalink
Seems like prices of necessities should always track population, since the increase in bidders (stomachs) drives increasing supply. But technology will always decrease in price when it can spread the design across a large population. You have to grow new food each time, but only have to write a program once. Electronics is partly new-manufacture, but mostly like software. This because the design and production technique get replicated without much effort.
Value is attached to desired stuff. Some stuff is life-necessity (food, etc.); some stuff is for enhancing personal status (conspicuously expensive car), which is reproduction-valued (attracting mates).
The latter need will persist, even if food and shelter became freely available for no money or other exchange. Humans will always find ways to compete, and some SF writers have explored alternate currencies such as personal recognition.
But I guess the latter need, competitive arenas, will always incorporate some limited resource and some exchange value will attach. Even if software writes itself, it will do so to satisfy someone's desire, and the guy that copyrights a certain app can control access, thus gaining status.
Marx's "Each according to..." is a nice idea for a different species. Perhaps if we were bonobos, but we have too much chimp in us.
April 29, 2007 8:32 PM | Reply | Permalink
I just bought a new mac powerbook. It is supposedly more powerful than the old g4 it replaced, and is sleeker, but not that different. It cost about what we paid 4 years ago for the old one. We got the old one fixed for 300, and it is just fine.
We have increased the amount we pay for food over that period, because we are trying to buy local, and organic and so on. We buy very little from the middle of the store, most is from the outer perimeter. We buy food in season, even to the point that I have a bunch of recipes for root vegetables.
I really notice the price of gasoline, too.
All by way of saying that I agree with your perception of inflation; the things I buy most of cost more.
April 29, 2007 8:50 PM | Reply | Permalink
I respect your sentiment, Tom, and I hope you're wrong about there being too much chimp in us, while hoping that we change. Wishful thinking on my part, maybe...
But maybe not.
I have to tell you, and I don't know if this supports Mr. Bernstein's point or not, but I think a lot of the analysis of modern economics is little more than religious lore these days.
I would like to see someone do the following analysis. First, formulate of measure of disinflation for technology. Then, estimate a percentage of economic activity that is involved with technology. And finally, estimate what inflation would be if the disinflationary effect of technology were not involved.
I don't think things like the Fed's interest rates account for nearly as much as modern economists think. I think technology is far and away the driving economic force.
Consider oil prices. What's controlling prices? I would say it's refining capacity. What are refineries? Technology. If it weren't for this kind of technology, we wouldn't have any of the energy that supports our modern lifestyle. And I'm not even talking about information technology yet.
I think the very idea of a living wage is already a thing of the past. We'd see that if economists took into account more of what's really very easily observable; but, at least in my opinion, there is too much bad science going on in that discipline; too much being assumed, to the extent that it's more like Christianity and Islam than it is like, say biology or chemistry or physics.
The open source movement provides an observable different model, one that evolved because of the inadequacy of the capitalist model to deal with issue of intellectual property. There is, I believe, some indication that we can be more than just unevolved chimps. But we have to take that possibility seriously.
April 29, 2007 8:54 PM | Reply | Permalink
Beyond this, I'd argue that house prices, education, and healthcare are also increasing at a high clip.
In terms of housing, that's a great thing if you're already an owner and in a particularly sweet market. But not great if you're trying to buy in or struggling with a dodgy subprime mortgage.
I'd be interested to know if housing, education, and healtcare are factored in to "core" inflation or not. Because values in all three have risen alot in my adult lifetime - just 10 years.
Jared, it strikes me that you've stumbled on to an important point - that "expendable" items - consumer electronics and the like - are definetly going down in price. But that many "essentials" are increasing in price.
I think this is why many people complain about the economy. Because, while having an ipod and a laptop is great, you can't live without food, shelter, gas, your health, and likely, a high quality education - if your want to be able to afford the other things!
April 29, 2007 9:58 PM | Reply | Permalink
From the front lines of economic reality, here are the things that matter: food, clothing, shelter, utilities, communication, health care, transportation, maintenance (of everything you own or use), taxes.
But we have all kinds of electronic goodies to buy to distract us, and
great entertainment alternatives to choose from: theaters, home entertainment systems, cable, CDs, DVDs, talking heads on TV, and the sober deliberations of the Federal Open Market Committee.
What have I missed?
April 29, 2007 9:59 PM | Reply | Permalink
What did I miss? Duh. Education, for one. That's dicey. Some school districts offer it. Some don't. Some colleges do a pretty good job of it. Some don't. But the price is skyrocketing.
April 29, 2007 10:03 PM | Reply | Permalink
. . . disinflationary effect of technology . . . .
You appear to know a lot more than I on this issue, but I think you're coming at it from the wrong direction, and I'd love you to think about this.
As an input to inflationary indices, technology's "effect" is to be found in 1) the amount of investment in capital goods and 2) the hedonic adjustments to that investment. That's where the significant effect will be found and not on the consumer goods side.
Example: Say that 10% of GDP is comprised of hardware and software purchases by businesses. Then, consider that the "real" cost of those purchases may, due to their increased efficiency (higher content) over the prior year(s), be very seriously marked down. Looking at the result (the indices), we see that hedonics generate a massive drag on inflation (and, as an aside, a major boost to productivity -- not because people work smarter but because "real" GDP growth is the biggest variable in computing productivity).
And Moore's Law (and Kurzweil's conjectures) suggest that these hedonic adjustments may become more radical.
April 30, 2007 1:22 AM | Reply | Permalink
I think an important part of the picture you are missing, Jared, is the fact that it is possible for different income groups to experience different rates of inflation.
During the past couple of decades---thanks to the export of jobs overseas and the huge tax cuts the Republicans have given to rich people---the lower classes have been experiencing lower measured rates of inflation while at the same time wealthy Americans have been experiencing dramatically higher [unmeasured] rates of inflation.
That is to say, cheap imports and the continuing chronic labor surplus have combined to put downward pressure on both wages and prices for the lower classes. At the same time, the big tax-cut giveaway that the Republicans threw at America's wealthiest households drove up both their disposable incomes and the prices that are charged by the markets that serve the rich: luxury markets and real estate markets and art markets and the stock market.
You see, rich people really don't mind inflation if it is their own incomes that is inflating; they just don't want inflation to occur in the lower classes because their wages are generally a cost of the upper classes.
Not only is it possible for members of different classes to experience different rates of inflation, it is even possible for one income group to experience inflation while another income group is experiencing either deflation or disinflation. These hidden facts would be revealed if the data collectors at the BLS were to calculate and publish the different inflation rates (cost-of-living indexes) that are relevant to different income groups, producing an 'inflation spectrum' of sorts.
This would be done by using different 'market baskets' that are clearly relevant to different income groups. When the price of stocks or real estate or art skyrockets, the 'cost of being rich' goes up dramatically. This kind of statistical initiative would provide much more valuable information for policy makers than the current use of the CPI or the GDP deflator as a measurement of the 'burden' that inflation is supposedly imposing on all of us.
See if you can't discuss this with your economists friends over at the EPI. Then, perhaps you'll want to spend some time reading through this:
Make The American People Richer.
April 30, 2007 4:52 AM | Reply | Permalink
I am unclear what you like is the consequence of this? I would presume that the reduction in prices due to technological changes and lower prices from greater imports are a restraint on inflation. (Question if medical care costs go up because forms of care are better is that a reduction or an increase in healthcare costs?)
As Krugman said today corporations have record profits, from overseas perhaps, but are not spending it. If they were encouraged to spend it on creater capital equipment might it lead to both lower prices and lower employment?
Lastly would you try to restrain non-core prices via a Fed hike?
Daniel A. Greenbaum
April 30, 2007 4:52 AM | Reply | Permalink
It may be helpful to reference this table, which shows exactly how the Bureau of Labor Statistics weights various items in calculating CPI:
http://www.bls.gov/cpi/cpiri2006.pdf
You can then compare your budget to the budget used by the statisticians.
April 30, 2007 5:09 AM | Reply | Permalink
Re: Technology is killing capitalism, and your cheap new audio system is a sign of that.
Technology would do the same in any other economic system. Unless you are espousing a system where certain technologies are simply forbidden and the ban is enforced with draconian laws.
Re: Do the math. People can't compete where both people and machines can do the same work
That was the objection of the original 19th century Luddites. They were wrong. And in reghards to your own industry, what machine designs software and writes code better than a human being? There was a brief fad in machine generated code, but like machine-created "music" it's terrible.
Re: but much of modern technology, particularly software, will never "wear out."
Huh? Software becomes obsolete all the time. Stuff that was cutting edge in the 90s is not regarded as dinosaurs. And your claim that modern eltronbics does not wear out is bizarre. The more complex things are the more likely they are to degrade and finally break.
April 30, 2007 5:36 AM | Reply | Permalink
I used to think Moore's law was a great way to get my toys cheaper (it still is, I just ordered a nice new Core 2 duo system for
Which is better? Cheaper toys or employment?
As a software engineer, I would be by far the most expensive component in the system, if I were still employed.
I am very fortunate that my wife is a psychologist.
I don't think we can stop the train, but we need to be prepared for the results of its passage.
I've been reading Ray Kurzweil's conjectures in The Singularity is Near, noted downthread, with some interest too.
My wife and I are of a single mind on the value of savings, and we are prepared for the loss of my income. But if inflation raises its ugly head, we may run into difficulty. I find it challenging to find inflation-resistant investments in this climate. And I cannot afford to pay people to do the research to find out. And I am not well connected enough to be a member of the group of people who can find out.
April 30, 2007 5:46 AM | Reply | Permalink
Re: Beyond this, I'd argue that house prices, education, and healthcare are also increasing at a high clip.
House prices are stablized, and may even be dropping. Granted though they are painfully high.
April 30, 2007 5:49 AM | Reply | Permalink
This appears to be a flaw in the stats. That very large segment of the population with fixed rate mortgages saw their payments go up by not one penny. In fact, in constant dollars the payment actually dropped!
The sons of the prophet are noble and bold,
and quite unaccustomed to fear.
But the bravest by far in the ranks of the Shah
was Abdul Abulbul Amir
April 30, 2007 5:49 AM | Reply | Permalink
Lots of interesting thoughts here.
First, economists are pretty clear on the impact of tech on prices, though you have to accept the 'hedonic adjustments,' as Ellen mentions below (really, adjusting price for quality improvements).
We're much less clear on tech's impact on jobs and wages, though we typically say it's really important. Which of course it is, but we've got to go much further into its impacts on jobs, incomes, distribution, etc.
For a long time, economists argued that tech was the primary factor behind the rise in wage inequality, and it's certainly an important force. But in fact, tech progress has been going on forever, and the sharp rise in inequality beginning in the late 1970s in relatively new, so that explanation always seemed incomplete.
Now, I think it's more widely recognized that tech is one factor among many, including trade, fewer unions, low min wgs, and less worker bargaining power.
April 30, 2007 6:07 AM | Reply | Permalink
Re: Shelter costs have been driven sky high by years of unrealistically low interest rates and will get worse as rates rise.
Again, housing prices have topped out and in many places are falling. To the extent that buyers are discouraged by higher interest rates (which may or may not rise-- the Fed may not want to damage an already shaky economy after all) sellers will have to lower their prices accordingly to compensate.
Re: Home maintenance? Auto maintenance?
Home maintenance (other than major repairs) is something most of us can ourselves. However many people do chose to "outsource" it by hiring people to clean and specially to care for the landscaping. Still, except for the disabled, no one has to have a cleaning woman or a lawn service.
Re: For the middle class, for anyone who lives in a county or a school district or a town or a state, for anyone who owns anything or buys anything, taxes are sky high and rising.
Property taxes, yes, absolutely. Income taxes have been cut, FICA is where's it's been since the 80s, and sales taxes too have been fairly stable for yearsm apart from states where the sales tax has been increased to pay for a property tax cut.
April 30, 2007 6:09 AM | Reply | Permalink
I haven't looked at the link yet, and I will, but I agree that we should study this as you suggest. Sylvia Allegretto and I wrote an (unpublished) paper that kind of inspired this post, wherein we talked to middle-income families and looked closely at their budgets. The result was that they weigh the "workaday" stuff pretty heavily.
Years ago, I remember stumbling on a book called "The Poor Pay More" which also made a pretty convincing case.
One thing re inflation and the rich. I think you may be missing something here: inflation can erode the value of their assets, and for that reason, they may mind it more than you assert.
April 30, 2007 6:13 AM | Reply | Permalink
Another point I always try to raise whenever citizens start to talk about inflation is the fact that inflation is always and everywhere harmless when it comes to the purchasing power of the vast majority of an economy's participants. Remember, in order for a general rise in prices to be properly called "inflation", it must be true that disposable incomes are keeping up with the increasing prices.
The reason we know this is true is because markets work. If disposable incomes were not increasing enough to keep pace with increasing prices, then sellers would not be able to sell all their product and they would be force to cut their prices. If sellers are cutting their prices, then we can't call it inflation, can we?
Increases in disposable incomes that are attributable to "loose money"---i.e., that are not accompanied by increases in actual output quantities---actually provide no real gain to economic participants because their nominal income gains are matched by negating price increases. That's what we are typically referring to when we use the word "inflation."
In contrast, when price increases are caused by developing shortages ("supply shocks"), it is not proper to say that the price increases are due to inflation, even though such increases are going to show up in the measurements of inflation that are commonly used by economists and policy makers. These kinds of price increases are actually painful and harmful to the lower classes because they are the ones who will not be able to afford the higher prices of the now scarcer consumables (e.g., gas).
True inflation, on the other hand, is not only not harmful to the vast majority of people; it actually ends up providing more of a benefit to the lower classes than the efforts that are made to 'control' inflation (Fed induced recessions).
(It is rather easy to insulate those on fixed incomes who would otherwise lose out in a 'robust inflation' environment. Such invididuals/households could simply be provided with a government subsidy that enables them to keep up. It is a truly harmless way to make sure that the only losers in an inflationary environment would be those predatory lenders who have been raping the rest of us for decades...)
April 30, 2007 6:17 AM | Reply | Permalink
An alternative to the CPI which allegedly the Fed looks at even more:
"This meant that core inflation as measured by personal consumption spending is up by just 2.1% for the past 12 months, much better than the worrisome 2.4% jump recorded for the 12 months ending in February." From CNBC's website.
This might suggest whether the with or without the Core inflation that perhaps inflation is moderating.
Daniel A. Greenbaum
April 30, 2007 6:18 AM | Reply | Permalink
Consequences: People feel pinched for good reasons, even though many policy makers will tell you inflation is pretty tame (they're talking about core). If we want to understand this notion of a 'middle-class squeeze,' we've got to track the prices that comprise the middle-income "market basket."
Sure, tech progress is a huge constraint on inflation, and that's good. (Improvements in quality, whether it's health care or TVs, should not show up as higher prices, or at least any increase will be tempered by the quality improvement--with med care, this is a real bear to measure--see the blog Gooznews for great substance of this point).
And sure again, greater investment should help boost productivity which feeds into lower prices. It doesn't necessary lower employment--over time, there's no negative correlation between productiivty and job growth--the intervening variable is overall demand. Typicaly, we've had enough demand to soak up the productivity gains and lead firms to hire more people.
But as some folks have noted, that doesn't happen when demand is weak--then we have "labor-saving technology," a truly antiseptic term for painful displacements of highly skilled people.
Lastly, no--the Fed can't scratch certain itches very well--like those involving supply shocks.
April 30, 2007 6:24 AM | Reply | Permalink
For what it's worth, I don't know when you and Sylvia Allegretto wrote the paper you refer to, but I wrote up this recommendation/argument (also unpublished) in my Master's capstone research paper back in 2000. It was inspired by nothing other than my own thinking on the subject (in my research on the subject, I came across nothing similar).
Best of luck to you with your efforts.
April 30, 2007 6:26 AM | Reply | Permalink
I'm pretty sure it's right--comes from economy.com that track this stat very closely. The thing is mortgage rates have gone up and, according to forthcoming research by Randall Dodd and I, 60% of all ARMs made since 2004 will reset at 25% or higher (meaning mortgage payments will go up by a fourth), and 20% will reset at 50% or higher.
So, you're right re the bulk of fixed rate mortgages of incumbent home owners, but enough people are taking out new ones at higher rates and ARMs are resetting to drive the result (I think).
April 30, 2007 6:28 AM | Reply | Permalink
Well said, but are they right? (The hedonic adjustements, that is.)
I tend to think they get the direction right but worry that they overshoot the magnitude of the improvements. We recently got a new laptop from Dell and it was really powerful and cheap, but it was also crapped up with so much junky software that it seems to slow things down and make it hard to do stuff that should be easy, like hooking up to our home printer which took hours on the phone. That is no quality improvement!@!
Sorry to wax anecdotal--pet peeve, that.
April 30, 2007 6:34 AM | Reply | Permalink
One aspect that doesn't get enough notice is that inflation is different for different demographic sectors.
For example those sending kids to college, or about to, have seen a huge rise in cost over the past decade or so. When I went to college at CUNY it was free, now it costs $3000+ per year (and this is one of the cheapest schools around). Given the current student body this is a huge burden on them and their families.
Now that I'm retired my two biggest non-discretionary costs are real estate taxes and health care premiums. Each of these is close to $10,000 per year and both have been rising at least 5% per year since 2000. Imagine if the Social Security payout was adjusted to the inflation rate for seniors, instead of being diluted by various tricks.
The area of inflation that is never discussed has to do with stocks. When stock prices go up this is a form of inflation, but it isn't factored in anywhere because present owners see themselves getting richer, but those who are currently investing (say through 401K plans) are getting fewer shares. As recent discussions (especially in the NY Times business section) have shown, much of this price rise is due to manipulation and not to real added value in the underlying firms. To me this is inflation.
--- Policies not Politics
Daily Landscape
April 30, 2007 6:55 AM | Reply | Permalink
I'm offering for criticism an example of the effects of hedonic adjustment, here, to see if I'm thinking correctly about the issue.
Suppose an Apple employee can make 1000 Mac laptops per year which sell for $1,000,000. The next year he makes the same number of laptops, but due to increased costs (labor, rent, transportation, materials) Apple raises the price 5%. The worker's productivity is unchanged and there's been a 5% inflation in the cost of a Mac laptop.
Apple did, however, make one change: a new logo; it now shows two (that's right, count 'em) two bites out of the apple.
At the BLS an expert decides that the new laptop is, now, more "valuable" to the purchaser than was the older model and calls for a hedonic adjustment. The expert calculates that the new model is 5% more valuable.
The result? No inflation and since economic staistics are recorded in dollars, the worker's productivity has increased 5%.
What think ye, shipmates? See any problems with the example and the results?
April 30, 2007 7:08 AM | Reply | Permalink
I just realized that when you referred to "this post" you may not have been referring to my post, but to your own. My apologies if I misunderstood you the first time...
April 30, 2007 7:11 AM | Reply | Permalink
There is one specious argument that I find especially annoying: the claim that the unemployment the poor must suffer through during a recession that the Fed created in order to fight inflation can be blamed on the inflation, itself, instead of on the Fed's insanely stupid actions to fight the inflation with a recession. It's not the inflation but the recession that harms them.
I have no doubt that the rich 'mind' inflation quite a bit---as do poor and middle class Americans---because they are always trying to get ahead and become frustrated when prices go up along with their disposable incomes. What I'm actually asserting is that they would not mind if they understood just how little they are actually being harmed and how much they would all actually benefit from a zero-unemployment economy, whatever the inflation level. It would really help a great deal if the managers of the money supply were to provide soothing reassurance to the public that higher inflation levels are nothing to worry about...
April 30, 2007 7:30 AM | Reply | Permalink
Well, now you've gone and opened up a whole new can of tricky worms.
I don't see that as a quality improvement and would count it as an eg of bad hedonic adjustment--ie, I see it as a pure price increase.
But economists have been writing about something called "dark matter" which includes all kinds of things which supposedly create value but don't get counted.
The NIKE swoosh is an eg, as is the Apple brand. Firms spend a lot on branding and some argue this creates value that doesn't show up in our nat'l accounts (though I've not quite understood why it's not captured in the price--and if it isn't, why should we be adding it to GDP?).
So if that extra Apple bite increases value to enough people, maybe the laptop is more valuable. But to me, it's a reach.
April 30, 2007 7:36 AM | Reply | Permalink
Software does not wear out. Seriously. Software may become "obsolete" over time, but that's not the same as wearing out. The software that was cutting edge in the 1990s is still doing the exact same thing it did in the 1990s and it still does that equally well. Because it does not wear out. Try driving a car every day for 10 years and see if it still looks and works like the day it left the assembly line.
Modern electronics pretty much does not wear out either. I don't know about you, but I've worked with computers a lot. The parts that fail most often are mechanical, primarily hard drives. CPUs failing is something practically unheard of. A 20 year old PC is quite likely to be totally obsolete yet 100% functional (I've got a few of those). It's because compared to mechanical devices, electronics does not wear out.
Whether technology is killing capitalism remains to be seen. The Luddites of old might still have the last laugh.
April 30, 2007 7:39 AM | Reply | Permalink
Ahh--I'm with you all the way. The benefits of truly full employment are really far reaching and important. And the supposed unemployment/inflation tradeoff has far too often been used in ways that prevent us from reaching full employment.
April 30, 2007 8:09 AM | Reply | Permalink
Re: then we have "labor-saving technology," a truly antiseptic term for painful displacements of highly skilled people.
Labor-saving technology generally displaces low-skilled labor. Machines can do A) Heaby labor work and B) rote jobs much better than humans. When it comes to things requiring creativity, judgement, compassion etc., no machine can match humankind. How many RNs or architects have been replaced by machines?
April 30, 2007 8:27 AM | Reply | Permalink
.> I found amazing systems, one of which now
> sits on my book shelf, for well under $200.
There is also the "simulation of quality" issue. I doubt that you purchased any audio equipment at the big box store with anything near the sound fidelity and overall quality of your 1975-1985 era hi-fi - particularly speakers. And you had about 1/5 the choices that any Pacific Stereo had in stock in 1985 too.
I am absolutely amazed that the current generation has given up in 10 years the sound fidelity and equipment quality that took 100 years to develop from Edison through Karden. The big box stores are actually crammed with junk designed to look good and produce lots of boomy sound for low price - but which on inspection turn out to have terrible quality in every respect.
This applies to the tool market, the food market, and many others: people are getting lots of "stuff" for the dollar, but the stuff doesn't work anywhere near as well as what it replaces.
sPh
April 30, 2007 8:29 AM | Reply | Permalink
Re: Software does not wear out.
Anything that is obsolete is, functionally at least, worn out.
Re: Modern electronics pretty much does not wear out either.
Modern electronics are (is?) extremely delicate. One little power surge and you've damaged circuitry. Not to mention computers and the like are very succeptible to software viruses. Again, the more complex something is, the greater its vulnerabilities and the more ways there are it can break down.
I also work with computers by the way, and I have learned the hard way this cardinal rule: Always, always, always back up your work.
Re: then we have "labor-saving technology," a truly antiseptic term for painful displacements of highly skilled people.
Labor-saving technology generally displaces low-skilled labor. Machines can do A) Heavy labor work and B) rote jobs much better than humans. When it comes to things requiring creativity, judgement, compassion etc., no machine can match humankind. How many RNs or architects have been replaced by machines?
April 30, 2007 8:30 AM | Reply | Permalink
Real world:
Gas keeps going up.
Fuel oil keeps going up.
Groceries keep going up.
My house insurance just doubled.
My property taxes went up.
Health insurance goes up and up.
Stay warm or eat?
Bush World:
Everything is wonderful.
When I meet Republicans, I barely repress a profound urge to kick them in the crotch to give them a dose of reality.
April 30, 2007 8:36 AM | Reply | Permalink
I think you're right, but I think it matters less for CD's vs vinyl. When I press this little red button on my music system, it simulates a pretty damn rich sound (especially considering the price).
April 30, 2007 8:43 AM | Reply | Permalink
I don't think it's nearly this simple.
Robots on manufacturing production lines can replace skilled, highly paid blue-collar workers. And tech has worked to complement (as opposed to substitute) low-skilled labor. EG, computers can reduce the need for numeracy among cashiers.
There's some recent evidence that tech has complemented low and high skilled workers, displacing those in the middle. Not sure this is right, though. As I said, I find tech explanations for inequality, wage changes, etc. to be pretty unconvincing.
April 30, 2007 8:50 AM | Reply | Permalink
Ellen, I'm not sure I disagree with you, but...
The fascination with investment as economic incentive is part of what I'm talking about. I was one of the very early contributors to Linux, which is now the only viable alternative to Microsoft's monopoly.
Was any financial investment involved in my efforts, or those of so many others like me? No, none at all. Did we receive any financial return on our investment of time and effort? Many of us, no, none at all. I'd not made the first dime from my Linux work until this past year, 15 years after I first got involved.
My point, again, is that such assumptions, as investment being required to incentivize new development, simply don't hold up to the available evidence. There was no investment in Linux (though there could be argued that there is now, and debated whether that's good or bad), but it came to be number 2 behind a monopoly, almost entirely without it.
April 30, 2007 8:52 AM | Reply | Permalink
Good call on corn, RedPlanet. "Little things" like that often go unnoticed. It's like the price of soda pop, which has fluctuated wildly in response to the the whims of the war lords in the Sudan - major supplier of gum arabic.
A few weeks ago there was a massive public demonstration in Mexico City over the price spike of tortillas - a direct response to the US subsidies for building ethanol plants in the US midwest. It's a triply whammy, as I see it. 1) increased tax burden because maize is a really inefficient source for ethanol, and requires subsidies. 2) Beef, chicken, pork et al will increase in price to consumers - we may see $5.00 corn dogs at our favorite drive-thru. 3) The already severe pressure on the Mexican border will increase - costing taxpayers in the US even more for immigration control.
Neoboho
April 30, 2007 9:06 AM | Reply | Permalink
You're an economist? Good - I hope you're into econometrics; you could measure the effects, as least coarsely, if you put your mind to it. I'm just trying to catalyze people like you to get the heck out of your capitalism-only frame to try to understand real, observable economic phenomenon without ridiculous pre-assumptions and unfounded conclusions.
Indeed, technology has alway had its impact. But hugely significant thresholds have been crossed in the last 50 years. Fully capable intelligent automation, for one, that allows whole manufacturing industries to be more productive at higher quality - without any significant human labor at all.
The pace of technological impact on productivity has become at least exponential. Isn't the effects of anything so dramatic worth a new and closer look?
But I should correct myself - this isn't about the true
effect of technology on productivity - it's more about it's perceived effect. Value estimations are about perception as much as reality, as least to most people, who aren't inclined to be more diligently objective.
EMR (electronic medical records) is a good example. The technology is being strongly pushed, but I can tell you of 2 doctors (my sister, and my personal doctor) who are being driven crazy by the loss of productivity by the technology, which costs them at least 1/3, if not 1/2 or more of their time. Both are officially part-time, but both work routinely late into the evening - futzing with their EMR systems, not doing real medicial work.
I don't think computers will ever match human intelligence, and I think results in CS and math logic suggest as much, but the perception that technology is more valuable than human labor is here, now, and it's real, and it's hugely economically significant, whether it's justified in real terms or not.
April 30, 2007 9:08 AM | Reply | Permalink
That's the kind of religious opinion I'm talking about, not that I think you're entirely wrong; I don't. But that 's not only an assumption, it's one that's trivially refutable by any number of meaningful criteria,
I'm not an opponent of markets; I just don't choose to worship them. We have brains for good reason, and one of those is to make markets accountable, according to criteria we choose. But it we continue to worship capitalism and the R-complex, we'll never get past this kind of dead-end thinking.
Markets don't work for health care, in case you were waiting for an example. The rest of the world has figured that out. The American religion of capitalism, however, doesn't allow us to give up faith in an obvious failure.
Markets don't even try to meet the criteria I use - that of Jesus of Nazareth, who said "that which you do for the least of these, you do also for me," and conversely, "that which you do not do for the least of these, you do not do for me." Unfettered free-market capitalism, which by the way has been dead since 1929, not only doesn't satisy this criteria, it opposes it.
"Markets work?" Only as a matter of religious faith in the church of the Unfettered Free Market. Not in the world I live in, for sure.
April 30, 2007 9:27 AM | Reply | Permalink
I take it you missed the 1970s.
sPh
April 30, 2007 9:29 AM | Reply | Permalink
JPF311,
My first response to Bernstein's post was pretty much based on what the on-the-ground experience of inflation feels like, rather than on statistics, which economists are better at than I. But here are a couple that might add to the discussion.
Re: Shelter costs.
The U.S. Office of Federal Housing Enterprise Oversight publishes a quarterly house price index based on tracking sales and refinancing of the same properties over time. The latest report was released March 1, 2007, (you can view it at http://www.ofheo.gov/media/pdf/4q06hpi.pdf) and covers the period from 1990 through 2006. The annualized "house price quarterly appreciation" over the ten years ending in 2006 ranged from 3.15% (1998Q2) to 17.57% (2004Q3) and averaged 7.36%, a pace significantly greater than that of core inflation. (I calculated the average, please check my math).
Your point about the current direction of housing prices is appropriate. As OFHEO Director James B. Lockhart said in the press release accompanying the November 30 report: . “With U.S. house prices growing less than one percent during the third quarter [of 2006], it provides more evidence that the longforecasted national deceleration in house prices is occurring. Given the five-year appreciation prior to this quarter of 56.8 percent, the slowdown is not unexpected." In other words, we appear to be experiencing a correction in housing prices, much like the corrections that from time to time afflict the stock market. But I don't think you're suggesting that you believe house prices will or should fall back to where they were, adjusted for inflation, at the end of 1996. Should they do so, the economy would be in chaos. If they do not, then I think my assertion that housing costs are sky high is not too far from the mark.
Here's another data point, from down thread. Abdul Abulbul Amir quotes economy.com as follows: "Monthly mortgage payments for middle income families in the mediian home were around $1,100 at the end of last year, up 9.4% from the previous year." Bernstein noted this is from economy.com, apparently a reliable source.
I didn't look up rises in new home prices. They are affected by increases in size and gadgetry that some will argue add value, but I'm not sure I concur. In any case, we all know they increased dramatically over the same ten year period, as did the average price of a home.
Re: Home Maintenance
Well, I don't have statistics here, just anecdotes, You say that "home maintenance (other than major repairs) is something most of us can [do] ourselves" and go on to talk about cleaning and lawn maintenance. I think that misses a some important phenomena.
Taxes
That community you live in, with declining income taxes on the middle class and stable local taxes. Where is it? I want to move there.
April 30, 2007 9:30 AM | Reply | Permalink
Unless demand is infinite and unbounded, there is a necessary inverse mathematical correlation between productivity and jobs. Moreover, I would suggest there's plenty of empirical evidence that suggests as much.
Of course, demand is not infinite and unbounded, monotonically always increasing, or anything of the sort. Demand in most areas effectively lives in the long term around an equilibrium, albeit with some movement either up or down.
You're not making a complete case - sounds to me you're just trying to avoid a hard truth.
Something that isn't always true, as a "law" or "principle", isn't true at all. Right?
The very purpose of technology is "labor-saving" - that's pretty much what the word means. That's the point I've been trying to make. It's time we realized that it is, truly, a double-edged sword. In many cases, "labor-saving" is a wonderful thing;" in others, it can be a terrible thing.
What I'd like is for economists to take off their rose-colored glasses where technology is concerned, and start seeing some of the down side. There's plenty already to see.
April 30, 2007 9:41 AM | Reply | Permalink
It's nice to talk about the poor, middle and rich, but look at the numbers. The lion's share of households seem to occupy the "poor" category, at least on the charts that I've just looked at.
I think that paying 4 bucks a gallon of gas is more meaningful for someone earning 10K per year than someone earning 40K per year. It's common knowledge that the price of groceries and fuel are higher in America's black ghettos, so that makes it even more meaningful for that sector of our society.
I've lived in two areas of California where everything is more expensive - Humboldt County in the North, and now Imperial County in the south. Merchants tell you when you complain: "We are so isolated that it costs more to ship goods here." Bunk - I can ship goods to Eureka as cheaply as I can to Redding (where prices are generally lower and line with the rest of the state.) Both counties share a common feature, however, and that is a poor regional economy and a large poverty level population.
At any rate, I just wanted to mention that. In assessing the meaning of inflation on income groups, I think it's an important point.
Neoboho
April 30, 2007 9:49 AM | Reply | Permalink
This is off topic, but I agree more with Mr. Bernstein, sPh. Audio quality (fidelity, etc) are about perception. You have a defensible point about speakers, but otherwise, older analog audio technologies are no match for digital technologies.
Sure, there are extreme purists who think they can hear differences that suggest older systems are higher-fi; I don't buy it, and it's a purely subjective aesthetic opinion anyway.
Human auditory perception is not perfect, and audio reproduction technologies have never been perfect either, but digital reproduction is provably more capable than are older analog technologies.
A total non-audiophile can easily appreciate the difference, as Mr. Bernstein has said. That kind of observation really settles the case, especially as an economic matter.
And we're not even talking about user-convenience features that were never available before.
April 30, 2007 9:59 AM | Reply | Permalink
Since you're the original poster, you're allowed (please, in fact, write a whole article about it). But since you mention it...
I'd guess you have Microsoft Windows on your new Dell. Try Linux - Ubuntu is a good choice, and it runs from a CD.
You may not have heard of the Honeypot Project; it demonstrated that Windows systems are compromised on average in minutes. Get a new system, hook it up to the Internet, go get a cup of coffee... When you get back, you've got rootkit spyware popping up ads, if not worse.
This isn't accidental. Microsoft is a monopoly - economists should understand what that means. People like me work for free, literally, because of what we understand it to mean, especially in this context, as important as such technology now is. The world needs alternatives.
Microsoft could make their software better - if they wanted to; if there wasn't economic incentive to the contrary. But they don't, and they won't, and Vista proves that yet again.
Microsoft is a convicted corporate criminal around the world. But I guess some problems are so big, we just can't see them anymore. Sorta the elephant in the room thing, I guess...
It's one thing to theorize a priori, Mr. Bernstein; it's another thing entirely to observe, as objectively as one can, and to analyze on the basis of such observation. That's the empirical method, that should be the basis of disciplines such as yours (though not mine, which is indeed more based on the a priori). The thing is, with all due respect to those in your discipline, I see far too much with my naked eye that you folks don't seem to want to see, let alone take into account and analyze.
April 30, 2007 10:14 AM | Reply | Permalink
Actually, the points I'm making were validated by the 1970's experience. Prices and measured inflation rose dramatically twice during that decade, but not because of inflation, per se, but because of two major supply shocks, both of them generated by OPEC's decision to dramatically reduce the amount of oil available on the world market. These are the kinds of 'inflation events' that actually hurt the poorest members of society.
Because there is less oil available, sellers will increase prices as high as they can, up to the point when they cannot sell all that they have available. Somebody is going to have to consume less, and in a market economy, that always turns out to be the poor. Prices rise so high, they are the ones who become priced out of the market. The richer members of society will pay the higher prices asked by sellers because they can.
These kinds of price shocks (cost-push inflation) are fundamentally different from the classical kind of inflation that most people complain about (demand-pull) which is created by central bankers who allow liberal amounts of new dollars to circulate in the economy without a corresponding increase in national product.
If you need further clarification, just let me know...
April 30, 2007 10:20 AM | Reply | Permalink
I'd beg to differ. People are saying China is making strides because they're embracing capitalism; I'd like to suggest that it's because communism fits better with a situation where labor has lost value. I.e., China is doing well not in spite of communism but because of it.
Otherwise, what distinguishes the US from the rest of the industrialized world is our fear of socialism. If you think there's no other model, you don't understand that clear modern trend.
If you have a computer, and are technically literate enough to take it apart, do this. Take it apart and see where the pieces are made. I'd be willing to bet that most of them are made in China (or Malaysia) - even the CPU chip(s). Like Harry Reid said, we lost the war, and in both cases, we don't even know who the enemy is.
The Luddites were not wrong on this point; they were ahead of their time. There was no technology until the past few decades sufficiently capable to demonstrate their point. Now we have automated factories all over the world, that have displaced in many cases 90% of their workers, if not more. For starters; they didn't have any of that in the 19th century; indeed, such technology was the stuff of fantasy then. But it's reality now.
Software does become obsolete, but it doesn't wear out. I wasn't talking about software becoming obsolete, though; I was talking about people becoming obsolete in capitalist economic terms. Study the Utopians; you'll see why the distinction is important.
April 30, 2007 10:27 AM | Reply | Permalink
Not true; I'd guess you're generalizing from your experiences with and knowledge of Windows. I've been working on and using Linux and Unix for more than 15 years, and I've never had an identifiable virus. Not one. But I see Windows viruses routinely.
There are clear technical reasons that Windows is inordinately susceptible, but it's certainly true nonetheless. There is good software and bad software, and the two can be worlds different by any number of measures.
Certainly software can lose its utility, but that's not by wearing out, like the tires or brakes or engine of a car. Lots of people still run 1st-generation FORTRAN and 2nd-generation COBOL applications, essentially unchanged for more than 25 years in some cases, and they still work just fine. But surely you knew that.
And also by the way, RNs and architects have been replaced by machines. Not all, for sure, but some. I have a cousin with an architecture business, and several relatives who are nurses. One of them was just "downsized." No industry that uses modern technology is immune from the effects of "labor-saving" technology, not even fast food.
April 30, 2007 10:40 AM | Reply | Permalink
johnOneOne,
My spider-like senses pick up some discomfort with the ways of us economists. Believe me, I'm with you on a lot of that--as well as on the damaging Microsoft monopoly. Monopolies suck--in fact, that's a basic economic principle we agree on.
Chapter 2 of my book "All Together Now: Common Sense for a Fair Economy" is called "The Economist Behind the Curtain"--you might find the critique of how economics is practiced today to resonate.
Here's an article I wrote that summarizes part of the argument.
Your other point you've made in these responses (I think) was that people aren't always motivated by profit. And that too is true. But one overarching point here is that regardless of the motive, technology does lower prices.
But not on everything, and not on some of the things that are squeezing people these days, I believe.
April 30, 2007 10:40 AM | Reply | Permalink
RE economists loosing the rose-colored glasses, you clearly haven't spent enough time on our EPI website: www.epi.org.
Many critique us from the other side--saying we're too negative--but we're calling it like we see it and measure it.
I think you'll find time you spend there to be well spent.
April 30, 2007 10:46 AM | Reply | Permalink
We're not alone, lenski. I hope Mr. Bernstein gets that.
I used to work for one of the largest telecom equipment makers; they employed more than 2500 Ph.D.s at the time. I don't know of a single person that I personally knew at that company who still has a similar job, at that company or elsewhere. Even the more famous former employees are, as far as I know, just that - former employees.
How many sectors must be decimated before the economists and politicians realize that we're real people out here - every single last one of us? And we're not out of work because we're uneducated and unskilled - we're out of work because we're too educated and skilled. I've been told as much. There's nowhere for us to go; because of the ubiquity of the technology at which we are expert, there's not a sector of modern economy that wouldn't see us as too qualified and thus too expensive.
(I recently also built 2 new Core 2 Duo systems, BTW. They're running Linux - Fedora Core 6 right now. A good DVD burner is little more than a large pizza these days...)
April 30, 2007 10:50 AM | Reply | Permalink
Indeed, I'm sure we'd largely agree.
But one point, if I have your attention. Not everything has to have a price. To assume as much is part of the capitalist assumptions that I'm arguing against.
I write "open source software" - have for 15 years. It has no price. None. It's not only "free as in free beer," as we say, but it's licensed so as to stay that way.
In open source software, production and consumption are decoupled. Open source software is a market in a real technical sense, but not a financial one. It operates, very well, pretty much like the Marxist creed imagines: from each according to ability, to each according to need.
Having lived in this for 15 years, I can tell you, sacred cows make the best burgers. There is so much conventional economic wisdom that has been disproven on simple evidence, that I barely know where to start.
It should be clear to anyone who isn't slavishly devoted to capitalism that the only way to get fix health care in this country is to get rid of prices - just get rid of them - as has been done in other countries. Costs may be an issue at the societal level, but not at the level of individual citizens.
Technology, will, eventually, force prices asymptotically to near zero. Those who don't own everything will long since have become non-viable, if the basic model doesn't change. And it could; there's enough to go around. But capitalism by its nature leads to hoarding, and hoarding to shortages outside the hoarders themselves. That's not computer science - it's human nature.
Why do we have prices in the first place? You know; think about it. And think about how we might do without them, especially where conventional capitalist economics simply don't work. That, in my view, is what economists should be doing, instead of simply preaching the capitalist doctrine.
When a sector requires insurance - which is privatized socialism - to survive, then there's no viability to free-market capitalism in that sector. And in some sectors, we've been there since the New Deal. There is not such thing anymore as free market capitalism; certainly not in the US. The Fed people keep speaking of is a socialist measure intended to keep capitalism near any of several points of equilibrium. But we cling, truly in religious fashion, to long-since disproved notions about - among many things - what motives people, and what we should allow to motivate people. We DO have a choice, believe it or not.
I'm tired of hearing "that's just the way people are" from economists and others. By now, I know better. People would be better and do better, if they saw that being and doing better could work. I've been to that mountaintop, and I've seen that promised land...
I'll take a look at the article you linked to.
April 30, 2007 11:11 AM | Reply | Permalink
Don't interpret my statement to mean that I believe that any market you could point to is functioning as it ideally should.
The health care market does not work as it ideally could because suppliers of health care products/services---through the help of the government---wield monopoly power that they use to restrict the supply of their products/services. The AMA lobbies to restrict the number of physicians available; the pharmaceutical companies persuade the government to give them monopoly power with their patents; insurance companies use 'imperfect information' to avoid competing on price (they compete on a level of creative obfuscation, instead).
(You'll want to note that I actually advocate England's "socialized medicine" approach to health care because I believe that "free markets" do not provide modern societies with the quality of health care services that they want and have every right to demand. The quality of health care that the vast majority of people want can only be achieved by putting moral considerations before all others, which means that all competition must be eliminated.)
April 30, 2007 11:12 AM | Reply | Permalink
Just read your article - good stuff.
But my basic point still stands - get outside the capitalist frame; think outside the capitalist box. It can be done, as they said in "The Six Million Dollar Man:" we have the technology.
If you're stuck on the side of the road in a car that isn't running, do you just keep getting in and turning the key, although it does no good? That kind of thing fits Einstein's definition of insanity. Capitalism measures are not going to fix what are fundamental failures of capitalism itself. You have to go outside of capitalism for that kind of fix.
Investment incentives and such - please, spare me, with all due respect, Mr. Bernstein. For one thing, they are always, always, too easy to divert to unintended purposes. The issues we face must be taken on more directly.
Let me suggest a mechanism: eminent domain. FDR originally suggested it to fund his idea of a federal highway system, which he envisioned would be a modern version of the waterways and railways. He proposed buying 2 mile of frontage along the path of the highways, and reselling it to businesses at a premium, thus financing the highways themselves.
Eminent domain could be used to implement single-payer health care coverage overnight, without a single lost job (though eventually, indeed, health insurance admins should be less necessary). Eminent domain could be used to nationalize oil companies who refuse to invest their windfall profits into new and modern refineries. But no, capitalists don't see such opportunities (even though companies are bought out all the time) they'd rather throw taxpayer money at failing corporations instead of buying them out and thus at least affording the opportunity to direct them towards more societally beneficial purposes.
DOJ struggled with how to punish Microsoft - they've been convicted. All that really needed to be done, however, was to nationalize the corporation, under the authority of eminent domain. And then, in my opinion, they should have been broken up into smaller entities that might compete, still public or not.
If this sounds drastic - trust me, it's better than "going postal," and I'm not hearing any better ideas from the still-employed and high-profile among us.
April 30, 2007 11:34 AM | Reply | Permalink
I do get it, and it's a theme of our work here at EPI. We work hard to not let policy makers get away with statements about how all you need in today's world is a college degree in a competitive field and your troubles are over.
In fact, very few are insulated from the difficult trends we've been discussing on this post.
Here's a recent report on this that might resonate.
April 30, 2007 11:35 AM | Reply | Permalink
Sorry - I have to disagree. And I think it is actually on-topic. I have been doing a lot of stereo shopping with my teenagers lately, and even I (with my very poor musical ear) can hear the degradation in quality between a good 1985-vintage audio system and a 2005-vintage system. This is based on playing the same CDs through the same CD player and not even taking into account the fundamental loss of quality that occurs during the MP3 ripping process [1]. In fact my older kid, who has a very good musical ear, has asked if we can get any of my 1980s gear on eBay (answer: some of it, but unfortunately many of the components degrade over time and cannot be replaced).
You can see this effect in a number of markets - hand tools are one that come to mind immediately. Go shopping for hand tools at a professional supply store, at a discount store, and on eBay (1980 or earlier vintage). Take note of the variation in quality among the three sources, often for tools that are sold in exactly the same box. There has been a _massive_ downward shift in quality in the last 15 years.
Now, maybe this doesn't matter. Maybe US consumers would rather have more cheap stuff that breaks after 10 years rather than fewer, higher-quality, repairable possessions that they can hand down to their grandchildren. But I think it is quite deceptive of economists to pretend that this isn't happening.
sPh
[1] Yes, I know: the default MP3 settings can be changed. Do you even know any _teenagers_ who ever do that? I don't.
April 30, 2007 11:39 AM | Reply | Permalink