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

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.

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!

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.

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.

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.

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.

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.

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

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.

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...)

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.

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).

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

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...

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.

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.

.> 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

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.

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.

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

The reason we know this is true is because markets work.

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.

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.

• For example, plumbing fails, roofs leak, paint peels, fences rot and the cost of workers with appropriate skills rises as their availability declines.
  
• An aging population relies more and more on others for assistance in maintenance and repairs.
  
• Not every family includes someone who possesses the skills, health and free time to undertake home maintenance.
  

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.

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

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.

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.

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.

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.

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...)

Markets don't work for health care...

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.)

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.

The very purpose of technology is "labor-saving" ... 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.

I would like to suggest, John, that the reason you feel so strongly opposed to new technology is because you are not aware of the things Congress could do to make our market economy work in a way that optimally serves the needs of the poor and middle class, without imposing any real sacrifice on the wealthy.

It doesn't matter how many jobs are lost to technological improvements or to globalization. Congress has the power to create so many public investment jobs that wages across the board will be driven up through market forces. The problem isn't our market economy; it's the fact that Congress has been unwilling to make our market economy serve our ideal interests. For more on this, read:

Make The American People Richer

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.

Not just economists and journalists, but politicians, too. Rudy thought a gallon of milk costs $1.50.

That's a question that should be asked of all the candidates at the debates. Maybe through a show of hands... 

Our obligation is to define the liberty of all, not to mandate our own moral code. -- SCOTUS that was...

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.

This isn't just complementing low-skilled labor - it's devaluing low-skilled labor. Cashiers at fast food restaurants don't even have to be able to read numbers, but the economic effect is that the wage for the job is reduced to what is appropriate for someone who can't read numbers. At that level, don't bother applying if you're a high-school graduate - you're overqualified.

Imagine me, with a Ph.D. in CS, trying to get a job at McDonald's as a cashier (been there, done that), when the best-fit mentality, which says not to hiring anyone who is overqualified, so as not to spend more on labor than is necessary, refuses to consider even people with good reading skills?

Complementing? Have you thought about this at all?

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.

"Convinced" is a strong word, Mr. Bernstein. I would just like for you to take the suggestion more seriously.

When someone won't consider idea unless they're first convinced, that suggests to me that they're already convinced of an opposing idea. I'm trying to imagine what convincing evidence you think you have of an opposing idea.

To prove a generalization takes, generally, an infinite argument. To disprove one, however, requires only a single counterexample. Anyone who ascribes to the capitalist religion should understand that capitalism's supremacy can't be easily proven; it can only be disproven.

That more conceptually said, the effects of technology
are much broader than you seem to imagine. When technology complements labor, value shifts from the labor to the technology, thus devaluing the labor commensurately. That can manifest in various ways, e.g., lower skill requirements and thus lower wages, less hours and thus lower wages, etc. But there is also a competitive pressure that appears whenever the technological bar is raised in a sector (i.e., by more productive technology). Even those players who are not using it are affected by that competitive pressure.

I don't know what you and other economists might need to hear; I'm hoping though that you haven't given up on the suggestion.

Fair enough, sPh. You also seem like a good guy, and I don't mean to pick on you.

I would certainly agree that, the profit motive being what it is, there is opportunity for quality to decrease, but that stipulated, that wasn't my point.

I would never suggest that someone who has a preference for analog audio reproduction is incorrect in that preference; it is, after all, a preference. It's not objective at all, and everything doesn't have to be objective.

But we have to at least imagine metrics for quality that are indeed objective. And by any objective measure I can think of, digital audio is of superior quality generality: signal-noise, dynamic range, frequency response, etc.

Moreover, characteristics of analog reproduction can be affected by digital filtering. Sure, your son with good hearing can hear differences, but the digital output can be adjusted to entirely hide them, within the acoustic limits of the human auditory system. The reverse is not true at all. I have software that does as much, though I don't have the time for it that I once might have (and I'm now deaf in one ear anyway; there's little point for me now.)

I just don't want you to conflate issues.

I haven't yet mentioned the practice of planned obsolescence in this thread; it's the sort of thing that accounts for quality reductions in what should be nearly perfect technology. IBM had it mastered back in the '80's at least; the automakers use it; I'm sure it's widespread. But that's a different topic.

My larger point is that technology can be used, has been used, and will be used, to devalue labor. In that respect, it's another tool in the toolbox of the corporation who sees the human laborer as the enemy. Planned obsolescence is another such tool, but more against the consumer than the employee.

I don't think we disagree, on the whole.

.> Fair enough, sPh. You also seem like
> a good guy, and I don't mean to pick on you.

I grew up on netnews (now Usenet); I don't think we are even having a discussion yet much less an unpleasantness! hcberkowitz can vouch for the thickness of my hide in that respect ;-)

sPh

You have omitted another special consideration.  The proportion of income that goes to food and necessary travel declines as wealth increases.  The housing part might keep apace for some range of income, but it, too, eventually drops off.  I have DSL (a voluntary option), I see many people who cannot imagine spending that kind of money for easy internet service.  The cost of DSL is frozen or shrinking (deflation), but not so food.  The poor get hit with higher inflation, too.

Just some thoughts. 

Forgive me if this has already been mentioned, but "Best Buy" and "High Quality Stereo" are mutually exclusive terms.

Food and Healthcare.

6 years ago my first son was born and we experienced the first shock at the grocery store (diapers and formula) that jacked up my grocery bill to around $85 a week.

6 years later, with another kid (diapers, but no longer paying $25 a week on formula), my grocery bill averages $140 a week. And that's with fewer splurges, fewer impulse buys, consirably less meat (I used to buy steaks all the time, but not anymore). The real price of groceries has gone up, on average, $10 a year. My children are still young. When they are teens, I expect my grocery bill to rocket up.

6 years ago, when my first child was born, our out-of-pocket hospital costs amounted to $50. Now, we no longer even have coverage if my wife should get pregnant again. If one of us were to be hospitalized, we'd have to pay the first $3,000 out of pocket, and full coverage wouldn't kick in until after we'd paid $9,000 in deductibles and co-insurance.

6 years ago, my weekly health insurance premium was $60. It is now almost $200. This is with both of us still working at the same jobs we had 6 years ago.

Inflation as measured by inflation equations almost has no impact on our lives. I'd estimate that 90% of our money goes into mortgage, insurance, car payments, utilities, child care, and groceries.

Good idea, Emma.

Touche' viviane. I paid $2.85 yesterday for a half-gallon of fat-free Dairy-Ease... But I hear you; I'm smiling... 8^)

Nearly every time Nathan Newman runs a column on the importance of strong union organizations I pipe up with the suggestion that white collar unionization needs revisiting.  One of the reason highly-skilled, college educated persons wind up feeling disconnected, MHO, is we've been trained to disconnect ourselves from each other, save for some sort of loose networking.  A system which uses and discards people cavalierly needs some countervailing power to the bottom-line guys who run corporate America. 

This doesn't have to be the only reality unless we let it be so by our own inaction.  Good luck.  If the info-tech guys organize to collectively bargain I won't cross their picket lines, whether in the cyber-world or in the flesh.

aMike

We already have a global economy in which businesses prefer machines to people, and for sound economic reasons in capitalist terms. That cat is out of the bag; they're figured out that technology can reduce labor costs, and they'll push the limits if allowed to do so.

I hope they reach the limits -- of technology.  I look forward to living in a holo-house with a virtually unlimited power supply though I doubt I'll live to see it.  But what if?  What would people do with themselves then?  study?  create?  commune?  explore?  or would they entertain themselves into an even greater stupor than they do now in our super-affluent society?

...at that endpoint, the only demand for labor will be artificial, e.g., created by government and the like, because markets will have no demand for it at all, to speak of.

Isn't much of the demand for labor already artificial?  It is arguable that most jobs in our current economy are just busy work.  Their only true value to society is to keep money circulating and hands and minds busy.  There are already many more people than are needed to provide necessary goods and services for all of us so we just make up things for the rest of us to do and call it work.   A saner society would find a way to share the burden of necessary work and the benefits of greater leisure for all.

Good luck, as things progress, trying to make an impact with an artifical labor shortage.

Actually, there is nothing 'artificial' about the demand that the people collectively express through their goverment, John.

Sure, the government could pay people to dig ditches and then fill them up again and we would be able to sustain wage levels with such an initiative, but there is no reason why the government should have to do such a thing. There are roads to build and repair, filthy rivers and lakes to clean up, sewerage systems to modernize, classrooms sizes to reduce (I think a 10-to-1 student-to-teacher ratio would be very effective way to improve the quality of education that children receive), clinics and hospitals and MRI's to build, spacecraft to build, blighted neighborhoods to renew, etc., etc., etc., that would not only improve the standard of living we all enjoy, but would also improve the productivity of our entire economy over the long run.

That is what I mean by REAL WEALTH, John. It is not 'make work' but real public investment that citizens have a 'natural demand' for, but which they cannot express with their personal expenditure decisions. I encourage you to give it a little more thought...

Thank goodness the Fed doesn't jack interest rates based on the high inflation people actually feel, rather than on the lower core numbers. The result would be disastrous. I'd much rather deal with an econometric measure that doesn't reflect my daily existence.

I'm curious what people think about the "inflationary" effect of:
1) shorter and shorter functional lifespans for electronic goods;
2) shorter and shorter warranty coverage periods for the same goods;
3) richer feature sets, for slightly increased prices -- so ostensibly "what you get" is much more for just a bit more, except you don't really need *any* more, and what you already had is no longer available -- so in effect you pay more for what is now the "basic" feature set.

When I buy a digital camera, and it breaks after two years, and isn't under warranty, and I get a new one with twice as many megapixels for just a little bit more (because the old one is no longer available) -- it sure feels like inflation to me.

Jared! You make people think and speak! An awesome gift. I know you will use it wisely.

A couple of thoughts and experiences. As a one-time resident of NYC, I quickly learned that non-essential goods had a magical way of becoming cheap. A Ralph Loren polo knock-off on Houston Street was always five bucks, no problem. An early 8080 make-shift PC with two 5.25 inch double density floppy drives? A good $700...

I think what you're describing here is the sleight-of-hand of the new capitalism: Look at how cheap those things that used to cost much, those things we used to value as luxuries -- heavens to Betsy, to quote a former DefSec, they're practically giving them away and don't we all feel a little bit, well, richer for the knowledge?

But when you mention gasoline and food and shelter in your original post -- it's like we're getting blindsided in a hall of mirrors. We used to define status by goods -- our possessions. Let me throw two new status markers into the mix: Slow food and biodiesel.

I used to buy orange juice in the form of frozen concentrate. It came in a cardboard tube. It made a half-gallon of dilute and it tasted sweet. It cost maybe $1.75. Suddenly, you experience a fresh avacado, a pear that was ripened on the tree, a fish that was ripped from the paws of a bear in Alaska, and the sweet of the tubed concentrate isn't quite right anymore. Now it's squeezed, maybe not even pasteurized. And I'm paying almost 400% more. So I don't drink as much OJ as I used to ...

I haven't made the biodiesel leap, but worry about the carbon footprint is beginning to follow me down the pathways of life.

And all of these thoughts, inspired as they were by your initial post, lead me to wonder if we know what we value any more? Luxuries have become a dime a dozen and yet we still hold them to be luxurious, somehow; meanwhile, the cost of necessities presses us against the proverbial wall, the edge of the envelope, the limits of our endurance.

Bread and circuses, it used to be the recipe for peace in ancient Rome. Now it's beginning to look like the powers-that-be (and you can call them what you will) are forgetting about the bread part of the deal. Then again, if you're ADD and hooked on computer games, who knows how many meals you don't even know you've missed?

Look, it makes sense that technical innovations will be mixed with looking for a market niche.  Manufacturers can expect that rapidly changing technology can be churned.  Buyers who are happy with the current level of technology will find themselves with "cheap" products, because manufacturers are not interested in making a product that will last longer than the typical buyer wants it and is interested in reselling to the same market.

I am more annoyed, at the moment, not at having to buy a second "better" digital camera, but at also having to buy a different size rechargeable battery (making all the old ones I have obsolete) and having to buy a different size memory card (same problem).  Those features seem to reflect a little too much churning for my taste.

"Price" does not capture characteristics like this, so indexing has always been a dodgey business.  Someone posted a discussion of frozen vs fresh orange juice, which only goes to show that this problem is not limited to the technology sector.  Goods have no underlying metaphysical characteristic.  They may get spiffier, but those spiffier characteristics may go unused.  While their short term "value" may be greater, they may not last as long.

For most goods, buyers are price takers, not really negotiators, so if the price is too high they either wait or walk away, so the idea that the price reflects what they really value is a mysterious religion. 

Glad you brought up EMR, JohnOneOne, or, as the Dept. of HHS would prefer you call it, HIT (health information technology), and kudos to the physicians in your life who are attempting it.

The efficiencies of HIT arise from system-wide adoption, and at this stage probably do not significantly benefit the isolated doctor or clinic trying to implement them. If we had a rational health care system, adopting HIT would be a snap in comparison to the way we are going about it, and the benefits would quickly appear. Instead, since there is no health care "system" but only a wonderfully confused and confusing aggregation of individuals, professional organizations and corporations feeding at the trough of human illness and the fear related to it, whose motivations range from sainted to predatory, we're largely depending upon market competition to make it work (in software, computer services, consulting, health services, etc) and the curiousity of physicians like those you know, hoping they'll do the right thing by investing their evenings and weekends in understanding and applying the technology.

By the way, and especially in view of recently confirmed behavior of our government and the unregulated monopoly organizations that collect and profit from our private information -- warrantless wiretapping, national security letters, telecom and Internet search firm complicity in governmental snooping -- I'm not yet convinced that the unquestioned efficiencies, and probable health benefits, of HIT are worth the risk that private data so easily collected and searched would not eventually be used for something other than our best interests.

I remind my students (and myself, when I get frustrated), that if we compare the "Age of the Personal Computer" with the "Age of the Automobile" we've passed the days of chain drive, and we're just about at the development of the self-starter.  (The Model A my friend Scott had when I hitched rides to high school with him had electronic ignition and a crank, just in case there was a need for a backup).  It had mechanical brakes, which were kind of fun.  He used to see how many times he could make the buggy spin on a particular stretch of icy road by clamping and locking them.  I think the record was 3.5 times.  Ah, the invincibilities of youth, back in the early '50s, when kids drove this kind of car.

My point, such as it is, that innovation in the life cycle of any invention happens very quickly in the early years, and then slows down later.  People who know a lot more about cars than I do (which is probably most people) know there are are periods when changes are largely aesthetic:  designed to make owners think their cars are obsolete.  Whatever happened to streamlining? 

There are also changes which certainly are ambiguous in terms of utility.  Do I really need electronic controls on my windows?.  The cranks worked just fine, and maybe I burned 1/2 a calorie using them. 

Then there are changes which seem to really be advances:  hybrid cars, for example, or, earlier, air bags and seatbelts.  The same automobile companies which tout the advantages of electronic windows and door locks resist the changes which could really help the environment and save lives and money.  I suppose I ought to understand why, but I don't.

The first computer I purchased for myself was a "portable" about the size of an overnight bag.  It had no hard drive, an amber type on black screen monitor, and two 5.25 inch floppy disks, one of which was for "input" and one of which was for "output".  This was back in the mid eighties, as I remember it.  I do remember the cost: $2,700.00.

I have never spent as much on a computer since. My last, now 4 years old, cost $1,100.00.  I don't anticipate needing to buy another one unless there's a software revolution and programs created which won't run on the old one.

One can trace the same pattern of periods of innovation followed by periods of stagnation in most technologies, I think.

aMike

It's like the price of soda pop

I stopped drinking soda because it got too expensive. i.e., for example, it costs $1.75 for a fountain soda at the local pizza restaurant, so I just go with water.

I not only save money now-- probably about $40 to $50 a month, but it's also better for my health and weight!

Markets don't work for health care, in case you were waiting for an example. The rest of the world has figured that out.

I'm not sure that this is true because "have market forces really been tested?"

In general, I don't see competition between insurers as competition.

for example, when I was a kid, life was tough because I had asthma and the solutions weren't very good.

today, I have no worries because the steroidal inhalers work well and, in fact, I rarely even have attacks any more-- I think that's because I don't have any anxiety about being able to deal with my condition.

market forces could really help health care. my grandmother, for example, has knee issues and is looking at the available remedies for that and some of them promise to help replace the liquid under the kneecap which keeps the bones from scraping against each other.

when I was talking to one of my bosses the other day, he was happy about his MRI and knee surgery next week and some tendon repair in his arm. all of this is amazing stuff unavailable when I was born!

philosophically, I think it's hard to say if medicine has gotten more expensive because my boss will have the opportunity to keep working because of today's technology so his medical expenses are actually an investment in his ability to work and earn money.

if my grandmother chooses the right treatment for her knee, then she can keep doing things herself instead of paying someone else to do them. at 90 years of age, she recently started using a treadmill 30 minutes a day so she can walk inside.

hopefully, over time, expensive things will become commodities so they can be delivered to everyone. unfortunately, however, commodities are often used to subsidize the more novel and expensive stuff-- and that's a "hard to solve" problem....

Re: The very purpose of technology is "labor-saving" - that's pretty much what the word means.

to me, technology means freedom because I'm able to diversify my life! of course, utility theory suggests that, at some point, we have enough and adding more might be unsatisfying. i.e. 10 pieces of pizza would make me sick but 2 would be enjoyable.

to me, technology means being able to solve problems more elegantly-- like building a car that gives me mobility without emitting greenhouse gases.

other motives--- moral motives

do moral values exist? the older I get, the more i think that moral values don't exist. mostly because mono-poles don't exist.

i.e., if mother nature didn't kill us be design, wouldn't the world be over populated?

i'd say that "moral values" are often the ultimate politically correct expressions!

Despite occasional (and considerable) fluctuations the price of food is usually cheap. At least over the long term (say, since our country was founded) food has come down enormously in price. Meanwhile, some luxuries remain luxuries and even increase in price. Try booking a stay at a Fort Lauderdale beach hotel, or buying quality diamond jewelry, and you'll see what I mean.

most of the people I know don't even roll down their windows because car fumes would come in... and, instead, they get their air through filters, heaters and aire conditioners.

my grandmother doesn't open her windows because she doesn't want her hair to look like a mess!

I think these are important points about the improvements in our lives thanks to such advances.

The challenge is to figure out a way to preserve them, while covering the 45 million uninsured, who don't get to see these benefits, and at the same time, to deal with the fact that a) we spend, on avg, much more on hth care than other advanced economies with worse hth outcomes, and b) our health care spending is growing a lot faster than our economy is growing.

To do so, I believe, does mean largely taking hth care "out of the market" in the sense of getting for-profit insurers out of the picture, as they've done in other advanced economies.  Then, we take on the medical industrial complex to start trying to squeeze waste out of the system.

It's actually more energy efficient to use a car's AC than to drive with the window's down, especially at higher speeds. An open window defeats the car's aerodynamic design, increasing friction and burning more gas.

Re: To do so, I believe, does mean largely taking hth care "out of the market" in the sense of getting for-profit insurers out of the picture, as they've done in other advanced economies.

Not every country with universal coverage has gotten rid of private insurers. Some have kept them either as niche insurance (extra benefits above and beyond what the public system pays) or as very heavily regulated participants in the system so that while they still turn a profit they must operate much as public utilities do.

Don't know much about cars or math or drag coefficients, but if I am reading this Wikipedia article correctly, it would be either the electric car that GM built then killed (somewhat limited production) or the 1992 Chevrolet Corvette.

True, and good point.  I think Germany is like that.  These places provide a high floor with no ceiling--they provide public insurance with the inherent efficiencies of large risk pools, and let people get more on their own if they want--but, and this is critical, no one can opt out.

There are numerous threads I'd like to hitch my wagon to, but dang it -- I don't know how.

First and foremost: The quality of audio question. Everybody knows sound is a physical thing -- it's something you feel almost as much as you hear. One of the failings of in-ear hearing thingees is that they have no body/nerve complementary responses to save you from wrecking your hearing with an MP3 player. "If I can feel the sound on my arm, it's probably too loud for my ears." Don't try this at home -- your neighbors will hate you.

More to the general points of this overall discussion, I was involved in recording an interview for the BBC this morning about superconductive wire. For those who don't know this, our electric grid and systems essentially bleed 7% of all the power we generate even before we put on the toaster or boil an egg.

Our century-old network of copper wiring isn't very efficient, it seems.

A concept which turns, curiously enough, on such thoughts as "labor-saving" and "productivity" and God knows what else. Terms linked into that discussion will often include "volume discount" and "cheaper by the dozen."

Jared, you can ennumerate how we define "efficiency" in the workplace and how, by discounting the cost (and, therefore, the value -- for example, by increasingly shifting health care costs to the worker) of labor, we find new and extraordinary ways of increasing productivity in the American economy.

But is this really "productivity"? One comment above noted how inexpensive food is in America. No, only the upfront costs of the American diet are relatively low-cost. Families depending on two or more incomes to keep apace devote almost 50% of their mealtimes to dining out, scoring food from sources that derive much of their nutritional whammy from such high-volume, low-yield stuffs as corn, and featur sodium as their primary flavor enhancement.

But of course, with workers paying a growing share of health care, every family needs at least two incomes to cover the mounting health care costs fueled by a high-fat, low-content diet.

That doesn't sound like an efficient use of our working dollar.

Still, superconductivity in our wiring will, by itself, save us 7% on electrical output. That strikes me as a perfectly reasonable way of increasing both efficiency and productivity. But the getting-blood-from-a-stone model of squeezing more from the workforce -- anyone care to explain how this makes us more productive in the global sense?

And since this all is tied in with the faux nature of "core inflation" -- it reads like, if we don't pay workers more, our goods will remain cheap; but it's really if we just ignore how much they really spend, then to hell with the COLAs!

Apologies for rambling. The doctors haven't adjusted my meds today...

yeah, that's sort of important. I think it should be "you can't opt out" and "they can't drop you!"

I just don't buy stuff if I think that it will break.

For example, I was disappointed with my last HP inkjet since HP sent me a refurbished one as a replacement unit and it never worked out of the box. so now I just go to Kinkos if i need to print out something.

and IBM didn't do a very good job of fixing my thinkpad, it lasted about 3 months after they repaired it.

however, most of the stuff I have works just fine and lasts a long time.

(Perceived) market demand is the chief source of price.

one of the most discussed "moral values," especially in catholic cliques, is the "moral value" of "straight sex" versus "gay sex" or abortion. in muslim circles, I think usury is/was immoral.

of course, "gay sex" has been observed in animals (without sin playing any part, I presume) and abortion can be natural, like a miscarraige.

I think that debating existence of morals is important in any discussion since "moral values" are so deeply held that they bias rational argument.