it’s economics, but bear with me.
think about what a “state of the art” car cost in 1985. the consumer price index (CPI) tries to tell us all what that car costs today. for the sake of argument, let’s say it was $10,000 then and $25,000 today. but did the car in 1985 have airbags? power locks and windows? as much horsepower? 600 watt stereo?
hedonics tries to reconcile this, saying that — where applicable — products today are better than they were in the past. the number crunchers don’t do this arbitrarily, they have all kinds of functions to determine how much better products are. but seriously, computers have multiple times more power, the “state of the art” TV is bigger and sharper and might have DVR built in…
the problem, according to some, is that the CPI/inflation numbers as reported may be lower than reality because the government might abuse hedonics. if true, we aren’t cruising along with the very low inflation we thought we had and might be relatively worse off. of course, when I look at all the modern conveniences that average households have, I have a hard time believing our collective standard of living as a country is going down.
what do you think?