Hiding a Recession

[Scary_Tiger]

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why should the speed of advancement be a factor?
Barron

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Because we're looking at the value of money? When something gets cheaper because of factors other than money being worth more, it's completely extraneous to the debate. If you study something scientifically you try to eliminate as many variables as possible. Something as unstable as the price of computing technology should definitely not be looked at to measure the value of money.

[DcifrThs]

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why should the speed of advancement be a factor?

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Why shouldn't it be?

If it's easier/cheaper to produce something, then (surely you agree) this will effect the price of said good or service.

Since computer technology will naturally improve upon itself over time (and it will thus be cheaper to produce), the natural result is that you get more for the price, so getting faster computers for the same price doesn't necessarily mean anything. I don't know what exactly Boro had in mind, but that's what jumps out to me as the obvious reason why the computer/cheeseburger things are not contradictory.

It's like watching a ball roll, and we're observing the force of friction. It would make sense to say "Well, that ball is rolling on a slight decline, so we should expect a different result than the ball rolling on a flat surface."

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i don't see that as answering the issue.

if the "natural result" is that you get more for the price, how does that "not mean anything." to me that means that you have, in effect, reduced the price of the good.


now what about the second part of my post:

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if inflation could be seen as getting lower quality or less of something for the same price, then why can't deflation be seen as getting more or something or higher quality at the same price? and why shouldn't those factors be taken into account when measuring economy wide price changes?

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i mean i'd think getting faster computers does mean something. but more generally, getting higher quality higher productivity goods (machinery, appliances, whatevers...) for similar prices should be reflected in the economy wide price level. if you disagree, then why shouldn't they be?

i haven't read exactly on what hedonic pricing is, but from the context i think it includes some kind of inflation correction for higher productivity, higher quality goods.

thanks,
Barron

[Scary_Tiger]

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but look at the above chart. according to this, 10 years ago (well, 1998), the infaltion was supposedly "really" only 3 percentage points less than it is today. how is it possible that with all of the turmoil you quoted as evidence of the inflation we have today that in 1998 there was virtually the same infaltion rate (According to your own source) yet not a single one of those turmoils were in effect?

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The problem is not high inflation over a small time period, but high inflation consistently over a long time period. We've had large inflation the last 10 to 15 years and it has debased the US currency. The inflation in 1998 helped get gold and crude oil so high.

(inflation percentage in 1998) * (inflation percentage in 1999) * (inflation percentage in 2000) * ... * (inflation percentage in 2007) is how much less our currency is worth today.

[DcifrThs]

[ QUOTE ]
[ QUOTE ]

but look at the above chart. according to this, 10 years ago (well, 1998), the infaltion was supposedly "really" only 3 percentage points less than it is today. how is it possible that with all of the turmoil you quoted as evidence of the inflation we have today that in 1998 there was virtually the same infaltion rate (According to your own source) yet not a single one of those turmoils were in effect?

[/ QUOTE ]

The problem is not high inflation over a small time period, but high inflation consistently over a long time period. We've had large inflation the last 10 to 15 years and it has debased the US currency. The inflation in 1998 helped get gold and crude oil so high.

(inflation percentage in 1998) * (inflation percentage in 1999) * (inflation percentage in 2000) * ... * (inflation percentage in 2007) is how much less our currency is worth today.

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your own analysis/evidence negates your conclusion.

think about it...with all those problems and the cumulative effect of all those years of infaltion, how is it possible that today's inflation only 3 percentage points bigger? there would have to be soem deflationary force there somewhere.

Barron

[Zygote]

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i haven't read exactly on what hedonic pricing is, but from the context i think it includes some kind of inflation correction for higher productivity, higher quality goods.

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Yes, thats right.

Its use is an excuse to justify any loosening monetary policy by defining the current state as low inflation when true inflation is in fact much higher. The economic numbers are distorted since GDP seems higher and employment levels seem more sustainable among other things. On top of this they get a break on anything indexed to inflation, including TIPS ,when they understate inflation.

[DcifrThs]

[ QUOTE ]
[ QUOTE ]

i haven't read exactly on what hedonic pricing is, but from the context i think it includes some kind of inflation correction for higher productivity, higher quality goods.

[/ QUOTE ]

Yes, thats right.

Its use is an excuse to justify any loosening monetary policy by defining the current state as low inflation when true inflation is in fact much higher. The economic numbers are distorted since GDP seems higher and employment levels seem more sustainable among other things. On top of this they get a break on anything indexed to inflation, including TIPS ,when they understate inflation.

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remove monetary policy from the discussion and remove the fed's motives.

why shouldn't productivity enhancing, price reducing (or productivity reducing, price inflating) things be taken into account when calculating an economy wide inflation figure?

Barron

[Zygote]

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why shouldn't productivity enhancing, price reducing (or productivity reducing, price inflating) things be taken into account when calculating an economy wide inflation figure?


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because relative inflation is the only things that is important. Who cares about absolute inflation?

[DcifrThs]

[ QUOTE ]
[ QUOTE ]

why shouldn't productivity enhancing, price reducing (or productivity reducing, price inflating) things be taken into account when calculating an economy wide inflation figure?


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because relative inflation is the only things that is important. Who cares about absolute inflation?

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doesn't productivity/quality improvements speak directly to relative inflation?

Barron

[Zygote]

[ QUOTE ]
[ QUOTE ]
[ QUOTE ]

why shouldn't productivity enhancing, price reducing (or productivity reducing, price inflating) things be taken into account when calculating an economy wide inflation figure?


[/ QUOTE ]

because relative inflation is the only things that is important. Who cares about absolute inflation?

[/ QUOTE ]

doesn't productivity/quality improvements speak directly to relative inflation?

Barron

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i wasn't very clear in my last post.

If prices remain stable due to fed injections when they wouldve have fallen without those injections due to increased productivity then there is inflation. The point of thinking in terms like this because this tells us the effect of the fed's money injections. In example above, to say the fed affected the value of money by 0%, which is implied from a CPI reading of price stability, is a distortion of the truth.

[Scary_Tiger]

[ QUOTE ]
[ QUOTE ]
[ QUOTE ]

but look at the above chart. according to this, 10 years ago (well, 1998), the infaltion was supposedly "really" only 3 percentage points less than it is today. how is it possible that with all of the turmoil you quoted as evidence of the inflation we have today that in 1998 there was virtually the same infaltion rate (According to your own source) yet not a single one of those turmoils were in effect?

[/ QUOTE ]

The problem is not high inflation over a small time period, but high inflation consistently over a long time period. We've had large inflation the last 10 to 15 years and it has debased the US currency. The inflation in 1998 helped get gold and crude oil so high.

(inflation percentage in 1998) * (inflation percentage in 1999) * (inflation percentage in 2000) * ... * (inflation percentage in 2007) is how much less our currency is worth today.

[/ QUOTE ]

your own analysis/evidence negates your conclusion.

think about it...with all those problems and the cumulative effect of all those years of infaltion, how is it possible that today's inflation only 3 percentage points bigger? there would have to be soem deflationary force there somewhere.

Barron

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You're misunderstanding the graphs presented to you. Integrate inflation over time and you have what worries us. If we had alternating years of 2% inflation and -2% inflation then money is staying at the same value. If we have 2% inflation every year, then our money is getting less valuable at that rate. If inflation is at 10% our money is worth half as much every seven years. Wages aren't rising nearly that quickly to outpace it. Oh at 2% our money is worth half as much every 35 years. That's what retirees have to prepare for and it's hard enough, but the higher you go the less realistic that gets.