Comment by StanislavPetrov | Hacker News Reader

Comment by StanislavPetrov | Hacker News Reader

Parent Full thread

StanislavPetrov

That's completely wrong. Its a lost cause to try to explain economic theory on a forum but suffice to say that central banks factor completely arbitrary variables to get the number they want.

http://www.bls.gov/cpi/cpihqaitem.htm

>The CPI is calculated using prices for a fixed basket of goods and services through time. While the basket is periodically revised to reflect changing consumer expenditures, some items being priced in the sample come and go from the marketplace, making collection of these prices from month to month difficult. When an item is no longer available in the marketplace, a similar replacement item is selected. Often there are no similar items from which to choose, and as a result, a less comparable item is selected, potentially introducing quality change and an associated price differential into the index. The hedonic quality adjustment method removes any price differential attributed to a change in quality by adding or subtracting the estimated value of that change from the price of the old item.

That toilet paper you used to buy costs twice as much? Well the FED says the new toilet paper is of a higher quality, so it is actually counted as being lower priced then the toilet paper you bought for half as much last year.

Actually, the FED targets something called the PCE price index which is an attempt at measuring price increases across all consumer spending. But those are just measuring details, if you want to you can go to economic conferences and argue the finer details of these measurements with rooms full of PhDs. The point though is that inflation targeting is about trying to keep the cycle of rising wages and rising prices going. And the point of that is to avoid deflation during recessions. The main losers from inflation are not businesses but lenders, which is why lending rates and inflation are closely related.

>You don't need a PHD to understand what this means, you need only basic reading comprehension and minimal intelligence:

Quote from FED:

>The hedonic quality adjustment method removes any price differential attributed to a change in quality by adding or subtracting the estimated value of that change from the price of the old item.

What do you think "attributing a change in quality" or subtracting "estimated value" means? If you don't understand how the introduction of these arbitrary variables, invented by a politicized FED, completely nullify any informational value, nobody can explain it to you.

You seem to fail to grasp even basic common sense: most products and service increase in value over time, and though it's difficult sometimes to measure that value, it's not 'arbitrary'.

For example - as Farmers improve their technology - Tomatoes become bigger, juicier and redder. Clearly - there is 'economic value' in those 'improved tomatoes' and that has has to be taken into consideration when comparing tomatoes grown before, to tomatoes grown now.

Stop misinforming people, take your conspiracy theories to ZeroHedge.

Tomatoes is a bad example. They contain less nutrition and taste less good each year (Google it).

Maybe cars or something your story works with

Reply on news.ycombinator.com