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Comment by manofstick | Hacker News Reader

Another economic number I ponder over is inflation, and the economists method of revaluation of goods called the hedonic quality adjustment [1].

If you follow the example on the link provided, they show how upgrading an old tv that cost $250 to a new one that cost $1250 actually was had a negative inflation effect due to the extra features that the new TV had.

From one perspective I can understand their point, but when the "new normal" of tv ownership basically demanded those features, so they weren't really extra benefits for the end user in the long run (and then became standard features where the prices did plummet back to the original $250, one again reading down the inflation figures).

Look if like to think that economist are smarter than that, but given the original article...

[1] https://www.bls.gov/cpi/quality-adjustment/questions-and-ans...

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There's an epically bad version of that error that I keep re-linking because it was such a central economic policy maker and such a clear version of the error[1]: essentially, yeah, food is more expensive, but iPads are faster, so it cancels out.

Even if you accept the core logic, they went about it in an absurdly naive way: a 50% faster chip does not make the iPad 50% better; very little of that went to relieve a true bottleneck and so doesn't translate into observably higher usefulness. Now, if iPads were so much better that they actually freed up owners from significant household tasks that actually translated into e.g. greater free time or ease of earning, that would make sense. But the chip simply being faster isn't good enough.

Incidentally, do they ever readjust inflation upward when products get worse? Like, when packaging is flimsier or paper cups harder to grip? Somehow I doubt it.

[1] https://www.reuters.com/article/us-usa-fed-dudley-ipad-idUST...

Or more relevantly, when ecological standards make household products worse. Removing phosphates from detergents, low-flow showerheads that are less relaxing, low-flow toilets that clog more often, high efficiency washers that break down more often, etc.

It's not so much an error, to be frank, and more of a deliberate manipulation.

Everybody and their dog for quite some time "knew" that inflation is bad, because you get less for the same money when prices rise.

But, around the world, it's usually some government entity publishing inflation numbers... So it isn't a big surprise that the governments came up with ways to keep the inflation numbers as low as possible, at least on paper if they failed to keep the number low in the real world. One of the many ways to artificially "shrink" inflation numbers is Hedonic Quality Adjustment.

A government does that to avoid disgruntled citizens asking questions about why the inflation is so high, but you also does that to avoid disgruntled companies asking questions about why the inflation is so high and thus why their workforce keeps demanding wage raises to offset that high inflation. And then there are those rating agencies judging the risk of state bonds and consols also in part on the inflation numbers.

Another potential way to massage inflation numbers is the "inflation basket"[1]: E.g. the UK between the 2017 and 2018 basket the gov't slightly decreased the weight of all goods in that basket (such as "Food" and "Health") except for "Alcohol & tobacco" (steady at 3.3% weight) and "Housing & household services" (27.6% to 30.0% weight). Now I'm perfectly sure there is a real fine explanation why this happened other than to optimize for low inflation numbers on paper, just like I'm perfectly sure there is a real fine explanation why Hedonic Quality Adjustment just makes sense and it's absolutely necessary to use it in your calculations!! Other countries do the same or similar things.

Governments got really good at mucking with numbers. E.g. in Germany they started massaging unemployment numbers by essentially redefining what "unemployment" means[2]: It used to refer to people seeking jobs but now it's those job seekers minus all those people who are enrolled in government "employment" programs (where e.g. they teach you how to write a good CV), working in shit jobs that don't pay a living wage (incl "1€ Jobs") and therefore still rely on the welfare state, etc. The most drastic "adjustment" they came up with in regards to unemployment numbers in Germany is that they simply do not count anymore unemployed job seekers older than 58 years as "unemployed" (retirement age by law is between 65 and 67 years old, depending on when you were born). Other countries do the same or similar things.

[1] https://www.ons.gov.uk/economy/inflationandpriceindices/arti... and https://www.ons.gov.uk/economy/inflationandpriceindices/arti...

[2] https://www.tagesschau.de/wirtschaft/hg-arbeitslosenzahlen-1...

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