https://www.reuters.com/article/us-usa-fed-dudley-ipad-idUST...
Obviously, this particular exchange was of no comfort to those who suffer from high food prices, but why should monetary policy be the remedy for high food prices (to the exclusion of its current goals) instead of looking for remedies in fiscal policy, trade policy, regulatory policy, or other instruments better suited to a more targeted redress?
But I don't think it's even technically correct from the perspective of price stability. The inflation the central bank cares about is the kind that is the result of (to simplify) "too much money chasing too few goods". Technological deflation is totally orthogonal to that, and should be ignored to the extent possible.
Furthermore, even on its on terms, the calculation isn't correct. A fifty percent faster CPU doesn't mean the effective price has fallen fifty percent, because the CPU is only occasionally the bottleneck. (And do they ever adjust inflation upward for quality reductions?)
Also, Dudley said:
>>“Today you can buy an iPad 2 that costs the same as an iPad 1 that is twice as powerful,”
Well, yes-kind-also-no?
It's not an index that describes the cost of necessities or human survival. It's an index that describes how consumers spend money on goods and services, such that the value of the money remains more or less constant.
In that sense, yes, people's computer-money spending patterns can affect the price of food. Literally anything else in the index can do so as well. No, the index is not "assuming" anything can "displace" food; it's just never set out to be a thing where food is this sort of baseline.
I can't be 100% sure, but you seem to think that there should be an index which cares more about food. Moreover, you seem to think that more public policy should revolve around this price index rather than the vanilla CPI that is currently used.
However, I would suggest that monetary policy is far blunt an instrument. It is one of the least-targeted tools possible, with the largest set of possible side effects, and food is too small a slice of the economy.
There's a reason we go for economy-level price stability instead of sector-specific. Imagine if the US had a real bumper crop, more corn and soybeans than you could eat: to meet food price stability targets the Fed would be obligated to shrink the money supply until the corn was as expensive as it used to be, and everyone's mortgages, loans, and credit cards would be harder to pay off.
https://news.ycombinator.com/item?id=26390606
>There's a reason we go for economy-level price stability instead of sector-specific. Imagine if the US had a real bumper crop, more corn and soybeans than you could eat: to meet food price stability targets the Fed would be obligated to shrink the money supply until the corn was as expensive as it used to be, and everyone's mortgages, loans, and credit cards would be harder to pay off.
That I don't have a problem with. The concern is with the opposite scenario: say the Fed is pumping enough money to raise food prices 20%, but techno wizards increase production efficiency across the board by 20% and exactly cancels it out. In that scenario the Fed should say, "wow, we're pumping too much money", not "inflation is just right", because they've stolen credit for the gains of technology.
So pick whatever definition of inflation you want. Just understand that what normal people care about in terms of inflation is how many pieces of paper they need to achieve the basic goals of their life and your definition is totally irrelevant to their set of concerns. Your having a totally separate conversation then they are with nothing but some semantic overlap.
The 2021 Chevrolet Spark costs $13,400 (and appears to come with $1000 of "bonus cash" that would bring that down to $12.4k?), gets 38 MPG highway, and has a standard rear camera and touchscreen. You can buy it today - a brand new car, of reasonable quality, from a top name American company, for $160-ish a month for a 7-year note. It is far safer than any car sold in the 70s, it accelerates faster than most cars sold in 1970, it has navigation and a backup camera standard in the base model. Its paint and coatings will last forever, its battery is sealed, and it requires nearly zero service in the beginning of its life.
Look at a budget car in 1970 - Car and Driver's recommended budget pick was the Ford Pinto, $2500 as tested. It was described as "uncomfortable" with four adults - you really should stick to two, they said. The fact that the cars were still running after the first 15,000 miles was, according to Car and Driver, "an indication of the soundness of their basic engineering." It had painful, uncomfortable bucket seats. The Pinto, and I quote, "substantially more powerful than normal store-bought economy cars", had a 0-60 time of eighteen seconds - this is a car described as "nimble and powerful" in its time. _All_ of the budget cars delivered to Car and Driver had "serious defects" straight from the factory - in the Pinto's case, the camshaft had been installed incorrectly. Ford apparently built a whole series of them that way, then lost track of which. For a budget car to not squeak while braking was apparently impossible, so instead of discussing _if_ they squeaked reviews discussed how the squeaks sounded (the Pinto was apparently not bad - the Chevy Vega was described as a "depths of hell" squeak.) According to the manufacturer, in the first 24k miles, you would need a minimum of eleven hours of shop time, best case scenario, to keep the vehicle running. People describing their normal use mentioned they added a quart of oil a week to the Pinto - ludicrous today. And I won't even get into the safety of 1970s cars - a reminder that the Ford Pinto was famous for literally exploding into flames (the controversy came eight years later, 1978 or so), but despite this its safety is considered today "comparable to other 1970s subcompact cars" (aka terrible, but not remarkably so for the time.) Despite all this, it was a popular car for the time and got good reviews in its day.
At the current low minimum wage of $7.25 an hour, you would have had to work about the same amount of hours to buy a budget car today as in 1970 - the budget cars of today being spaceships in comparison. Drive a 70s car and a 2020s car down the road and you'll quickly understand that the modern car is a paradise of comfort in comparison - noise, smoothness, how it drives, handles, vibrations, emissions, etc etc. Many Western states have top speed limits of 80 mph, where the flow of traffic is 85 or higher - your Pinto would feel terrifying and be extremely unsafe at such a speed: if you crash you die.
Of course, the same applies to many things. Improvements in phone cameras mean that for many people, the cost of a phone+camera has gotten far cheaper. Quartz watches can last a lifetime and are far more accurate than mechanical watches. Remote control toys, flashlights, batteries, lightbulbs, washing machines - all cheaper. These things add up!
Reading your other comments in the adjacent thread, I think you're not seeing the forest for the trees. Yes, a CPU that is 10% faster has little marginal utility, and it does not provide you with much (if any) dollar savings in your pocket. But at the same time, the largest single-year increase in the price of bananas in the last few decades was a few cents a pound: those few cents in your pocket don't really do much either. For increases in both the cost of living and food, you're going to have to look at the ten- or twenty-year picture. Look at the total cost of a laptop that meets your average Joe's requirements. Look at the total cost of ownership of a car. Look at the cost of lightbulbs, toothbrushes and bicycles.
So yes, he is correct: technological improvements do cancel out increases in the cost of living elsewhere! The few bucks you save by not topping up your oil can pay for more expensive bananas, the thousands you save by your car lasting longer can pay for higher rent, the hundreds you save by not needing a camera can pay for a fatter bar tab. But, at the same time, tone deaf to say that to a working class audience in Queens NY in the depths of a recession while you're bailing out the big banks.
In some cases, though, there often isn't much of a choice. I can't buy a (new-ish) car without a rear-view camera, now that they're mandated. I can't hire a builder and tell him that I don't need GFCI outlets, or HVAC, or fire sprinklers; it's all required by code. If I wanted a ~1000 square foot house, I could have built one 50 years ago, but today my planning department wouldn't approve.
Similarly, I might have been content with the experience of using my iPhone 4 back in 2010, but I can't recreate that for much cheaper today. Even if I could buy an iPhone 4 for cheap, it no longer receives security updates, and many apps have dropped support, or at least focus their QA on newer devices.
Or I might have been content with the 2mbps connection my ISP offered back in 2000, but now their plans start at 50mbps. Even if I could find a cheap 2mbps plan, it wouldn't be as practical given the bloated state of websites today. (I mean it's doable, buy my quality of experience would be much lower than it was in 2000.)
The reason I like the car as an example is because it is a quality upgrade and also a lower cost. A vehicle with more than twice the lifespan translates directly into cash in your pocket. You save cash on a regular basis by not needing to purchase a quart of oil a week, 11 hours of mechanic time (while the car is still new!), more expensive tires, more spark plugs, more coolant, etc.
I get your point that quality upgrades are _occasionally_ mandatory, but the majority are not. If you want to save money by skipping the improvements (get a TV, flashlight, keyboard etc from 2001, or a more spartan smartphone) - go ahead, plenty of people do, and they save money for it. But if you want the latest tech, and a palace on wheels, and international travel, and organic food, and a fancy university on your resume, well, those things cost money.
Fun fact - community college enrollment has dropped year over year for about a decade now (today it stands at almost half of its peak enrollment.) There are plenty of budget smartphones, but the most popular phone in the world by far is the non-SE current-year iPhone, costing $800 to $1600 depending on configuration and the place you buy it in. A safety razor is cheap and effective (I use one) but Gilette sells millions of copies of expensive razors. The American middle class, in particular, wants to consume at a very high level, increasing every year, and it will not be satisfied with less. Interestingly, this consumption has shaped the political debate on the American left. Student loan forgiveness, which as planned today would be a colossal handout to the upper middle class, is wildly popular. Money for the millions of Americans living in true poverty is discussed nowhere, while left circles are furious that couples making 160k won't get any extra thousands with the latest stimulus bill.
(Also, the rear view camera is a tiny, tiny fraction of the car's manufacturing cost. Yes, as an option it costs $xxx, but option sticker prices are nowhere the actual cost of the option.)
That is, it doesn't follow that every technological gain has that effect, and it doesn't mean that that year's technological gain canceled that year's gain in costs of necessities. It doesn't mean that a new iPad's being 50% "more powerful" translates into it providing the utility of 1.5 "iPad 1"s. And it especially doesn't mean that improvements purely for luxury entertainment goods can ever truly act as substitutes for necessities.
Dudley was speaking as if that past year's improvements in the iPad really did cancel, in some substantive way, that past year's gain in necessities. (Remember, the iPad was released in 2010, and the story is from 2011.) It's not relevant to compare to e.g. not having mobile videochat integrated into your phone at all (since we had that in 2010), or the efficiency of cars from the 70s.
>The few bucks you save by not topping up your oil can pay for more expensive bananas,
And as above, those fuel efficiency improvements happened over decades; there wasn't significant gain in the prior year that obviated the extra costs.
Edit: Furthermore, as in the other reply, I think price changes purely attributable to technology aren't relevant to the kind of inflation central banks care about, and shouldn't be regarded as offsetting the "too much money/too few goods" problem.