David R. Henderson  

CPI Bias and Experiment Bias

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As Bryan admits, his experiment to figure out whether the economy is stagnating suffered from a small-sample problem. Various commenters when Bryan first asked for volunteers pointed out that there was huge selection bias. The people who are even aware of the experiment are going to be among those who benefit most from the IT revolution. And, as you could see from the comments, a huge percent of the examples were from the IT revolution.

I think I agree with Bryan that things are getting better quickly. Here's one of the pieces I wrote on this--in 1997. But I want to point out two hedges on that.

First, Robert Murphy on his blog pointed out a bias in Bryan's experiment that not one of the commenters noted. Bryan asked:

1. Was my experience during the last hour noticeably better as a result of an innovation introduced from 1990-present? [Yes/No]

2. Was my experience during the last hour noticeably better as a result of an innovation introduced from 1950-1989? [Yes/No]


What do you notice missing? A chance to say that the experience was worse.
Now it's unlikely, though not impossible, that the experience will be worse as a result of innovation as the term "innovation" is commonly understood. But things could be worse the old-fashioned way: products get worse or merchants sell slightly smaller versions of the product and the small reduction in size doesn't get picked up by the BLS.

Which brings me to my second point. If you care about the issue of BLS bias, read a comment on Bryan's first blog that came along well after other people had weighed in. The author, "randy," works for the BLS and gives us a pithy review saying why he thinks that the CPI is not biased much in either direction. If randy is right, by the way, "Consumer Price Indexes," the article I commissioned by Michael Boskin for the Concise Encyclopedia of Economics is off.


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CATEGORIES: Growth: Consequences



COMMENTS (5 to date)
Hana writes:

Over the last hour I popped popcorn on the stove top (because it tastes better) and read a book. So no and no. However the light was from a twisty bulb, so that was worse, but I did save money on the electricity so maybe it was better. I think it's a wash.

Your article points out many ways things are improved, but many things have not been improved. I attended university and grad school during the 1970's. In addition to the challenge of Engrish, my typing was atrocious. I had a Brother typewriter, later upgraded to a Smith Corona, (and was always envious of the student with a Selectric). A fellow student's mother was an executive secretary. When the student had finished writing a paper, mom would show up to type it. I was absolutely mesmerized as I watched mom type. A 25 page term paper plus footnotes and tables was done in less than 45 minutes. Her fingers flew and there were no errors.

As desk top computers spread, secretaries disappeared. Every few years I try another version of voice recognition software, and still I am dissatisfied with the results. I still am not convinced that in many cases the substitution of computers for secretaries resulted in productivity gains.

There are other examples in business. During the day individuals are overwhelmed by emails. I regularly have meetings with a large graphics company. I have noticed that many of the attendees pay no attention to the subject under discussion. They are all busy typing on laptops, pads and other devices. I asked my contact why all these people were in the meeting. I was told that people at this large company attend meetings so that they might catch up on their email. Is this an example of productivity or non-productivity?

What passes for analysis many times is formatting. Yes, your charts are pretty, but can you tell me what it means? And no, I really don't think the background adds anything to the power point.

With regard to the BLS, I think your suspicion of size and quality changes are correct. While it is called a half a gallon of ice cream, when was the last time it really was a half a gallon? The bag of potato chips I learned was a pound, is now 14 ounces. Soda packaging is all over the board. The $29.99 oil change is only oil, no filter, no topping off of other fluids, no tire pressure check.

"randy" is pretty touchy. The free goods is interesting, because the "mountains" of free stuff Bryan receives are a substitute for purchases. In the recent debates I keep hearing that average incomes are down 10% over four years. Shouldn't the demand for goods and the prices fall? Depending on what Bryan means by free stuff, free goods can be an effective way of maintaining the suggested price, allowing a temporary discount, and avoiding permanent markdowns. If only the suggested price, and not the effective price, is captured by the BLS, then the CPI is overstated.


Daublin writes:

That's a funny point, David.

Every time I open a dishwasher and the dishes are still wet, I feel that "innovation" from the last ten years has made things worse. Dishwashers were better ten years ago.

David R. Henderson writes:

@Daublin,
Dishwashers are about to get much worse. In May 2013, the new regulations kick in. Jeffrey Tucker has written about this.

Mark Bahner writes:
The author, "randy," works for the BLS and gives us a pithy review saying why he thinks that the CPI is not biased much in either direction.

Here's a website that compares an iPad 2 versus a 1985 Cray supercomputer:

Apple iPad 2 packs power of 1985 Cray supercomputer

The New York Times’ John Markoff reports that the new iPad 2 packs the computing power of the $17 million, hot tub-sized Cray 2 supercomputer of 1985.

Citing Jack Dongarra, a researcher at Oak Ridge National Laboratory and one of the scientists who tracks the world’s fastest supercomputers, Markoff reports that the iPad 2 will have a Linpack benchmark of between 1.5 and 1.65 gigaflops (one gigaflop is a billion floating-point operations/sec). Such speed would have ensured the iPad 2 a spot on the list of world’s fastest supercomputers through 1994, Markoff wrote.

So if I buy an iPad 2, and we're trying to figure out consumer prices versus 1985, why wouldn't that iPad 2 count as worth $17 million in 1985 dollars?


Mark Bahner writes:

Hi,

Crud. I'll just post this without the link. Y'all can Google the quote to find the link.

The author, "randy," works for the BLS and gives us a pithy review saying why he thinks that the CPI is not biased much in either direction.

Here's a website that compares an iPad 2 versus a 1985 Cray supercomputer:

The New York Times’ John Markoff reports that the new iPad 2 packs the computing power of the $17 million, hot tub-sized Cray 2 supercomputer of 1985.

Citing Jack Dongarra, a researcher at Oak Ridge National Laboratory and one of the scientists who tracks the world’s fastest supercomputers, Markoff reports that the iPad 2 will have a Linpack benchmark of between 1.5 and 1.65 gigaflops (one gigaflop is a billion floating-point operations/sec). Such speed would have ensured the iPad 2 a spot on the list of world’s fastest supercomputers through 1994, Markoff wrote.

So if I buy an iPad 2, and we're trying to figure out consumer prices versus 1985, why wouldn't that iPad 2 count as worth $17 million in 1985 dollars?


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