7 ms·

A billion prices can’t be wrong

129 points by Symmetry 10y ago

dnautics 10y ago
> The Edison phonograph cost $20 at the end of the 19th century; an iPod Nano costs about $145 today. It's also worth remembering that an edison phonograph would have probably been useable for about 60-80 years if kept in good condition. Good luck getting 5 out of the Nano. But yeah, collecting a billion prices and forgetting about each after a pairwise collection is a brilliant choice.
- chris_va 10y ago
  Well, $20 in 1891 isn't exactly $20 in 2016. Also, you aren't likely to go for a jog with your phonograph, and I suspect if you left the nano in a box for 60 years it would probably be fine (minus maybe the battery).
  - dv_dt 10y ago
    I think the flash memory might have trouble with data retention over 60 years - all the electrons defining your bits will have leaked away.
- xenadu02 10y ago
  $20 in 1891 is ~$500 today. I'm sure the iPod nano could be an heirloom-quality device if you were willing to pay $500 for it. The photograph was certainly not maintenance-free so for equal comparison we have to assume even with a massive over-subscription of flash you'd need to replace the memory every 10-15 years. The battery probably every 5. It's a difficult problem to reason about because our own perceptions are anchored to what we know. You couldn't have had a modern home air conditioner at any price in 1891. Ten billion dollars couldn't have bought you the computing power of a MacBook Pro in 1950. The quantitative and qualitative gap between successive generations of computing technology is many orders of magnitude beyond what any other technology has ever experienced in human history, and the generations themselves have happened orders of magnitude faster too. I don't even know how you compare these things in economic terms because the baseline equivalence between products is nonsensical to start with.
  - deleted 10y ago
    [deleted]
  - dnautics 10y ago
    > the baseline equivalence between products is nonsensical to start with. That's exactly my point. Nonetheless, traditional econometric analyses do exactly that, arbitrarily creating multipliers (hedonic adjustments, e.g.) which normatively make assignments as to what a consumer "should" value in a product. These assignments often throw out important considerations, merely because they're 'difficult to calculate'.
- stvswn 10y ago
  A wheelbarrow can be used for 100 years or more, because it's a simple mechanism. Why the focus on reliability? With an outside view of the past couple of centuries -- an iPod Nano is basically magic. My point being, I think we're often not amazed enough at everyday technology. I can't imagine Edison seeing a Nano and saying "well, what about durability?"
- adventured 10y ago
  You're confusing the central focus of importance. Why would anybody care about the audio playing device in terms of 60-80 years? Especially in this age, in which technology is rapidly improving. I very specifically do not want to be using a 2005 iPod in 2050. My digital music files are good forever in theory. They're made of bits. All I need to do is occasionally move them to new cheap hardware and maybe back them up in the cloud for practically free. I could store ten copies of my music library for $50 on usb sticks or similar, and replace it every year just for fun, without being concerned for the expense. Lots of ways digital files can be lost or destroyed? Sure, and they're still radically more secure (go make a dozen copies of your record albums) and easier to keep than physical records. The sole annoyance with digital media, is that I have to re-back it up very rarely, which takes a matter of minutes.
- LgWoodenBadger 10y ago
  It's funny that you mention that. My refurbished iPod Nano (4th Gen) has been in continuous usage as my cars' music device (hot summers, cold winters) since March 2010. The only time it's not in there is when I sync it with new music. Still works great.
- ars 10y ago
  https://en.wikipedia.org/wiki/Survivorship_bias https://en.wikipedia.org/wiki/Survivorship_bias
- snowwrestler 10y ago
  What breaks on the Nano? It's a solid state device. If you treated an iPod Nano and an Edison phonograph the exact same way, the Nano would outlast the phonograph easily.
  - bostik 10y ago
    It's a miniaturised electronic device. Over time components rot. Materials oxidise, capacitors leak, connections squeak and break. And the NAND cells? The storage mechanism is the result of an electro-chemical reaction. In time the charge potential between the storage states will succumb to entropy. So what breaks on the Nano? Everything. And what breaks it? Time.
chiph 10y ago
> While the project confirmed that Argentina’s inflation numbers could not be trusted, it also showed that the US inflation numbers published by the US Bureau of Labor Statistics could be. There were conspiracy theories floating around in the 2007-2010 time-frame (and still may be) that the published BLS numbers were being manipulated for political reasons (much as in Argentina), and it's reassuring that there's some confirmation that they weren't.
- neffy 10y ago
  The other way to cross check this is to look at the relevant M2/M3's (definitions vary between countries), but otherwise knows as "the total sum of bank deposits" in a countries banking system. i.e. compare and contrast: Argentina: https://research.stlouisfed.org/fred2/series/MYAGM2ARM189N https://research.stlouisfed.org/fred2/series/MYAGM2ARM189N USA: https://research.stlouisfed.org/fred2/series/M2 https://research.stlouisfed.org/fred2/series/M2 The USA's money supply has a doubling function of 2x decade, while Argentina managed something like 12x 2006-2016. The people who were predicting hyperinflation in the 2007-10 timeframe for the USA were predicating the banking system's behaviour based on the regulatory framework in the old gold standard regimes, and not under the newer Basel capital controls. Which is not to say that you can't get hyperinflation with Basel, but you need to do a little more than just inject asset money into the system.
  - roymurdock 10y ago
    Stricter capital controls are only one (arguably less important) side of the equation, with weak aggregate demand being the other.
    - neffy 10y ago
      There's really no evidence for that. The evidence is that the American banking system doubles its money (and direct lending) every decade, and has done for the last 50 odd years. If there was actual weak demand, you would expect it to stop expanding, or expand at a lower rate, and that's exactly what you don't see. Compare and contrast with the UK for example (M3, because no standard definitions etc.): https://research.stlouisfed.org/fred2/series/MABMM301GBM189S https://research.stlouisfed.org/fred2/series/MABMM301GBM189S The UK btw, doesn't have a formal central bank reserve percentage (it has fairly minimal liquidity provisions which are the same thing, but still). Economics needs to wake up and realise it does not understand how the monetary system actually works.
Etheryte 10y ago
Very interesting, doubt it will happen, but would love to see their data (or some portion of it) released.
- mikeyouse 10y ago
  http://bpp.mit.edu/datasets/ http://bpp.mit.edu/datasets/
chris_va 10y ago
One major problem with inflation tracking, which this approach has the potential to solve (though does't appear to yet), is that measuring the quality of the product over time is hard. Wages have averaged flat for the last 20 years "with inflation", but $1000 for medicine buys you a much better product today than the "equivalent" amount of money 20 years ago. Traditional basket of goods models tend to assume quality parity.
- supster 10y ago
  This is especially true for things like flat screen TVs, where both prices have decreased and quality/sizes have increased
- beefman 10y ago
  The GDP deflator solves this problem.
  - RockyMcNuts 10y ago
    s/solves/attempts to address/ so does the CPI and every other inflation measure using 'hedonic adjustment' ... new BMW comes out, new price, you look at it and estimate how much is price change and how much is quality change, bigger car with air bags, voice activated GPS, self-steering and whatnot...imperfect but necessary.
    - beefman 10y ago
      By "solves", I mean the real GDP, computed with the GDP deflator, corresponds to a physical quantity which is proportional to entropy and therefore measurable in bits. The CPI, PCE, and related indices tend to approximate the GDP deflator but are generally inferior as there is no sound way to perform the hedonic adjustment or to choose baskets in the first place. Eric Weinstein has proposed gauge theory as a way to handle substitution effects but has not, to my knowledge, computed an index using it.
      - RockyMcNuts 10y ago
s3r3nity 10y ago
Ooh I worked on this project as an undergrad years ago as a research associate! Awesome to see it get more press! It blows my mind that more economists aren't leveraging big data to address macroeconomic problems & models; the data is less actionable than microeconomic/game theory problems, sure, but the learnings can be more impactful to policy in the long run. When this project was started, we were only looking at three big markets: real estate, groceries, and general "home goods" (washer machines are an example.) Essentially, using the CPI for inspiration and neo-classical macroeconomics with the "household unit" as the center of importance, those 3 groups seemed ideal as an MVP for the project. What I worry about is how they're going to update the model and structure of the project to incorporate the intersection of globalized markets (going to the iPod example, what if some variability in price can be explained by price stickiness, or lack thereof, of labor prices in China? etc.) Nevertheless - I'm all for the hacking/big data community seeing more of what's going on in the macroeconomics world, as I think it's just ripe with opportunity.
- gshulegaard 10y ago
  As a student with an undergrad degree in Economics, I got into Python programming specifically for the potential applications of Big Data to Economic policy. A shame that my professional career took me a tangential direction, but I hope to eventually take what I am learning now and direct it back towards Economics at some point the future. Glad to see actual Economists are exploring the area.
davidw 10y ago
Tim Harford's a good writer - he's got some books that I highly recommend as a gentle introduction to economic thinking: * "The Undercover Economist" - http://amzn.to/1sCImVw http://amzn.to/1sCImVw * "The Undercover Economist Strikes Back" http://amzn.to/24bIFT3 http://amzn.to/24bIFT3 - this one's about macroeconomics. As well as various others. One thing I like is that they're mostly fairly neutral - he's really trying to explain the thinking, rather than beating you over the head or espousing one position.
- njs12345 10y ago
  More or Less is also an excellent radio program he narrates on economics and statistics, definitely worth a listen: http://www.bbc.co.uk/programmes/b006qshd http://www.bbc.co.uk/programmes/b006qshd
ChuckMcM 10y ago
This is a great technique, at one point I had proposed to Google's economist that once they had the last 100 years of newspapers digitized, one could go through the advertisements in them to compute a variations on price indexes and compare them. In particular how important was energy and food? or rent? or substitution of goods? I got interested in the question at a young age when my mother showed me a picture of a grocery store, where new york strip steak was on sale for 10 cents a pound. And I asked why it cost so much more for steak when I was looking at the picture versus when it was taken. And I got the "simple" explanation of inflation, "Things cost more now." The real value of the work being done by Cavallo though will be later water when you have both 100 years of prices and the detailed news stream to go along with it. People have a wide variety of opinions about whether or not abandoning the Bretton Woods system had the effect on prices that some claim or if other factors were to blame. I expect we will see truly actionable economic insights from projects like these.
fiatjaf 10y ago
How exactly do these people process the raw prices data? Where can I read about it?
iheredia 10y ago
For anyone wondering, this is the argentinian site that gathers the prices: https://www.preciosclaros.gob.ar/ https://www.preciosclaros.gob.ar/ (while I wasnt involved in the development, I work in the same goverment dependency that developed the site)
emluque 10y ago
This is a graph I made some time ago comparing the Billion Price Projects index data (which I downloaded from their site) with the Argentine Monetary Base as reported by the Argentine Central Bank: http://imgur.com/Xyd8RXa http://imgur.com/Xyd8RXa The black line is Argentine Monetary Base as reported by the Argentine Central Bank. The blue line is the BPP data, the green line is the official Inflation rate as was reported by the government at the time. Note: the left Axis numbers represent Millions of Pesos and represents the value of the black line. Kind of difficult not to jump into conclusions. Last but not least I did a website that mines Argentine Central Bank Data daily and produces Graphs and reports based on it: http://estadisticasbcra.com/en http://estadisticasbcra.com/en . It includes a public API: http://estadisticasbcra.com/api/documentation http://estadisticasbcra.com/api/documentation if someone wants to use the data I'm compiling.
rwmj 10y ago
If it doesn't include rental/mortgage payments, or the price of energy, it's not really measuring inflation. It's absurd that inflation in the UK is supposedly <0.5% when rents are going up so much each year.

129 points by Symmetry 10y ago

> The Edison phonograph cost $20 at the end of the 19th century; an iPod Nano costs about $145 today. It's also worth remembering that an edison phonograph would have probably been useable for about 60-80 years if kept in good condition. Good luck getting 5 out of the Nano. But yeah, collecting a billion prices and forgetting about each after a pairwise collection is a brilliant choice.

chris_va 10y ago
Well, $20 in 1891 isn't exactly $20 in 2016. Also, you aren't likely to go for a jog with your phonograph, and I suspect if you left the nano in a box for 60 years it would probably be fine (minus maybe the battery).
- dv_dt 10y ago
  I think the flash memory might have trouble with data retention over 60 years - all the electrons defining your bits will have leaked away.
xenadu02 10y ago
$20 in 1891 is ~$500 today. I'm sure the iPod nano could be an heirloom-quality device if you were willing to pay $500 for it. The photograph was certainly not maintenance-free so for equal comparison we have to assume even with a massive over-subscription of flash you'd need to replace the memory every 10-15 years. The battery probably every 5. It's a difficult problem to reason about because our own perceptions are anchored to what we know. You couldn't have had a modern home air conditioner at any price in 1891. Ten billion dollars couldn't have bought you the computing power of a MacBook Pro in 1950. The quantitative and qualitative gap between successive generations of computing technology is many orders of magnitude beyond what any other technology has ever experienced in human history, and the generations themselves have happened orders of magnitude faster too. I don't even know how you compare these things in economic terms because the baseline equivalence between products is nonsensical to start with.
- deleted 10y ago
  [deleted]
- dnautics 10y ago
  > the baseline equivalence between products is nonsensical to start with. That's exactly my point. Nonetheless, traditional econometric analyses do exactly that, arbitrarily creating multipliers (hedonic adjustments, e.g.) which normatively make assignments as to what a consumer "should" value in a product. These assignments often throw out important considerations, merely because they're 'difficult to calculate'.
stvswn 10y ago
A wheelbarrow can be used for 100 years or more, because it's a simple mechanism. Why the focus on reliability? With an outside view of the past couple of centuries -- an iPod Nano is basically magic. My point being, I think we're often not amazed enough at everyday technology. I can't imagine Edison seeing a Nano and saying "well, what about durability?"
adventured 10y ago
You're confusing the central focus of importance. Why would anybody care about the audio playing device in terms of 60-80 years? Especially in this age, in which technology is rapidly improving. I very specifically do not want to be using a 2005 iPod in 2050. My digital music files are good forever in theory. They're made of bits. All I need to do is occasionally move them to new cheap hardware and maybe back them up in the cloud for practically free. I could store ten copies of my music library for $50 on usb sticks or similar, and replace it every year just for fun, without being concerned for the expense. Lots of ways digital files can be lost or destroyed? Sure, and they're still radically more secure (go make a dozen copies of your record albums) and easier to keep than physical records. The sole annoyance with digital media, is that I have to re-back it up very rarely, which takes a matter of minutes.
LgWoodenBadger 10y ago
It's funny that you mention that. My refurbished iPod Nano (4th Gen) has been in continuous usage as my cars' music device (hot summers, cold winters) since March 2010. The only time it's not in there is when I sync it with new music. Still works great.
ars 10y ago
https://en.wikipedia.org/wiki/Survivorship_bias https://en.wikipedia.org/wiki/Survivorship_bias
snowwrestler 10y ago
What breaks on the Nano? It's a solid state device. If you treated an iPod Nano and an Edison phonograph the exact same way, the Nano would outlast the phonograph easily.
- bostik 10y ago
  It's a miniaturised electronic device. Over time components rot. Materials oxidise, capacitors leak, connections squeak and break. And the NAND cells? The storage mechanism is the result of an electro-chemical reaction. In time the charge potential between the storage states will succumb to entropy. So what breaks on the Nano? Everything. And what breaks it? Time.

chiph 10y ago

> While the project confirmed that Argentina’s inflation numbers could not be trusted, it also showed that the US inflation numbers published by the US Bureau of Labor Statistics could be. There were conspiracy theories floating around in the 2007-2010 time-frame (and still may be) that the published BLS numbers were being manipulated for political reasons (much as in Argentina), and it's reassuring that there's some confirmation that they weren't.

neffy 10y ago
The other way to cross check this is to look at the relevant M2/M3's (definitions vary between countries), but otherwise knows as "the total sum of bank deposits" in a countries banking system. i.e. compare and contrast: Argentina: https://research.stlouisfed.org/fred2/series/MYAGM2ARM189N https://research.stlouisfed.org/fred2/series/MYAGM2ARM189N USA: https://research.stlouisfed.org/fred2/series/M2 https://research.stlouisfed.org/fred2/series/M2 The USA's money supply has a doubling function of 2x decade, while Argentina managed something like 12x 2006-2016. The people who were predicting hyperinflation in the 2007-10 timeframe for the USA were predicating the banking system's behaviour based on the regulatory framework in the old gold standard regimes, and not under the newer Basel capital controls. Which is not to say that you can't get hyperinflation with Basel, but you need to do a little more than just inject asset money into the system.
- roymurdock 10y ago
  Stricter capital controls are only one (arguably less important) side of the equation, with weak aggregate demand being the other.
  - neffy 10y ago
    There's really no evidence for that. The evidence is that the American banking system doubles its money (and direct lending) every decade, and has done for the last 50 odd years. If there was actual weak demand, you would expect it to stop expanding, or expand at a lower rate, and that's exactly what you don't see. Compare and contrast with the UK for example (M3, because no standard definitions etc.): https://research.stlouisfed.org/fred2/series/MABMM301GBM189S https://research.stlouisfed.org/fred2/series/MABMM301GBM189S The UK btw, doesn't have a formal central bank reserve percentage (it has fairly minimal liquidity provisions which are the same thing, but still). Economics needs to wake up and realise it does not understand how the monetary system actually works.

Etheryte 10y ago

Very interesting, doubt it will happen, but would love to see their data (or some portion of it) released.

mikeyouse 10y ago
http://bpp.mit.edu/datasets/ http://bpp.mit.edu/datasets/

chris_va 10y ago

One major problem with inflation tracking, which this approach has the potential to solve (though does't appear to yet), is that measuring the quality of the product over time is hard. Wages have averaged flat for the last 20 years "with inflation", but $1000 for medicine buys you a much better product today than the "equivalent" amount of money 20 years ago. Traditional basket of goods models tend to assume quality parity.

supster 10y ago
This is especially true for things like flat screen TVs, where both prices have decreased and quality/sizes have increased
beefman 10y ago
The GDP deflator solves this problem.
- RockyMcNuts 10y ago
  s/solves/attempts to address/ so does the CPI and every other inflation measure using 'hedonic adjustment' ... new BMW comes out, new price, you look at it and estimate how much is price change and how much is quality change, bigger car with air bags, voice activated GPS, self-steering and whatnot...imperfect but necessary.
  - beefman 10y ago
    By "solves", I mean the real GDP, computed with the GDP deflator, corresponds to a physical quantity which is proportional to entropy and therefore measurable in bits. The CPI, PCE, and related indices tend to approximate the GDP deflator but are generally inferior as there is no sound way to perform the hedonic adjustment or to choose baskets in the first place. Eric Weinstein has proposed gauge theory as a way to handle substitution effects but has not, to my knowledge, computed an index using it.
    - RockyMcNuts 10y ago

s3r3nity 10y ago

Ooh I worked on this project as an undergrad years ago as a research associate! Awesome to see it get more press! It blows my mind that more economists aren't leveraging big data to address macroeconomic problems & models; the data is less actionable than microeconomic/game theory problems, sure, but the learnings can be more impactful to policy in the long run. When this project was started, we were only looking at three big markets: real estate, groceries, and general "home goods" (washer machines are an example.) Essentially, using the CPI for inspiration and neo-classical macroeconomics with the "household unit" as the center of importance, those 3 groups seemed ideal as an MVP for the project. What I worry about is how they're going to update the model and structure of the project to incorporate the intersection of globalized markets (going to the iPod example, what if some variability in price can be explained by price stickiness, or lack thereof, of labor prices in China? etc.) Nevertheless - I'm all for the hacking/big data community seeing more of what's going on in the macroeconomics world, as I think it's just ripe with opportunity.

gshulegaard 10y ago
As a student with an undergrad degree in Economics, I got into Python programming specifically for the potential applications of Big Data to Economic policy. A shame that my professional career took me a tangential direction, but I hope to eventually take what I am learning now and direct it back towards Economics at some point the future. Glad to see actual Economists are exploring the area.

davidw 10y ago

Tim Harford's a good writer - he's got some books that I highly recommend as a gentle introduction to economic thinking: * "The Undercover Economist" - http://amzn.to/1sCImVw http://amzn.to/1sCImVw * "The Undercover Economist Strikes Back" http://amzn.to/24bIFT3 http://amzn.to/24bIFT3 - this one's about macroeconomics. As well as various others. One thing I like is that they're mostly fairly neutral - he's really trying to explain the thinking, rather than beating you over the head or espousing one position.

njs12345 10y ago
More or Less is also an excellent radio program he narrates on economics and statistics, definitely worth a listen: http://www.bbc.co.uk/programmes/b006qshd http://www.bbc.co.uk/programmes/b006qshd

ChuckMcM 10y ago

This is a great technique, at one point I had proposed to Google's economist that once they had the last 100 years of newspapers digitized, one could go through the advertisements in them to compute a variations on price indexes and compare them. In particular how important was energy and food? or rent? or substitution of goods? I got interested in the question at a young age when my mother showed me a picture of a grocery store, where new york strip steak was on sale for 10 cents a pound. And I asked why it cost so much more for steak when I was looking at the picture versus when it was taken. And I got the "simple" explanation of inflation, "Things cost more now." The real value of the work being done by Cavallo though will be later water when you have both 100 years of prices and the detailed news stream to go along with it. People have a wide variety of opinions about whether or not abandoning the Bretton Woods system had the effect on prices that some claim or if other factors were to blame. I expect we will see truly actionable economic insights from projects like these.

fiatjaf 10y ago

How exactly do these people process the raw prices data? Where can I read about it?

iheredia 10y ago

For anyone wondering, this is the argentinian site that gathers the prices: https://www.preciosclaros.gob.ar/ https://www.preciosclaros.gob.ar/ (while I wasnt involved in the development, I work in the same goverment dependency that developed the site)

emluque 10y ago

This is a graph I made some time ago comparing the Billion Price Projects index data (which I downloaded from their site) with the Argentine Monetary Base as reported by the Argentine Central Bank: http://imgur.com/Xyd8RXa http://imgur.com/Xyd8RXa The black line is Argentine Monetary Base as reported by the Argentine Central Bank. The blue line is the BPP data, the green line is the official Inflation rate as was reported by the government at the time. Note: the left Axis numbers represent Millions of Pesos and represents the value of the black line. Kind of difficult not to jump into conclusions. Last but not least I did a website that mines Argentine Central Bank Data daily and produces Graphs and reports based on it: http://estadisticasbcra.com/en http://estadisticasbcra.com/en . It includes a public API: http://estadisticasbcra.com/api/documentation http://estadisticasbcra.com/api/documentation if someone wants to use the data I'm compiling.

rwmj 10y ago

If it doesn't include rental/mortgage payments, or the price of energy, it's not really measuring inflation. It's absurd that inflation in the UK is supposedly <0.5% when rents are going up so much each year.