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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

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
  hmmh... the CPI is for many items the source for the GDP deflator, which incorporates all the hedonic adjustments. The weights are different (reflecting the different weight in the GDP vs. the CPI reference basket, also depending whether you refer to the implicit GDP deflator, the fixed-weight deflator, or the chain-weight deflator.) Also, to compute real GDP you additionally have to estimate prices for a lot of things that aren't in the CPI, but might be in the PPI, import prices etc. GDP just takes all the other stats on prices, consumption, investment, government spending, brings them into a consistent system of national accounts. Nothing generally superior or inferior, and all these stats including a hefty dose of judgment and a large margin of error. http://www.bea.gov/papers/pdf/NABEspeakernotes.pdf http://www.bea.gov/papers/pdf/NABEspeakernotes.pdf There's always someone will argue it's unsound, just as someone will argue the merits of one programming language over another, but the people who make the judgment calls are pretty well-versed in what they're doing and do the best they can. if you think the GDP contribution of owner-occupied housing, i.e. imputed rent, corresponds to a physical quantity proportional to entropy, more power to you!

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
hmmh... the CPI is for many items the source for the GDP deflator, which incorporates all the hedonic adjustments. The weights are different (reflecting the different weight in the GDP vs. the CPI reference basket, also depending whether you refer to the implicit GDP deflator, the fixed-weight deflator, or the chain-weight deflator.) Also, to compute real GDP you additionally have to estimate prices for a lot of things that aren't in the CPI, but might be in the PPI, import prices etc. GDP just takes all the other stats on prices, consumption, investment, government spending, brings them into a consistent system of national accounts. Nothing generally superior or inferior, and all these stats including a hefty dose of judgment and a large margin of error. http://www.bea.gov/papers/pdf/NABEspeakernotes.pdf http://www.bea.gov/papers/pdf/NABEspeakernotes.pdf There's always someone will argue it's unsound, just as someone will argue the merits of one programming language over another, but the people who make the judgment calls are pretty well-versed in what they're doing and do the best they can. if you think the GDP contribution of owner-occupied housing, i.e. imputed rent, corresponds to a physical quantity proportional to entropy, more power to you!