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The CPI is a weighted average of several categories. and some of those categories severely underestimate inflation. For instance, the CPI says new car prices

The CPI is a weighted average of several categories. and some of those categories severely underestimate inflation. For instance, the CPI says new car prices haven't increased in the last 20 years but, that's obviously not true, if you calculate the real cpi for say a corrolla or a camaro or whatever model you choose, you can see it's gone up about 40 to 60% in that time which means for that category, they're undercounting CPI by almost 2 to 3 %. I think they're trying to prevent people from calculating the real CPI. there's alot at stake: the bond market, social security, federal interest payments, perception of real wages, real productivity per capita number, etc.

itsdrewmiller 6y ago
They adjust car prices based on feature improvements: https://www.bls.gov/cpi/quality-adjustment/new-vehicles.pdf https://www.bls.gov/cpi/quality-adjustment/new-vehicles.pdf Certainly debatable since it is impossible to actually buy a new car that doesn't have a bunch of those features now.
- thorwasdfasdf 6y ago
  Debatable is an understatement. their discount model is completely disproportionate to the benefits that those features bring. If an auto now costs 50% more, and CPI really is 0% increase, then I expect to see a monetary benefit of 50%, either through reduced maintenance cost, increased MPG, or maybe it makes me breakfast of the equivalent cost. but, I don't see new cars have anywhere near this benefit. And it becomes even more preposterous when you look 50+ years back. CPI, says x3 increase in cost of car, but it's actually about x10. So, how does a car return +233% of it's value to a user when MPG hasn't even doubled over that time. i mean sure, monetary rewards are not the only advancements but they should the primary basis for the inflation discount model. those auto-dimming mirrors and countless other features just don't mean very much.
  - tarlinian 6y ago
    A typical new car practically lasts way longer than a car built 30-50 years ago, early 2-3x the value there. Account for significant reduction in chance of death, MPG improvements, and these numbers make complete sense.
    - _dps 6y ago
      Cars my family bought in 1990 (i.e. 31 years ago) drove happily for 15-20 years. I don't think the "lasts way longer" claim stands up to scrutiny.
    - rdtwo 6y ago
      Yeah but compare it to a truck in the late 90s not really a huge difference in economic value. Bit more luxury but a 1/2 ton truck is still a 1/2 ton truck it can do about the same amount of work but it can go 0-60 a bit faster
    - smaudet 6y ago
      That is how it is supposed to work, yes, but those numbers are questionable - I'd be curious to see if that data actually can be shown to pan out, esp as certain vehicles have systemic issues which cause them to not last as long as the claimed lifetime.
ThrustVectoring 6y ago
Others severely overestimate inflation. Healthcare, for one - there are lifesaving treatments that are available at some price today that weren't available at any price in the year 2000. Per the textbook definitions, this is infinite deflation. Consumer electronics also arguably fits into this category. Fundamentally, though, the problem is that CPI does not track changes in the perceived minimal acceptable quality of the various baskets of goods. If the house you "need" to fulfill a specific lifestyle is twice as big and twice as expensive, this has zero impact on CPI. Same with healthcare quality - if your insulin works 10% better and costs 10% more, the CPI-centric view says that people are simply using more real dollars to buy a higher quality of life. Education has a similar problem, where job requirements shifts from high-school diplomas to undergrad degrees simply do not show up in any way in the CPI; we're just choosing to be better educated to end up working the same jobs. I think this all boils down to the CPI measuring things as if all goods were absolute goods, while nominal GDP per capita would be the appropriate measure if all goods were positional. I don't know what fraction of spending is on each, though, but you can reasonably put the "real" inflation number somewhere between the two.
- tal8d 6y ago
  > Healthcare, for one - there are lifesaving treatments... The correct metric would be life expectancy, as it sidesteps the zero priors problem. Using that, the healthcare you are talking about looks a lot more like the diminishing returns you get on higher priced modern cars. Before anyone says anything about "quality of life", I'd recommend looking at the way assisted living operations are run. Anyway, we really started to lose steam after dentistry... dunno what the analog would be for cars, power steering? > If the house you "need" to fulfill a specific lifestyle... This is another thing I've been dealing with recently. I've delayed entry into the housing market way past what I'd have liked because the pricing makes no sense to me, and I've found that usually if something doesn't make sense to me - it is because it is misrepresented. After watching the market for a few years in two very different parts of the country I noticed something interesting: sub-million dollar homes were quickly getting more expensive, and multi-million dollar mansions were relatively static. I wonder how much of that has to do with home-loan accessibility, similar to the cost of educating students magically increasing in lock step with student loan program scope and availability.

itsdrewmiller 6y ago

They adjust car prices based on feature improvements: https://www.bls.gov/cpi/quality-adjustment/new-vehicles.pdf https://www.bls.gov/cpi/quality-adjustment/new-vehicles.pdf Certainly debatable since it is impossible to actually buy a new car that doesn't have a bunch of those features now.

thorwasdfasdf 6y ago
Debatable is an understatement. their discount model is completely disproportionate to the benefits that those features bring. If an auto now costs 50% more, and CPI really is 0% increase, then I expect to see a monetary benefit of 50%, either through reduced maintenance cost, increased MPG, or maybe it makes me breakfast of the equivalent cost. but, I don't see new cars have anywhere near this benefit. And it becomes even more preposterous when you look 50+ years back. CPI, says x3 increase in cost of car, but it's actually about x10. So, how does a car return +233% of it's value to a user when MPG hasn't even doubled over that time. i mean sure, monetary rewards are not the only advancements but they should the primary basis for the inflation discount model. those auto-dimming mirrors and countless other features just don't mean very much.
- tarlinian 6y ago
  A typical new car practically lasts way longer than a car built 30-50 years ago, early 2-3x the value there. Account for significant reduction in chance of death, MPG improvements, and these numbers make complete sense.
  - _dps 6y ago
    Cars my family bought in 1990 (i.e. 31 years ago) drove happily for 15-20 years. I don't think the "lasts way longer" claim stands up to scrutiny.
  - rdtwo 6y ago
    Yeah but compare it to a truck in the late 90s not really a huge difference in economic value. Bit more luxury but a 1/2 ton truck is still a 1/2 ton truck it can do about the same amount of work but it can go 0-60 a bit faster
  - smaudet 6y ago
    That is how it is supposed to work, yes, but those numbers are questionable - I'd be curious to see if that data actually can be shown to pan out, esp as certain vehicles have systemic issues which cause them to not last as long as the claimed lifetime.

ThrustVectoring 6y ago

Others severely overestimate inflation. Healthcare, for one - there are lifesaving treatments that are available at some price today that weren't available at any price in the year 2000. Per the textbook definitions, this is infinite deflation. Consumer electronics also arguably fits into this category. Fundamentally, though, the problem is that CPI does not track changes in the perceived minimal acceptable quality of the various baskets of goods. If the house you "need" to fulfill a specific lifestyle is twice as big and twice as expensive, this has zero impact on CPI. Same with healthcare quality - if your insulin works 10% better and costs 10% more, the CPI-centric view says that people are simply using more real dollars to buy a higher quality of life. Education has a similar problem, where job requirements shifts from high-school diplomas to undergrad degrees simply do not show up in any way in the CPI; we're just choosing to be better educated to end up working the same jobs. I think this all boils down to the CPI measuring things as if all goods were absolute goods, while nominal GDP per capita would be the appropriate measure if all goods were positional. I don't know what fraction of spending is on each, though, but you can reasonably put the "real" inflation number somewhere between the two.

tal8d 6y ago
> Healthcare, for one - there are lifesaving treatments... The correct metric would be life expectancy, as it sidesteps the zero priors problem. Using that, the healthcare you are talking about looks a lot more like the diminishing returns you get on higher priced modern cars. Before anyone says anything about "quality of life", I'd recommend looking at the way assisted living operations are run. Anyway, we really started to lose steam after dentistry... dunno what the analog would be for cars, power steering? > If the house you "need" to fulfill a specific lifestyle... This is another thing I've been dealing with recently. I've delayed entry into the housing market way past what I'd have liked because the pricing makes no sense to me, and I've found that usually if something doesn't make sense to me - it is because it is misrepresented. After watching the market for a few years in two very different parts of the country I noticed something interesting: sub-million dollar homes were quickly getting more expensive, and multi-million dollar mansions were relatively static. I wonder how much of that has to do with home-loan accessibility, similar to the cost of educating students magically increasing in lock step with student loan program scope and availability.