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Interesting article, but guess what the point is, coming from the AEI. It's actually about gutting social security. If you take their view of incredible defla

Interesting article, but guess what the point is, coming from the AEI. It's actually about gutting social security. If you take their view of incredible deflation in tech products, it cancels out the inflation in everything else. That means the inflation adjustment in social security is less, and in the long run, social security becomes insignificant. This type of messaging is true mastery of the long game.

fennecfoxen 13y ago
Their inflationary calculations are very tendentious and ignore substitution effects. 32GB of flash memory in 1991 would have cost $1.44 million: Sure. So you wouldn't have used flash memory, you'd have used something cheaper, like audio tapes and film, and you would have had an inferior experience for it... but not $1.44 million worse of an experience. These figures are meaningless. That's why the CPI uses an actual market basket that's meant to represent what people actually buy. People whose payments are linked to the CPI have not in fact seen their payments deflated by such astonishing factors. The BLS (which is responsible for the official CPI) has a recent overview on possibilities of error and related considerations: http://www.bls.gov/opub/btn/volume-1/consumer-price-index-data-quality-how-accurate-is-the-us-cpi.htm http://www.bls.gov/opub/btn/volume-1/consumer-price-index-da... Their conclusion: "Measurement of price change in a large economy is sufficiently complex that the accuracy of an estimate is difficult to gauge and is likely to be debated. The CPI cannot claim to be a completely precise measure of inflation and publishes the variance of its estimates. Several potential sources of bias have been identified in the CPI and addressed, though there continues to be debate over to what extent and in what direction bias may still exist and the ways in which BLS can continue to increase accuracy."
- nswanberg 13y ago
  Sure, members of the public or small and medium sized organizations may have substituted, but if yours was the sort of organization that bought, say, a Cray Y-MP for $35 million, paying $3.56 million and putting this thing on a network would have been a bargain, which makes me think that the authors may not have taken the value of this being an integrated system into account. And even if they pegged the iPhone at exactly the same price as a Cray Y-MP they would still be low due to the iPhone's vastly lower power consumption. Finding out that this article was written by the American Enterprise Institute made me feel dirty until I reflected on the fact that nothing in the article appears to be grossly incorrect, and discarding an interesting article for some possibly bad political implications seems like a bad way to live one's life. Another thing that no-one has yet pointed out is that even this article's calculation could still probably be extremely low if the cost of developing iOS and the related apps are included.
twoodfin 13y ago
Putting aside for the moment that this article doesn't even mention Social Security: How much of a decrease to baseline CPI would constitute a "gutting"? It's not as if the current formula is engraved on stone tablets from the gods: Like any estimate, it could probably be improved over time, up and down. Anyway, if AEI has a motive in writing pieces like this, I think it's more to emphasize how incredible technological advancement has improved our buying power and consequently our lives. I run into a surprising number of folks on forums like this who are convinced that they'd much rather live in the golden "Mad Men" years of the 1960's, when you (a man) could raise a (typically white) family on one blue collar income, which came with a house, car, a wife with time to raise the kids, and a golden retirement in Key West. It's easy to lose track of just how much everyday "magic" you'd be giving up, even if you're not some poor minority who'd be really screwed trying to earn a living back then.
aaronblohowiak 13y ago
iPhones dont fill your belly or provide heat in the winter. Inflation isn't the same in every sector, so inflation adjustments should also be targeted to the problem they are trying to offset. This is why what you measure for inflation is so important. To address the differences in what different population segments purchase, the BLS has come out with different consumer-price-indexes that weigh different categories of goods differently: http://www.bls.gov/news.release/cpi.br12396.a06.htm http://www.bls.gov/news.release/cpi.br12396.a06.htm
holograham 13y ago
Electronics such as the cell phone have become integral parts of consumer's lives. Fact is you are at a severe disadvantage in modern society without them. Are they food and shelter necessary? No. But as a society we are hoping to move beyond just barely subsisting. Our poor (in America) are EXTREMELY well off compared to the bottom 10% of the world. There is a difference between absolute and relative poverty. Without food, water, and shelter you are absolutely poor. Without a cell phone and computer you are relatively poor (by American standards). I challenge anyone to imagine what a disadvantaged life they would have without cheap, ubiquitous computing ability and connectivity.
- ctdonath 13y ago
  Agreeing on an objective definition of "poor", if only for sake of a given discussion, would help immensely. Use of different terms for objectively different conditions would help too (i.e.: not using the same word for "below subsistence" and "still better off than >80% of world population").

fennecfoxen 13y ago

Their inflationary calculations are very tendentious and ignore substitution effects. 32GB of flash memory in 1991 would have cost $1.44 million: Sure. So you wouldn't have used flash memory, you'd have used something cheaper, like audio tapes and film, and you would have had an inferior experience for it... but not $1.44 million worse of an experience. These figures are meaningless. That's why the CPI uses an actual market basket that's meant to represent what people actually buy. People whose payments are linked to the CPI have not in fact seen their payments deflated by such astonishing factors. The BLS (which is responsible for the official CPI) has a recent overview on possibilities of error and related considerations: http://www.bls.gov/opub/btn/volume-1/consumer-price-index-data-quality-how-accurate-is-the-us-cpi.htm http://www.bls.gov/opub/btn/volume-1/consumer-price-index-da... Their conclusion: "Measurement of price change in a large economy is sufficiently complex that the accuracy of an estimate is difficult to gauge and is likely to be debated. The CPI cannot claim to be a completely precise measure of inflation and publishes the variance of its estimates. Several potential sources of bias have been identified in the CPI and addressed, though there continues to be debate over to what extent and in what direction bias may still exist and the ways in which BLS can continue to increase accuracy."

nswanberg 13y ago
Sure, members of the public or small and medium sized organizations may have substituted, but if yours was the sort of organization that bought, say, a Cray Y-MP for $35 million, paying $3.56 million and putting this thing on a network would have been a bargain, which makes me think that the authors may not have taken the value of this being an integrated system into account. And even if they pegged the iPhone at exactly the same price as a Cray Y-MP they would still be low due to the iPhone's vastly lower power consumption. Finding out that this article was written by the American Enterprise Institute made me feel dirty until I reflected on the fact that nothing in the article appears to be grossly incorrect, and discarding an interesting article for some possibly bad political implications seems like a bad way to live one's life. Another thing that no-one has yet pointed out is that even this article's calculation could still probably be extremely low if the cost of developing iOS and the related apps are included.

twoodfin 13y ago

Putting aside for the moment that this article doesn't even mention Social Security: How much of a decrease to baseline CPI would constitute a "gutting"? It's not as if the current formula is engraved on stone tablets from the gods: Like any estimate, it could probably be improved over time, up and down. Anyway, if AEI has a motive in writing pieces like this, I think it's more to emphasize how incredible technological advancement has improved our buying power and consequently our lives. I run into a surprising number of folks on forums like this who are convinced that they'd much rather live in the golden "Mad Men" years of the 1960's, when you (a man) could raise a (typically white) family on one blue collar income, which came with a house, car, a wife with time to raise the kids, and a golden retirement in Key West. It's easy to lose track of just how much everyday "magic" you'd be giving up, even if you're not some poor minority who'd be really screwed trying to earn a living back then.

aaronblohowiak 13y ago

iPhones dont fill your belly or provide heat in the winter. Inflation isn't the same in every sector, so inflation adjustments should also be targeted to the problem they are trying to offset. This is why what you measure for inflation is so important. To address the differences in what different population segments purchase, the BLS has come out with different consumer-price-indexes that weigh different categories of goods differently: http://www.bls.gov/news.release/cpi.br12396.a06.htm http://www.bls.gov/news.release/cpi.br12396.a06.htm

holograham 13y ago

Electronics such as the cell phone have become integral parts of consumer's lives. Fact is you are at a severe disadvantage in modern society without them. Are they food and shelter necessary? No. But as a society we are hoping to move beyond just barely subsisting. Our poor (in America) are EXTREMELY well off compared to the bottom 10% of the world. There is a difference between absolute and relative poverty. Without food, water, and shelter you are absolutely poor. Without a cell phone and computer you are relatively poor (by American standards). I challenge anyone to imagine what a disadvantaged life they would have without cheap, ubiquitous computing ability and connectivity.

ctdonath 13y ago
Agreeing on an objective definition of "poor", if only for sake of a given discussion, would help immensely. Use of different terms for objectively different conditions would help too (i.e.: not using the same word for "below subsistence" and "still better off than >80% of world population").