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0 pointstrts8y ago0 comments

"Hedonic adjustment" is meant to control for the 'quality' of some (limited) products sampled in the CPI such as rent, computers and automobiles. 'quality-adjusted' means that they run a standard linear regression across the features of sampled items to normalize the variation in the sample. For example, the sampled rent of apartments would be modeled as (in the simplest example I can think of) :

y = rent, b = slope, x = sqft

y ~ b + x is the extent of the 'hedonic adjustment'

There don't really exist any control variables for 'better'. Nobody at CPI is subjectively saying toiler paper is better. What they will stochastically estimate is the per-unit price. So if for $10 you get 9 double roles, and last year you got 9 single roles for $10, then the price went down. But I assure you as someone who has looked at row-level data of what the CPI samples and does, there are no cases that are this extreme in the aggregate. They could drop the hedonic adjustments and it would make no practical difference. Private companies use similar sampling methods with better data and don't show wildly different headline inflation (see: Billion Prices Project http://www.thebillionpricesproject.com/)

There is no doubt however that the CPI data is inadequate, has a non-trivial lag, and does not capture true regional differences in prices. Just try using it to adjust your salary if you move from Birmingham to New York City and see how comfortable you'd be. But there is no conspiracy; that would presume far more competency than they have hired for.

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LolWolf8y ago

> But there is no conspiracy; that would presume far more competency than they have hired for.

This seems to be the case almost universally, but I guess it's easier to jump to the 'malice' conclusion than to attribute it to lack of competency.

Perhaps more succinctly: if you think the world is out to get you, then it is.

thephyber8y ago

> But there is no conspiracy

People want structure and simplicity in the world. They want to believe someone is in control, even if that someone is harming them.

intended8y ago

People assume structure and simplicity.

Therefore if something is wrong, someone is responsible.

StanislavPetrov8y ago

I'm not claiming a conspiracy, its more a confederacy of dunces staffed by people who have a vested interest in reaching conclusions that affirm the wishes of their bosses. Any such system that includes a bunch of very complex algorithms filled with uncertain data and arbitrary variables that can be tweaked by the people crunching the numbers you are going to come out with a garbage result. The FED is literally engaged in voodoo economics. Scarily they even acknowledge this simple fact, but still people take their tea-leaf readings seriously.

https://www.federalreserve.gov/econresdata/feds/2015/files/2...

“It is difficult to get a man to understand something, when his salary depends on his not understanding it.” - Upton Sinclair

jjoonathan8y ago

Difficult or not, you don't seem to be trying very hard. You didn't address the concrete argument you were presented with.

lern_too_spel8y ago

The result doesn't appear to be garbage. The BLS's CPI data is very close to MIT's BPP.

chiefalchemist8y ago

Agreed. They all have the same incentive. There's no need to full conspire. The insentive is strong enough for most of those involved to act in a conspire-esque sort of way. Emergence, if you will.

traviscj8y ago

Your equation does not make sense to me. Is b really a slope (* instead of +?) or an intercept (seems simpler to have a "k*x" term than pretending that "k=1")?

ameister148y ago

Hanlon's Razor seems to be applicable here.

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