Heinz, did you ever get a chance to put up comments regarding Epstein's comments on Grant's hedonics pieces in Barron's? As you recall, he was rather critical of Grant, especially considering that Grant was a former Barron's writer. On the other hand, Grant's arguments are not really his own original arguments, but the arguments of Medoff and Harless. It may be that those two are able to state their case better than Grant could, despite the latter's gifted quill.
In any case, I'm curious about your take on Epstein's claim that hedonics only accounted for 0.3% of the GDP figure. If that is true, then one could say hedonics is incorrect but its effects are negligible (at least on a 6% GDP figure). See link below, as well as the replies.
That technique is called "chain-weighting." It means, in effect, that where
prices are rising rapidly, the weight gets bigger, because more money is
being spent. But when it comes to computers, prices have been declining,
so the weights have been falling in tandem.
The critics have been making the fatal error of performing stage one on
the computer sector, but not stage two. (The Bundesbank economists
probably made the same mistake.) So, for example, they will calculate that
hedonically driven computer output soared 59%, year-over-year, in the
second quarter, and then they'll assume that all of that increase went into
GDP growth. Hence, they'll say, the role played by those gadgets has
been looming way too large.
But they forget stage two. Owing to falling price indexes in this sector
(which, to compound the irony, have been falling all the more because
hedonics are being used), that 59% gets a relatively small weight. In fact,
computer hardware and software together contributed just 0.9% of the six
percentage points of second-quarter GDP growth. At most, hedonics
counted for about a third of that, or 0.3%.
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