| Flats, more on hedonics from the Sept. issue of the Richebacher Letter " Besides we keep wondering and wondering in vain about the economic merits of productivity growth that arises from the statistical fiction of hedonic price indexing. Productivity growth has its economic essence in reducing costs per unit of output, inherently implying a corresponding rise in income , individually and nationally. According to market forces, the resulting gains in income may translate into higher wages or higher profits, but either way, somebody enjoys an increase in income. Who in America enjoys any income gain from the big rise that the statistics show in computer output and investment, as measured by the hedonic deflator? Please stand up so we can see you." ....Principally, it is the function of gross domestic product ( GDP) to measure and register the spending and income flows in the economy. Their growth is the essence of the growth of GDP product. But while the hedonic deflator creates massive increases to GDP, these flows are completely missing. these hundreds of billions of dollars that the hedonic deflator calls into statistical existence have been nobody's expense and also nobody's revenue. The basic error in this statistical concept is to equate a fictitious collapse in prices with a boom in spending.... the academic who invented the hedonic deflator may be brilliant statisticians as far as measuring computer power is concerned, but once you think it through, it reveals itself as lousy economics. it's so lousy that we keep asking ourselves, what is really behind this nonsense, just lowsy economics or deliberate attempts to delude the public.... The markets are focusing on three aggregates as the emblems of America's superior economic performance. they are fixed investment, real GDP and productivity. it happens that all three are heavily bolstered by the hedonic deflator the same way. " from The Richebacher Letter 1217 St. Paul St Baltimore, MD 21202 Let me add a comment the issue is not about quality of life which technology has improved but about economic performance measured in nominal dollars. For those who wish to see the numbers I refer you to the Commerce Dept.'s Survey of Current Business or the links that I previously mentioned. Mike |
