Kyros -
...In fact I firmly believe that hedonics is necessary to find what the true inflation rate is and that it should be used much more extensively...
The question becomes exactly what purpose knowing the inflation rate serves.
The answer has to be that it is a judgement on the degree to which the government is assessing a hidden tax on all forms of income and wealth by deliberately devaluing money.
Hedonics is just another means by which government inflates its self-assigned grade on its stewardship of money.
All economic values are the result of the aggregation of the subjective marginal utilities of goods and services assigned by individual consumers.
In determining the purchasing power of money when used in exchange for goods and services, adjusting for quality is entirely inappropriate.
If I have a pencil that is used for recording golf scores, it normally doesn't have an eraser. If I were to buy that pencil, I would be valuing and paying for the service that it provides in depositing graphite traces on a scorecard. Any kind of increase in quality of the pencil, whether it's the addition of an eraser, or the ability to write underwater, has no effect on its ability to provide the precise service that I am paying for. Therefore, to me, the quality increase means exactly nothing and cannot be properly adjusted for.
However, this is not to say that an eraser and the ability to write underwater may not be very valuable to someone else. But a pencil with these added qualities is a different and new product, and must be treated as such, just as any new product would be.
The next time the government adjusts its method of reporting inflation in such a way as to increase the result, other than by mistake, it will be the first time.
Regards, Don |
