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Strategies & Market Trends : Booms, Busts, and Recoveries -- Ignore unavailable to you. Want to Upgrade?

To: Mike M2 who wrote (16470)	3/7/2002 11:45:23 AM
From: AC Flyer	Respond to of 74559

mike: Yes, I have followed the hedonics discussion. I think that the impact of hedonics on the measurement of national output is open to debate and interpretation. Interpretation tends to follow one's subjective bias. You may feel that I have an unwarranted bullish bias, but that's OK, because I feel that you have an unwarranted bearish bias. :) That's what makes a market. I am not concerned at being in disagreement with your well-reasoned, well-argued position. We probably should be having a debt-induced deflationary collapse right now. But we aren't. Imho. The only thing I object to is turning all of this into a testosterone-fest, which you have not. Oh, and the other thing I object to is demonizing Uncle Al, who has done a man's job in a very difficult and demanding role. Cordially, Mike

To: Mike M2 who wrote (16470)	3/7/2002 6:21:53 PM
From: KyrosL	Read Replies (4) \| Respond to of 74559

Mike, I agree with you that there have been and still are great excess in the markets. In other words for the time being I am a bear. But I think that hedonically adjusted prices played no role in feeding the mania. 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. Today, hedonics is used to adjust output in a relatively small part of the economy: computer manufacturing. Vast areas of the economy with tremendous quality advances are not adjusted at all. Let's take medicine, for instance. Medical services are more than 15% of our GDP. This is many times the share of computer manufacturing. Medical services have been going up in price much faster than other goods and services and are the main contributor of CPI inflation. They are not adjusted hedonically. But they should be! In the last couple of decades there have been tremendous advances in the quality of drugs, the quality of medical procedures, and the quality of diagnosis. These advances are reflected in considerable increases in life expectancy of Americans as well as the quality of life of older Americans. Without fail every year life expectancy goes up a few months. How much are these increases worth? If you go through the calculations using the cold accounting number of what an average American life is worth (around 3 or 4 million, I believe) you will see that we are getting a great bargain for the extra money we have been spending on medical services. In fact, I firmly believe that medical services are decreasing in price, if quality is taken into account. I can repeat the above argument for any number of other goods and services that are not adjusted hedonically. For some quality has gone down. But for the great majority it has gone up. The bottom line is that the CPI is considerably OVERESTIMATED, IMO. Kyros