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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: TimbaBear who wrote (56371)	3/21/2006 1:56:27 PM
From: Mike da bear	Read Replies (1) \| Respond to of 110194

Timba, Well reasoned responses with Mish. Interesting debate I'm following here.

To: TimbaBear who wrote (56371)	3/21/2006 2:44:11 PM
From: mishedlo	Read Replies (2) \| Respond to of 110194

Mish, for someone who purports to understand economics, your logic structure surely could use some work. If a new car is a new car then buy a Hundai for $11,000 and your cost just went way down. All the rest is Fluff? OK for the sake of argument I agree you are 100% correct. So Buy a Hundai or a Toyota, pay less and your price dropped. Timba that was not my argument it was yours. I do NOT think a car is a car is a car. YOU said that not me. I was attempting to show you how silly your argument was. I see I failed. Let's take a look at what you said, and here it is exactly as you wrote it. You talk about people being brainwashed and yet you buy into this hedonic crap like it was the second Coming! A new car is a new car. Yes the bells and whistles are different today than they were 30 years ago and, yes, they will be different 30 years from now, so what? Its primary purpose hasn't changed and the rest is all fluff. Let me try again to explain what I was attempting to say. hopefully a lot better this time. Here goes: A new car is NOT a new car. IF a new car was a new car then everyone would buy the cheapest car they could get. I do not believe "a car is a car" nor do I believe "a window is a window", nor do I believe "a house is a house". We are talking a serious rise in standard of living. My dad had an 700 sq ft house (if that) and 4 of us were raised in that. One TINY bathroom. One simply can NOT say "a house is a house" or a "car is a car" and compare prices today vs 10 years ago. You can not say that inflation represents the cost of my house vs my dad's house. That is preposterous. That is also why one can not look at average or median home prices in the belief that "a house is a house". "A car is a car" is what I was trying to refute. You were the one (not me) that said "a car is a car .... and the rest is fluff". I am willing to give you a free shot at taking that back. In order to have an accurate price comparison, prices simply MUST compare equals. On houses that would have to be houses in the same neighborhood, with the same number of rooms and approximately the same number of square feet, trees in the yard, granite and marble and fireplaces etc, and even the same (or equivalent) schools. Using your car analogy, if a house is a house, I will trade you dad's house for whatever house you are living in, sight unseen. A house is not a house, and a car is not a car. As for hedonics, they MUST be factored in. That is in fact where the problem comes in. I believe quality improvements are generally overstated. Grace (I think) would take the other side of that argument. Whether they are overstated or understated one can not look at Low-E argon gas filled fir windows and copmpare them with the cheapest vinal window and conclude "a window is a window". Your model, not mine would say that the price increase of two nearly identical houses side by side built 2 years apart but one with vinal siding and windows, the other built with genuine limestone block and Loewen windows, was price inflation. I propose that is absurd. Hopefully you will agree after reading this that "a cars is NOT a car" and "a home is NOT a home", and then come to the proper conclusion that quality differences (hedonics) simply must be factored in when making price comparisons. I offer once again to let you reconsider your statements. At any rate, I hope this is a better worded description of the point I was trying to make, and it also shows how difficult it is to compare prices over time because exact equivalants are hard to find. Areas where prices can easily be compared are food, energy, raw materials, and perhaps hospital care. Oddly enough, the government tries to exclude or understates most of those from the CPI calculation. Raw materials do not belong in the CPI but the others sure do. They all the time strip out "volatile food and energy" and there can be no doubt that medical expenses are seriously under represented. Mish