The Great Television Price Inflation Scam 15 comments
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Anyone wanting to better understand one of the primary reasons why we are in such an economic mess these days need look no further than the history of television prices over the last half-decade or more.
Actually there are two versions of TV prices - the real world "in"-flation experience and the government's "de"-flation version.This point was made clear last week when we purchased a replacement for our 2002-era 32" CRT model - a replacement that not only proved to be more costly but, as an added bonus, less functional.
A quick recap is in order.
In one of the more egregious examples of quality adjustments at the Bureau of Labor Statistics (also see automobiles, computers, and, well, just about anything that is imported) television prices have been falling for years - not necessarily at Best Buy (BBY), but certainly at the BLS.
As can be calculated from the BLS data in the chart below, that $500 TV from 2002 - the one that is now awaiting a one-way trip to the recycling center - should have been replaced with one of equal "value" today costing only $178.
According to the government data, after factoring in the changes in price along with all the improvements and added features over the last five or six years, TV prices have declined by more than 60 percent.
What did we pay yesterday?
After much searching and gnashing of teeth, we paid $600 for a 32" HDTV which, for our application, is the equivalent of about a 27" model.
Yes, there have been improvements over the years resulting in "hedonic adjustments" that purportedly balance the "true value" of the item with its cost.
But in this case, it is truly an absurd adjustment - we just want to watch television and don't care if it has two connectors or 20 connectors on the back and would much prefer the older, larger picture size to the newer, smaller one. (Sorry, but we don't really need HDTV in every room of the house and we don't really want to write out an even larger check to the cable company each month.)
The same arguments can be made for the number of different wash cycles on washing machines, new car features that buyers don't want or need, and computing power for desktop and laptop PCs.
The consumer has no choice about most of these features and, in many cases, the manufacturers must remain competitive by providing them as standard features - in the BLS Consumer Price Index, this results in lower prices even when prices don't go down.
Back to the Mess
So, how does this help to explain the current economic mess we are in?
Over the last decade or two, systematic hedonic adjustments have helped provide "cover" for the Fed to make money much more easily than it would otherwise be if inflation better represented "real world" experiences.
During the Greenspan term at the Federal Reserve, inflation was never an issue - at any inkling of trouble in financial markets or for the economy as a whole, the monetary spigots could be opened wide and, on many occasions, they were.
Combining quality adjustments for consumer goods with the complete omission of home prices in the inflation statistics during an era of cheap energy and cheap imports created a "witches brew" of latent price pressure and impending financial instability that any economist with any common sense would have understood at the time.
Unfortunately, economists with common sense are in relatively short supply, which is why you keep reading stories about consumers feeling "squeezed", losing buying power, and seeing their standard of living decline during an era of historically low inflation.
Surely there must be some reasonable middle ground between making no quality adjustments whatsoever and the complete farce that, in some cases, hedonic price adjustments have become.
At what point in time do economists stop being the unwitting dupes of a government that is hell-bent on "inflating away" all of its financial troubles by lying to the public about how much prices are really rising?
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for the purposes of comparison, we can leave out negotiation skills, which arguably would have applied to 2002, as well as 2008. however, you do have far more options today than in 2002. there are plenty of wholesalers available on line, for instance, which now compete with your local best buy retailer. furthermore, we are in a global economy which has flooded our country with goods from more and more countries and we have more and more competitors in the cable industry, too. it is far easier today to pick up the phone and tell your provider that you are going to switch unless they give you a discount.
i won't argue against the fact that some things have a higher sticker price, but generally, the actual purchase price increase is a function of our skills as negotiators and shoppers. you are five or six years older than you were in 2002, so you should be that much better.
incidentally, if you had read consumer reports and shopped carefully, your products would have probably lasted longer. with constant use, my washer and dryer are 25 years old. i'm still driving a '92 and getting 20 miles to the gallon and i have my older big screen tv from 1998. even though, i have elected to purchase an additional car and two tv sets since then. if people would keep their things in good working order, we would require fewer goods and that would lead to less competition for those goods, keeping the prices reasonable. your willingness to pay more injures the rest of us because it makes the sellers believe that their products are priced correctly. on the other hand, i guess they can afford to give me a discount when they look at the average sale. maybe, you're a wash.
"We now present the Consumer Price Index for all items, excluding food, clothing, shelter and transportation..."
BUT - 10 seconds on Google shows me 32" CRT TVs for $350. Prices for same-tech items HAVE come down, somewhat.
I'm waiting for the hedonic CPI adjustment to cable TV: higher prices, and since there's nothing much worth watching on TV that you can't get by other means, there should be *LESS HEDONIC VALUE*. So, this should drive the CPI through the roof!
A few facts are in order here, neighbor. Clinton has been out of office for almost SEVEN years. George Bush and the GOP have been in charge of our economy. The GOP has been pushing deregulation in the housing markets for years. The stupidity of supplying cheap easy credit to people who couldn't really afford the houses they were signing up for is one reason why we are in this mess.
Of course, the 800 pound gorilla in the room you don't mention is of course the Iraq war and the 1.2 TRILLION dollars we've wasted there so far.
Think about what you could buy with 1.2 trillion. For starters, a doubling of cancer research funding, treatment for every American whose diabetes or heart disease is now going unmanaged and a global immunization campaign to save millions of children’s lives.
Combined, the cost of running those programs for a decade wouldn’t use up even half our money pot. So we could then turn to poverty and education, starting with universal preschool for every 3- and 4-year-old child across the country. The city of New Orleans could also receive a huge increase in reconstruction funds.
The final big chunk of the money could go to national security. The recommendations of the 9/11 Commission that have not been put in place — better baggage and cargo screening, stronger measures against nuclear proliferation — could be enacted. Financing for the war in Afghanistan could be increased to beat back the Taliban’s recent gains, and a peacekeeping force could put a stop to the genocide in Darfur.
Can I dump the government now? Please.
The opiate of the masses is a drip feed at the end of a coax cable...
If we had a fair-tax system (a sales tax on retail purchasing) instead of an income tax, which discourages investment and capital growth, then we would have fixed this crazy system of 2/3 of the U.S. economy driven by consumer spending (with borrowed capital) and a negative savings rate.
As for the television, if you wanted a crappy old tv, there are plenty out there you could've bought. My 36" XBR cost me $2400 in 1996. Its successor, a 57" Hitachi cost me $2400 in 2002. I bought a 32" Tube in 2003 for $175 at Circuit City. And the latest addition is a 40" LCD for $1100 this last year. Now, if you are telling me that prices haven't come down, I gotta call BS. I get more for less everytime. Shoot, my latest TV has a tuner that works with a tiny little antenna to give me a perfect HD picture. Try that in 1995.
Sure, the inflation numbers are all bogus. Oil is now 4 TIMES MORE than it was when GW came into office (and yes, it is mostly his fault) - we should've had a good severe recession in 2002-2004, but instead he took us to war and started spending money like all the previous republicans who sell us a bill of goods on small government and procede to outspend the previous administrations by large margins. Guess what, when interest rates go back up, we will be in a WORLD of financial distress as our interest payments quickly mount on new debt and repos. And I'm sure the democrats will get the blame at that point. Stupid system is all screwed up, but that's what you get with entrenched powers.
But, the television is a crap example. So, the article falls flat on its face.
Would you really say the functionality/design considerations are the same in a flat screen TV and a Tube? What about a TRS-80 and an Imac? You gotta account for it somehow.