Note - from June 24th 2009, this blog has migrated from Blogger to a self-hosted version. Click here to go straight there.
Some folks have the energy to consistently trawl through goverment statistics and find the howlers that expose thestats as propaganda.
Fewer have the wit to winkle out the underlying causes as to why government might want to over- or under-state some or other statistic.
I have banged on about the US CPI for a couple of years - since I discovered that they used "imputed rents" in their calculations, rather than any measure of actual costs of accomodation for owner-occupiers; it's part of my little wild-eyed crusade against hedonics.
That said, hedonics are not evil per se - unlike democracy, which is evil to its very core.
Hedonics are sensible if you're measuring (or trying to measure) utility - but corporate profits are not driven by "quality adjusted revenue". The aim of a corporation is to extract consumer surplus (i.e., utility) and convert it to producer surplus (i.e., excess profits). That conversion is not possible when the consumer surplus is obtained without expending additional actual dollars. In fact at the margin, the consumption share on goods that have the largest quality adjustments (computer equipment) is falling, meaning less actual dollars are being spent, meaning fewer actual dollars' worth of consumer surplus is available for conversion.
There is also no consistent link between corporate profits and quality-adjsuted expenditure. The utility of shareholders (the final beneficiaries of profit distribution) depends on distribution policies, tax rates, consumption of the eventual dividends and so on. It does not depend on quality-adjustment until the dollars are spent.
Be that as it may, one person who still has the energy and wit to take the magnifying glass to the CPI, is the chap at ContraryInvestor. His latest offering (click here) is a brilliant primer on the CPI, from first to last. I recommend that everybody read it, because it will tell you - in no uncertain terms - why your personal experience of rising consumption prices is not reflected in the CPI data. It will also show you WHY government organises it that way...
