Thursday, October 6, 2011

The CPI Couldn't Keep Up With Steve Jobs

From basic principles of economics, we know that measures of inflation based on the CPI are biased because of substitution effects, the introduction of new goods and services, and unmeasured quality changes.

Here is some related insight from Russ Roberts post Stagnation or Mismeasurement at Cafe Hayek: (this was in 2007)

 It is not just a question of the number of new goods and services–it is the pace of innovation  within product categories and how much each of these makes it hard to measure prices with any accuracy....The iPod will be six years old next month. The newly released iPod Classic with 160 GB of memory is $50 cheaper than the original iPod, holds 40 TIMES more songs and also plays color videos and displays photos. It is smaller, lighter and has a better battery. 

We can also add to that the iPhone, iPad, Apple TV .....etc.