I mentioned a new column on why Inflation is real the other day (here). But an incident today was so telling re: measuring inflation (an aneccdote, I admit), I felt I had to share.
Thanks to a fire in the NYC Subways, a business lunch got postponed. So a friend (AK from Bear Stearns) met me for lunch at one of our old favorite Chinese restaurants. Its a local place that’s cheap and authentic (although I prefer Mr. K’s).
We haven’t been there in nearly a year. Same owners, we order the same dishes we always did — we even get the same waitress at the counter we always used to. (Noodle/Dumpling soup for me, AK has Roast Pork).
When the we food arrives, we both look at each other. The portions are half what they typically were! Lots of rice, noodles, veggies — but the meat portions were at least a third smaller.
Pray tell: How does this smaller portions in Restaurants show up in BLS data ?
good way to help with the obesity problem!
(generally speaking, of course..)
Was the meat any better? With few exceptions (i.e., that $1.50 taco-truck taco had better be meat-filled), I tend to prefer smaller meat portions if the meat and vegetable filler are of higher quality and the whole thing is delivered at a given price.
If this was just the usual candy-bar-shrink technique, however, it is a pickle. How elastic is the demand for quick Chinese in Manhattan? A taco truck in San Francisco doesn’t get very far charging $2, but a tacqueria can push their burrito prices up the same 35%, as the customer base for eat-in burrito is so different.
Oh, you were asking about BLS inflation. I doubt their survey wouyld capture it even if every restaurant in the country followed suit, except maybe as a no-harm substitution. Then again, it’s been a while since I dug into their method. Maybe they actually weight each portion. That’s a job I’d like to watch done at a busy establishment.
Since more vegetables are better for you and you eat too much meat anyway, hedonics calculates a cost reduction of 5%.
Inflation is lower – you just need to change your point of reference!
Remember tofu is a substitute for prime rib, a pup tent substitutes for the Hilton, reruns of Gilligan for Broadway… we are in the midst of a terrible deflation. Send out the helocopters!
Hmmm, chinese food? Hey, that’s food. That falls under one of those categories, energy’s the other, that’s too friggin volatile. Which means we’ll just ignore it cause that screws up our models too much. So it never shows. But of course they made the adjustment, so the data is still good. ;)
Thanks for the comment about the retro furniture websites. I luv em. Wish I could afford a few roomfuls!
Smaller portions not hedonically adjusted, as it’s too, er, subjective. Neither is an intentional decline in customer support/service. Just spent 40 minutes on hold, then 45 minutes on the phone with an HP technician in India. Major language barrier- couldn’t discuss error codes, even using aviation terminology. This is inflationary- I received less value because 1) the printer is less reliable and 2) my costs (time & maintenance) have increased.
*Nowhere in the BLS hedonic adjustments are these factors accounted for*.
For starters, what the BLS should do for durable goods is to calculate discounted cost per year over expected lifespan. Consumers do this implicitly when they choose Toyotas over (e.g.) Chevys. Under the BLS method, if everyone substituted Chevys with all the same std. equipment for an ‘equivalent’ Toyota model, that’s deflation, as the Chevy costs less. But it’s not, as we can identify many unmeasured (by BLS) reasons why the Chevy is worth less coming off the showroom floor. Among them: the cost of ownership is less per year, and the depreciation expense is less b/c it occurs over a longer period of time.
A little classical inflation reference, for fun:
Here’s what Flavius tells Timon of Athens after he’s blown his budget:
“O good my lord,
At many times I brought in my accounts,
Laid them before you. You would throw them off.
…
Though you hear now too late, yet now’s a time;
The greatest of your having lacks a half
To pay your present debts.”
Where’s our Flavius, and who would listen to him?