David Leonhardt’s NYT columns are oftentimes insightful and illuminating.
Unfortunately, today’s column is not one of those times . . .
More on why tomorrow.
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IF ANYONE HAS ANY SPECIFIC EXAMPLES, FEEL FREE TO USE COMMENTS
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Source:
Seeing Inflation Only in the Prices That Go Up
DAVID LEONHARDT
NYT, May 7, 2008
http://www.nytimes.com/2008/05/07/business/07leonhardt.html
I think it is important to note that education and health care have dwarfed food and energy. Even more important to note that the four areas where government attempts to keep costs low and is most involved (healthcare, education, energy, food) are the areas where costs have risen the most. SHOCKER!
One way to get apparael and electronic costs up is to create government programs to “help” people buy clothe and computers.
I actually kinda feel bad for really efficient companies in the field of electronics and consumer goods in general. They work their ass off to improve efficiency and lower costs. If you work in the field of health care, education or agriculture, you are essentially mooching off of the hard work of everyone else.
Roman,
Your comment:
“If you work in the field of health care, education or agriculture, you are essentially mooching off of the hard work of everyone else.”
Right, tell the farmers, teachers and doctors that they are “moochers.”
Hey, how about the tort lawyers? Blame it all on the lawyers!
Barry, they need to change the name Education to “Eduflation”…
Two problems (at least): [core inflation is a better measure because] “instead of being overly influenced by food or gas prices, both of which can be volatile”
Not volatile any more (whatever variance is swamped by the long term trend).
[Better to have CPI include new items fast because] “years would often pass before the index included new products — like cellphones — and therefore it missed the enormous price declines that occurred shortly after those products entered the mainstream.”
Why include any product at all until it settles down to become a commodity in the broad sense of the word. Like when the product achieves the manufacturing efficiency of large sales, along with real competition. Why include something that’s on the cutting edge, with high reject rates (via Q/A testing) and/or the attractivness of novelty, which automatically guarantees a premium?
What is truely shocking is that the graph uses the rigged BLS stats.
I wonder if they hedonically adjust education. If you can’t afford a masters, trade down to a BA?
Clothing and communications? Gee, where are those made. And we are pressuring the Chinese to revalue? Talk about shooting yourself in the foot!
Roman said:
“Even more important to note that the four areas where government attempts to keep costs low and is most involved (healthcare, education, energy, food) are the areas where costs have risen the most. SHOCKER!”
I don’t think that the government intervenes to keep prices down in any of these areas. Doesn’t the government artificially depress food supply through subsidies to keep prices high?
Right. Blame the government for our health care costs, especially since all the other industrialized health care systems in the world cost more than ours…
Putting the snarkiness aside…
They don’t break down what education is; does it include college tuition?
Energy should also factor into food and beverages (diesel and fertilizer, among other things).
And what about the cost of raw materials like copper, steel, concrete, etc.? Ten years ago China wasn’t vacuuming them up.
As for telecom, I don’t think individual consumers are spending less. They are spending more but getting more per buck. I’m now paying for cellphone, fixed landline, internet access and cable/satellite TV. Not too many people were paying for all of those ten years ago.
Not everything is more expensive; how comforting!
It’s like this doctor saying to a patient after being paralyzed in a car accident that he can still breathe and think.
Communication has gotten cheaper? I take it the BLS doesn’t have a cell phone?
Uh… ya… I was in the Gap last week and just couldn’t believe the price of khakis… I don’t know where that guy shops…
Actually, I believe Roman is right on all scores (save perhaps farmers.) Doctors/admin and teachers/admin are overpayed versus the negligible business risk their professions entail. Also, WRONG, on a per capita basis, healthcare in the rest of the developed world is dramatically less expensive.
The education thing has bugged me. I got my cheap California State University education, and later “made big bux.” My first semester’s tuition was, I remember, $96 (1977).
Kids today are hammered, and I really think it goes hand in hand with the debt binge.
For some absurd reason (and I think what economists call “agency” issues) college loans were considered a solution rather than maintaining lower costs.
With the explosion in information technology, the education cost should really be at the opposite end of the graph, down with communication.
Education IS communication, but for some reason they split. Follow the money.
(I was only partially surprised to hear that college education is free in some Nordic countries. I bet the costs, without the agency issues and loan marketing, are quite a bit lower too. I mean, public education is 12 years, college is 4 years more … WTF?)
At least you could get into Cal State. With the cuts now, my kids can’t even get transferred in from their community college, and are now applying to out of state schools. Which, of course, will be a lot more expensive….
In silent movies, they used to depict dire straits by having the character boil and eat the soles of their shoes.
And now we know why. I hope those suede jackets and $500 Gucci t-shirts taste good steamed with some rice… I mean crackers… oh, never mind, we’ll just serve sawdust as a side dish.
It looks like these graphs were taken from our paper published couple months ago
Kitov, I., Kitov, O., (2008). Long-term linear trends in consumer price indices, MPRA Paper 6900, University Library of Munich, Germany,
http://ideas.repec.org/p/pra/mprapa/6900.html
and even older posts in my blog
http://inflationusa.blogspot.com/search/label/CPI
We still follow up the trends in various individual CPI components and predict probable changes in near future.
“Right, tell the farmers, teachers and doctors that they are ‘moochers.'”
I’ll say it right now. THEY ARE ALL MOOCHERS!
I am not saying they don’t provide any useful service but their salaries are inflated by government subsidies. People just don’t get that the government cannot lower the cost of something. If a university costs $20,000/year to go to and the government decides to give a $2,000/year grant to students who go to that university, I will bet you anything that the cost of that university will jump up to $22,000 in no time.
If a medical procedure costs $1,000 and the government subsidizes $100 of the procedure, expect the cost to increase to $1,100.
The only way to lower costs is through better productivity and increased efficiency.
“I don’t think that the government intervenes to keep prices down in any of these areas. Doesn’t the government artificially depress food supply through subsidies to keep prices high?”
I mentioned school grants and medical aid as ways the government tries but will always fail in trying to lower education and healthcare costs. When it keeps to food prices, you are right that the government does try to keep prices high by protecting the inefficient, MOOCHER known as the small farmer. But they do it under the guise that it will protect national food security.
I wouldn’t be inclined to blame the government for health care cost escalation. It seems to me that a system in which consumers don’t directly pay for their services – such as health care — would be at risk for escalated price increases.
The whole topic is complex. A 2006 NBER paper showed that the US had in fact experienced elevated health care cost inflation over a number of decades BUT that much of this increase is due to spending by older patients who are, as you know, covered by Medicare. Sound bites won’t help any one in considering this problem.
Education is troubling. It is self-reinforcing of creating classes based not on ability or desire but wealth.
I really have no idea how people can afford to send their kids to school. Even public institutions are insanely priced.
I bet lower apparel costs include substituting Goodwill used jeans for a new pair of Wranglers – and the used pair are Calvin Klein so that needs a hedonic adjustment, to boot.
Like, what kind of substitution adjustment are they using on the communications plot line?? We spent $1600 last year on communications, a steady increase, YoY, for the last twenty. Sure you get more “bandwidth” for your money, but you have to, or you are not “in touch” anymore, and hence, not communicating.
Larry: “…since all the other industrialized health care systems in the world cost more than ours…”
To improve snarkiness always add:
“…and their citizens have a shorter average lifespan.”
Larry and Ritchie … you guys in Japan?
http://en.wikipedia.org/wiki/List_of_countries_by_life_expectancy
It doesn’t seem to be talked about much but I think Education costs are similar to the housing bubble. Since it got easier to pay for college thanks to phantom home equity/ HELOC’s and the fact any 18 y/o dolt being able to get a $80k+ student loan, the colleges just went along for the ride. If less people could afford it, costs should come down….should they not?? Stop making it so easy to take on massive amounts of debt and maybe people wouldn’t need these monsterous loans to get their 4-year piece of near-worthless paper…..
I’d love to see the chart with all the hedonic regression “adjustments” removed. Even better, I’d love to see the government forced to acknowledge the CPI is utter BS because of them, and turn it over to a consortium of colleges for independent maintenance. Believing the CPI is like taking the NAR’s real estate market predictions as unbiased…
A Reyburn and others:
It is absolutely ridiculous to hack on teachers. They are underpaid both in nominal terms and in particular when taking into the amount of work that they put in trying to educate YOUR BRATTY-ASS KIDS. I’m not a teacher but have friends and family who are… they get up butt-early in morning, pay for class room supplies out of their own pocket, get no salary during vacations, are expected to continually get training and education just keep their certs etc etc. If only the same would be true for the office monkeys who obviously have so much time on their hands that they can sit and write comments on this blog [snark].
Also, with assaults (physical and psychological) on the rise in American schools and on campuses, to claim that there is no risk is arrogant, ignorant and preposterous.
Maybe you should educate your own damn kids if the teachers aren’t worth the money? But that would mean that you had to spend time with the little shits wouldn’t it – and who the hell would wanna do that?
Oh yeah, the teachers do…
“Education is troubling. It is self-reinforcing of creating classes based not on ability or desire but wealth.”
Exactly. It’s not about education, especially at the top end. It’s about maintaining the luxury Ivy League brand.
There’s no economic reason why Yale, to take one example, which has an endowment of almost 23 billion (thank you David Swensen!) can’t be tuition free. Except, of course there is. Wouldn’t be Yale or Princeton if everyone who is smart enough to be accepted could go, right?
To quote Birmingham, “According to the best possible source – the Social Establishment itself – the most important college, socially, is Yale. Princeton has more glamour, but Yale is solider.”
What. You thought GW Bush got in on his merits? Oh, I forgot. Head cheerleader at Andover. Impressive.
Health care costs are up because doctors are moochers?!!!
Roman, you are a man who has no real understanding of medical economics. Health care costs are much much more than doctors’ salaries and every cost in medicine has increased exponentially more than doctors’ salaries. Furthermore, all doctors do not make the same salary.
I know this is a minor point and this thread is old (I would have responded sooner but I was too busy putting in an 80-hour week to make the same salary i did in 1998), but a little more rigor in needed before castigating an entire profession. Idiot.
On further perusal, i see that Roman did not explicitly pick on doctors’ salaries.
But look at the cost of medical devices and what they pay their sales people. The cost of pharmaceuticals, especially me-too drugs, the cost of long term care, the cost of unnecessary care such as cosmetic surgery and the cost of uncovered care for folks who elect not to have insurance and get sick or injured.
Looks like we can’t afford education or health care. So we are stupid, and will die young, but we look good and are able to call our friends on our cell phones and talk about it.