The CPI bias at work in Burger King
For the past six weeks or so there’ been an egaging, intermittent blog debate about CPI bias. That is, to what extent has technological innovation improved standards of living so much that the effects are understated in measuring year-to-year or decade-to-decade comparisons of the U.S. economy — and whether, concomitantly, inflation measures lke the Consumer ...
For the past six weeks or so there' been an egaging, intermittent blog debate about CPI bias. That is, to what extent has technological innovation improved standards of living so much that the effects are understated in measuring year-to-year or decade-to-decade comparisons of the U.S. economy -- and whether, concomitantly, inflation measures lke the Consumer Price Index are overstated. The debate is less about whether CPI bias exists, but how big it is, whether its effect diffuses across all income strata within the economy, and its political implications. See this Megan McArdle post for the libertarian take, and this Brad DeLong post for the social democratic take. My take is similar to Megan's, but I haven't blogged about it because it can be very difficult to articulate the extent to which technology has converted what used to be luxury goods into normal goods. And the I opened my son's BK Kids Meal.... The toy in my son's meal was an Open Season-themed radio. Not just an ordinary radio, but one that hooked around the ear, making it look like a kids version of a cell phone earpiece. The battery is included. You can take a gander at it by clicking here and then clicking on "Toys". Thirty years ago, when I was a child, this would have been a $20 ($68.71 in 2006 dollars) birthday gift that would have made me the coolest kid on the block. It is now an afterthought, a free, promotional gift as part of a $4.00 kids meal that is affordable to 99% of all American households. If that seems hard to grasp, here's another way of looking at it -- I predict that by the time my son is my age, Burger King will include the equivalent of an IPod Nano in every kids meal. Does the CPI incorporate some of the effects discussed in this parable? Certainly it does, in the form of the declining cost of radios. Does it incorporate all of them? No -- the increasing sophistication of the toys contained within kids meals is not included. Readers are invited to submit other examples on a par with my son's kids meal as examples of how previously exotic technologies have become practically throwaway commodities.
For the past six weeks or so there’ been an egaging, intermittent blog debate about CPI bias. That is, to what extent has technological innovation improved standards of living so much that the effects are understated in measuring year-to-year or decade-to-decade comparisons of the U.S. economy — and whether, concomitantly, inflation measures lke the Consumer Price Index are overstated. The debate is less about whether CPI bias exists, but how big it is, whether its effect diffuses across all income strata within the economy, and its political implications. See this Megan McArdle post for the libertarian take, and this Brad DeLong post for the social democratic take. My take is similar to Megan’s, but I haven’t blogged about it because it can be very difficult to articulate the extent to which technology has converted what used to be luxury goods into normal goods. And the I opened my son’s BK Kids Meal…. The toy in my son’s meal was an Open Season-themed radio. Not just an ordinary radio, but one that hooked around the ear, making it look like a kids version of a cell phone earpiece. The battery is included. You can take a gander at it by clicking here and then clicking on “Toys”. Thirty years ago, when I was a child, this would have been a $20 ($68.71 in 2006 dollars) birthday gift that would have made me the coolest kid on the block. It is now an afterthought, a free, promotional gift as part of a $4.00 kids meal that is affordable to 99% of all American households. If that seems hard to grasp, here’s another way of looking at it — I predict that by the time my son is my age, Burger King will include the equivalent of an IPod Nano in every kids meal. Does the CPI incorporate some of the effects discussed in this parable? Certainly it does, in the form of the declining cost of radios. Does it incorporate all of them? No — the increasing sophistication of the toys contained within kids meals is not included. Readers are invited to submit other examples on a par with my son’s kids meal as examples of how previously exotic technologies have become practically throwaway commodities.
Daniel W. Drezner is a professor of international politics at the Fletcher School of Law and Diplomacy at Tufts University and co-host of the Space the Nation podcast. Twitter: @dandrezner
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