If you're only attenuating inflation signals because of quality improvements, but never amplifying them because of product debasements, then yes, it would be fair to write that off as (politically driven?) manipulation.
There's nothing weird about the logic at all. It doesn't take much sophistication to recognize that inflation measuring the cost of a basket of goods is affected when the goods change either through substitution or changes in quality.
Incidentally, the larger category encompassing computers is 0.29% of the calculation of CPI, and it has only dropped to about 44% of prices in 2007.
There absolutely are problems with policy makers trying to starve the statistical agencies of funding for political reasons, but the actual public servants and economists conducting the work are pretty boring about just trying to model and describe the real economy.
It's even worth noting that possible improvements to the accuracy of CPI have been aborted due to political reasons, but the problem was that people's social security checks would have been revised down unless the existing law was changed.
> It doesn't take much sophistication to recognize that inflation measuring the cost of a basket of goods is affected when the goods change either through substitution or changes in quality.
In theory, yes. It takes a little more sophistication to realize that, in practice, "the iPad being faster" doesn't actually cancel the burden of higher food prices.
It seems unavoidable that how much nonfood I get per dollar affects the burden incurred by a dollar spent on food.
One could consider how spending on different areas has changed over time. In nominal terms, while we make about 48 times what we did in 1955, we now spend about 17 times what we did on food and on clothing, 56 times what we did on housing, and well over 200 times on healthcare. [1]
Considering that we spend about 70 times what we did on large entertainment goods such as televisions and sailboats, does that mean we are able to spend less on other areas? Does it mean that even though we used to have to spend a lot more of our income to own a TV we need to buy more stuff to be entertained?
Anyway, I don't really understand what the crowd in the article really wanted. Are they ultimately arguing that he should vote to raise rates, because there is inflation that he's missing by using the wrong indicators? I'm guessing that they're populists since an explanation made them angry, but googling doesn't tell me that populists have a consensus opinion about raising or lowering rates.
If they want another indicator to be used as a basis for official cost of living calculations for things like federal wages and social security payment increases, they're getting worked up at the wrong person.
Again, I get the theory. The question is the practice. How, concretely, does the iPad's processor being faster cancel out food costs? Do you buy 3% less of an iPad? Do you save the time from its faster responses to work extra hours? (Er, well, except, even that doesn't work because the faster processor is canceled out by the updated app being hungrier...)
So, to rephrase the point one other way, can you walk me through a scenario in which someone "came out even" because iPad speed went up as much as their food prices (with adjustment for value weight etc)? If you can't, then we're basically in agreement.
Yes, the Fed should treat differently-caused price drops differently. Velocity-related deflation is not the same as technological deflation, and central banks should be more concerned with the former.
If some miracle technology makes clothes require half the inputs, the Fed should not take it as a signal to debase the dollar that much more to accelerate spending, so yeah, if they're thinking inflation is low because there was iPad technological deflation, that does sound very much like "doing it wrong". Why do you disagree?
Btw, here's a particularly egregious use of the logic: "oh, your cost of living isn't going up, because iPads are faster." http://www.reuters.com/article/us-usa-fed-dudley-ipad-idUSTR...