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Thursday, December 29, 2005

My Dad's Digital Watch

I remember back in the early 1970s when the first digital watches began to appear. My dad bought one for many hundreds of dollars, which due to inflation would be the equivalent of more than a thousand dollars today. At the time, it was the coolest thing I had ever seen. It was just so space age (or something like that).

According to a NY Times article, "the average price of notebook[ computer]s sold at major retail stores in November fell to $980." This led Orrin Judd to title his excerpt of that article "The Kids Got Them in Their Happy Meals Yesterday", implying that notebook computers are getting so cheap, so fast, that soon they will be given away as little trinkets that kids get at family restaurants with their meals. It's easy to discount that as an Orrin exaggeration regarding deflation (one of his favorite topics), and while I doubt that actual notebook computers will every be included as part of a kids meal, Orrin may be more right than even he imagines.

Yesterday, at Rubio's (a small, southern California Mexican restaurant chain), the little trinkets in my daughters' kid's meals were digital watches. To be sure, these watches were not packaged anywhere nearly as nicely as my dad's watch, but the display and functionality surpassed that of my dad's.

In the course of 30 years, a gadget went from being a high end luxury item to being so cheap that it's a give-away trinket in a kid's meal. One day, in roughly 30 years, there will be a trinket with the equivalent technological complexity of today's notebook computers that comes with a happy meal. And no one will think twice about it.


Hey Skipper said...

This is a phenomenon more widespread than one might think. And is completely uncaptured by inflation statistics.

The average car today costs roughly 4 and half times what its equivalent did in 1975.

So is inflation in the auto industry 450% over the last 30 years?

Yes. Unless, of course, you note that the average car today could not have been bought for any amount of money in 1975. Which is another way of saying the average car today is better than the best available then.

So. What was that inflation rate again?

Oroborous said...

That dynamic was one of the reasons that Greenspan didn't raise interest rates as aggressively as he might have, in the late 90s - he believed that vast increases in productivity were mitigating the effects of tight labor markets and increased wages.

Bret said...

hey skipper asks: "So. What was that inflation rate again?"

I sit around and for amusement work on matlab models of economic systems and one of the biggest problems with said models is that they're generally hugely sensitive to slight changes in the inflation rate. Poverty, GDP growth, real disposable income, total wealth, productivity, etc. are all dependent on the inflation rate. Examples like the automobile one you gave or the digital watch or almost anything else illustrate the difficulty of trading off quality and/or features for each product category. Thus the inflation rate is fairly arbitrary and therefore so are almost every economic number you see published.

Hey Skipper said...

I sit around and for amusement work on matlab models of economic systems

I must admit, that leaves me at a complete loss for words. :)

I think the technical term for the phenomenon we are talking about is "Hedonistic Inflation."

Do the inflation figures even attempt to take this into account? It seems entirely plausible that any sane economist person would acknowledge that such a thing exists, yet view the attempt to measure it with eyes of fear and looks of hate. After all, how does one take the 1975 value of something that didn't exist until 1985?

And I'd love for someone to explain to me how They figure out the national savings rate. On the basis of precisely no knowledge, I suspect far, far more is left out than included in that particular number.

Howard said...

Bret said, "Thus the inflation rate is fairly arbitrary and therefore so are almost every economic number you see published." Hey skipper, the national savings rate is a small residual that falls out of certain constructs of national income accounting. If the numbers used to calculate this residual - the savings rate would still be subject to huge error. Since Bret is correct in questioning the validity of those aggregate numbers - the error rate on national savings is nearly infinite!!! (no resemblance to any common sense calculation...)