About Those “Hedonic Adjustments” to Inflation: Ignoring the Systemic Decline in Quality, Utility, Durability and Service

One of the more mysterious aspects of the official inflation rate is the hedonic quality adjustments that the Bureau of Labor Statistics makes to the components of the Consumer Price Index (CPI).

The basic idea is that when innovations improve the utility (and pleasure derived from) a product, the price is adjusted to reflect this improvement.

So if television screens become larger, while the price per TV remains the same, the hedonic quality adjustment adjusts the price down when calculating the CPI.

In other words, since we’re getting more for our money–more quality, more features, more goodies, more pleasure–the price is adjusted down to reflect this. If a TV that cost $250 had a 19-inch screen in the old days, and now a $250 TV has a 27-inch screen, the price of TVs in the CPI is adjusted down to reflect this increase in what the consumer is getting for her $250.

So while a TV still costs $250 to the consumer, in terms of measuring inflation the TV is reckoned to cost (for example) $225, as the consumer is getting a larger screen for her $250.

In other words, the price of TVs declines when measuring for inflation, even if the retail price remains unchanged. This is how the official rate of inflation can be so low even as real-world costs keep rising.

If you read the above link, you’ll find the mathematical model used to reduce the price of products when calculating the CPI, i.e. the rate of inflation.

While the BLS website makes mention of the possibility that hedonic quality adjustments occasionally go the other way, i.e. quality has declined, it’s clear this almost never happens. “Innovations” are always improvements.

I propose we start tracking anhedonic quality adjustments, i.e. significant declines in quality, durability, utility and the pleasure derived from the product or service. (Anhedonia: inability to experience pleasure from activities usually found enjoyable.)

First up: airline travel. Can any remotely objective passenger claim that airline travel is now more pleasurable than it was in the past, and that the quality of the product and service has increased due to “innovations”?

We all know virtually every aspect of air travel has declined other than the reliability of the aircraft–and due to tight schedules, just-in-time inventorying of spare parts and lack of redundancy (i.e. spare aircraft), even minor maintenance issues now routinely trigger flight delays.

Have typical airline seats become larger and more comfortable? You’re joking, right? Seats have been shrinking even as the average girth of the passengers has increased.

First class seats may have become more luxe, but so have the fares.

As for hedonic experiences such as pillows, blankets, meals–welcome to Anhedonia.The industry is shifting to an everything now costs extra model: printing a boarding pass, speaking with a sales rep on the phone, carry-on luggage, etc.–everything carries an additional fee.

Changing a flight reservation can cost more than the initial price of the ticket.

And this is not even considering the entire air travel experience at airports.

Any fair anhedonic quality adjustment to air travel would double the CPI cost of a $300 ticket to $600 to reflect the staggering decline in quality, service and enjoyment.

Let’s next consider computers. While the BLS is busy lowering the CPI price of computers due to faster processors, more memory, etc., the degradation of the utility of computers and enjoyment (i.e. ease of use) is ignored.

Consider the “innovation” of Windows 10, Microsoft’s replacement of the Windows 7 workhorse operating system. Anyone else getting Win10 error messages demanding that I manually upgrade the BIOS on my laptop in order to get the latest upgrade? No instructions on how to do so are provided by Microsoft, of course.

To the best of my knowledge, Skype and Windows 10 remain incompatible in a variety of subtle and mysterious ways. Microsoft owns Skype, so welcome to Anhedonia. Please don’t tell me the sudden failure of Skype on Win10 machines isn’t a reality; we’ve given up even trying.

Then there’s the decline in durability, not just in computers but in everything.Brand-new Corporate America appliances are rusting along the bottom within a year, almost-new U.S. branded ovens turn on by themselves, and the repair of the defective sensor costs more than the entire stove/oven itself–I could go on and on, but you have your own stories of devices and appliances failing or corroding in a few short years.

Water heaters once typically lasted 30 to 40 years. Now we’re lucky if they last a decade.

The actual utility of “innovations” is also suspect. New cars have rear-view cameras to promote safe reversing, but some of the screens are so small and prone to glare that they’re actually worse than having no rear-view screen at all, as drivers slavishly attempt to make use of the glare-ridden screens to the detriment of their driving skills.

And how about that college diploma that now costs $120,000 and up? Has the utility value increased or decreased? How about the effectiveness of healthcare in terms of improving health and healthy longevity? How about the immense suffering created by addiction to supposedly “safe” and “non-addictive” opioid medications? Did the BLS calculate the CPI cost adjustment of the gargantuan decline in the quality of our national life due to the widespread distribution of addictive opioids?

If we could be honest with ourselves, we would have to conclude that any comprehensive accounting of anhedonic quality adjustments would double or triple the rate of inflation as measured by the Consumer Price Index.

The quality, durability, utility and enjoyment-of-use of our products and services has been plummeting for years. This is a core reason why the official rate of inflation/CPI is a complete joke. Welcome to Anhedonia.

Of related interest:

Earn 25,000 Points To Nowhere (July 24, 2013) (humor)

My 31-Year Old Apple Mac Started Up Fine After 15 Years in a Box (February 28, 2015)

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  • I’ve followed your blog via RSS for a few years now and I frequently agree with your take on our modern corrupt neo-feudal, rent seeking and financialized world. Once you understand a few basics, like how money is actually created in the fiat currency world, you never look at things the same again. I’ve known, as most of your readers do, that the official CPI is basically self-serving propaganda delivered in the form of an inscrutable ever mutating index. Since the public no longer trusts, for extremely good reasons, most regime representatives they’ve sought refuge in numbers. Actual science still commands respect but the CPI is more bullshit than science. Your “anhedonic adjustments” is the best way to drive home to utter idiocy of the standard CPI that I’ve run into. If the index can be depressed for utterly inane quality improvements then why isn’t it increased for undeniable declines in quality? To even ask the question is to mock it. I will be using your “anhedonic adjustments” to adjust the deficient cognition of my fellow naked apes when the need arises. Thank you.

  • Shiggity

    None of these mechanisms really work when every industry works like a cartel and has someone controlling the supply side.

    Free markets are supposed to be about openness and transparency so you can make the best decision.

    We’ve never had markets that were less open and less transparent. That’s the entire point of financial products, take transparency OUT.

  • unheilig

    Excellent article. Likewise, I am left baffled by the recent announcement that the US economy shed jobs in September, for which the hurricanes are blamed. Yet somehow the unemployment rate decreased. Yes, I know, what’s baffling me is that anybody with more than two functional brain cells would believe any of this crap.

  • ICFubar

    Spot on! My grandfather’s 1931 standing cabinet radio still works and with the warm sound produced by tubes. The Sony DVD player packed it in a few months after its one year warranty. I was told that our new larger fridge would not out last our 1970s avocado colored one that is now doing service in the basement. The very modest cabin has a 1950s model Frigidaire still cranking along. Of course modern economics requires more debt to keep the ponzi going so more resources must be procured and turned into product, and bought with debt, and from product to landfill in a yearly rising exponential curve as a factor of this foolish reality. The CPI et al is there just to obfuscate these facts.