[OPE-L:7300] Quality adjustments for CPI: an important question for many people and for classical economics]

From: ope-l administrator (ope-admin@ricardo.ecn.wfu.edu)
Date: Sat Jun 01 2002 - 14:19:48 EDT

The author of the following asked to remain anonymous./Solidarity, Jerry 

Little attention have been given to the accounting of quality in 
Consumer Price Index.
The "quality" changes affect mainly to information processing equipment:
computers, due to the continuous growth of chip capacity.
Its application via hedonic regression begins to be included in CPI 
calculation of European countries, too.
One Committee of the Senate, responsible for payment to retired persons,
that are indexed with the CPI, charged to Boskin (Boskin Commission) 
with the mission of analyzing the CPI and raised some conclusions 
(1997), criticized by the left, that the CPI was lower than calculated.
The only one, I know of, who has wrote something about this Boskin work,
from the classical economics point of view, is A. Freeman.
 I think that classical and marxian economics can produce some well 
 directed criticisms in this citizens important matter, regarding, at 
 least, the quality issue.
 As computers are considered, for instance, they increase their capacity 
 while maintaining its price. The neoclassical school says that there is
 a  increase of utility for the persons using the new computers and 
 therefore it had to be computed as a decrease of prices. The replies 
 are: nobody has asked for such developments; it is very difficult to 
 measure utility and it is not clear that an increase of this utility is 
 produced; the utility has nothing to do with price; if firm bundle more 
 quality for the same price it is their interest, not a demand of the 
 consumer who may not use the additional capabilities offered (i.e. a VCR
  with more options).
>From a classical perspective, the point would be: an increase in 
 quality at the same price, is a result of an increase of productivity 
 (technical progress). Firms could -if they are compelled to- either 
 reduce the price of the products or add more quality to a given product.
  If firms are doing the latter there is no CPI implications.
 In any case, if an increase of quality would mean that prices have been 
 reduced, then, reductions in quality while maintaining the price of the 
 product had to increase the CPI. This could be very common but in this 
 case they say that this is simply an increase of the profit rate. A cow 
that is fed with animal residues flour- could costs a lot of money to 
 particulars and to the government and - is of a lower quality cow in 
 relation with the old browsing ones. A car with lower quality materials,
 Do you agree that this is important and there is some advantage for the 
 classical economics here?

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