Shadowboxing

What in the world is the consumer price index based on? No one can truly say. 2005 annual increases are around ten percent for food, thirty percent for energy, and . . . the CPI at negative point eight of a percent? How is it possible? The quick answer is, it's not.

The CPI is calculated using some advanced economics, more than a bit of wishful thinking, and a dash of syncretic voodoo. One of the fantastic ways they can keep CPI low (if they want) is by separating products into feature sets. For example, let's say last year's DVD player cost a hundred bucks. This year's DVD player costs one hundred fifty. Holy God, you might say, that's an increase of fifty percent! In saying so, you reveal your lack of economic sophistication (as well as your lack of friends in the Bureau of Labor Statistics). In reality, this year's DVD player can answer emails, play video games, and record television programs. The BLS essentially separates one product into three (or more). To get last year's "price" for your "DVD player" it sums up last year's costs for a computer, a game console, a VHS tape recorder, and a DVD player. It's remarkable that the figures aren't even more ridiculous, but we can take it as a given that the BLS is only performing this snake dance for a select few generous lobbyists.

They might think they're quite clever at first: all the technologies are pretty close to free, and they can keep milking the DVD franchise. Then something happens like HD-DVD (or Blu-Ray, depending on where your loyalties lie). All the staff moved from the DVD department is busy chunking out another piece of email bloatware, or working on some useless game, or downloading midget porn, while the competition comes out with a media that not only plays movies but allows the audience to sniff the actress' panties.

What happens then is you are sunk. By adding false value to your stagnant products you have basically boxed your resources into the corner, and are a sitting duck for the oncoming technology that has a grip on what the market wants. Lessons? The consumer, not the CPI, is what determines value.