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Skateboards and why we overstate inflation

Summary:
One of the little problems of modern life is that we can see, with our own very eyes, that the society around us is getting richer. We can do more things, faster, better, than our forefathers. Yet when we try to look at real wages it seems that we're not advancing at all, or only marginally. A goodly part of the answer is that we're calculating the real part of wages wrongly. At which point, skateboards:If I flip to the back, there are mail-order ads for skateboard decks. The going price, depending on brand, is around . All of this is to say that while some things in skateboarding have changed a lot over the past 28 years, the cost of boards has essentially stayed the same.Or if we measure that in real prices, adjusting for inflation (and guessing here, not actually doing the

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One of the little problems of modern life is that we can see, with our own very eyes, that the society around us is getting richer. We can do more things, faster, better, than our forefathers. Yet when we try to look at real wages it seems that we're not advancing at all, or only marginally. A goodly part of the answer is that we're calculating the real part of wages wrongly. At which point, skateboards:

If I flip to the back, there are mail-order ads for skateboard decks. The going price, depending on brand, is around $42. All of this is to say that while some things in skateboarding have changed a lot over the past 28 years, the cost of boards has essentially stayed the same.

Or if we measure that in real prices, adjusting for inflation (and guessing here, not actually doing the calculation) then skateboards have halved in price. This is roughly what we would use to compare to wages. The more general inflation rate is made up of all of the things we buy, weighted by how much of each of them we buy. There will be some things going down in real price, some in nominal, some rising in both and so on. "Inflation" is the sum of all of them, times those weights.

And yet we've an obvious problem here.  Today's skateboard is better in quality than that of 30 years ago. So, has the price really been static in nominal terms? Well, no, it hasn't. And the process of adjusting for that change in quality is "hedonic" adjustment.

This is obviously important when discussing, say, computing power. And great effort is expended to try to account for it. With a measure of success too. But our problem is that such adjustments really should apply to just about everything we use and or purchase. Even the humble skateboard.

Inflation these past few decades really has been overstated as a result of our not properly accounting for increases in quality. The usual guesstimate is 1 to 2% a year or so. Which makes a heck of a difference summed over a generation to real living standards - those things we're told haven't been improving.

This is one of those times when with a choice between an economic statistic and your own lying eyes go for the oculars. Living standards simply have been improving, whatever the estimates of real wages. 

Tim Worstall
Tim Worstall is a British-born writer and Senior Fellow of the Adam Smith Institute. Worstall is a regular contributor to Forbes and the Register. He has also written for the Guardian, the New York Times, PandoDaily, the Daily Telegraph blogs, the Times, and The Wall Street Journal. In 2010 his blog was listed as one of the top 100 UK political blogs by Total Politics.

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