Sunday, April 30, 2006

The hidden inflation of low quality

We have two DVD/VCR combo devices at home. One has a broken VCR, the other a broken DVD. They each cost about $120 and lasted about 18 months.

We once bought a VCR for about $250 that lasted five years. We had a CD player that lasted 12 years, in today's dollars it probably cost $550 or so.

So prices have fallen by at least half, but lifespans have fallen by about 3/4. The cost of ownership has risen significantly.

I wonder if that shows up in our inflation statistics, or do they just measure the cost of purchase?

Update 6/30/2013: Economists do write about this. I found this reference in notes from in the context of price controls.
D.      Countries that exercise price controls experience:
1.      Open, reported inflation - Occurs because not all prices are controlled or because planners increase prices.
2.      Hidden inflation - Monetary price increases, but not measured.
a.      Hidden transactions - black market or "under the table"
b.      Hidden quality deterioration, false quality improvement, or forced substitution of high-quality for low-quality products
3.      Repressed inflation - Occurs when price controls are effective, and inflationary pressure causes shortages or queues.
I thought of this again when Emily tried to buy our children a 'slip and slide' water toy. It cost $5, it leaked, and Target won't accept returns (obviously, if they accepted returns they could not sell these toys).

Searching Amazon, all of these devices had 2-3 star ratings due to leaks; there was nothing available at any price that was reliable. In Akerlof's words "Only lemons are on offer". On the other hand, we could buy 4 of the $5 toys and probably one would work. If our time cost nothing, and waste disposal were free, that would be the equivalent of a $20 toy (right price).

We don't have price controls, but we do have severe worldwide deflationary pressures -- probably related to global wealth concentration. They may be having the same effect as price controls, at least when it comes to quality.

See also:

No comments: