The Rules, Part LIX

Productivity increases are only so when they result in an increase of desired consumer goods purchasable at prior prices.

As I commented in my last piece, I’m scraping the bottom of the barrel as I come to the end of this series.  I’ll keep this short.  The concept of hedonics has some value as it tries to adjust price indexes for quality improvements.  Where it goes wrong is equating technical improvement with usefulness.  With products where technology is improving rapidly, often hedonic improvements cannot be measured, because the prior product is no longer being sold.  If it were being sold, it would provide significant information about how much people value product improvements.  As it is, sometimes economists try to estimate improvement in value off of technical improvements.

A computer that is twice as fast, with twice the RAM and twice the storage, is not twice as valuable.  To the degree that hedonics takes shortcuts  to estimate value, it overestimates how much value is added by technological improvement.