"Hedonics," DefinedAfter almost 13 years, I finally popped for a new (home) office chair yesterday.
The chair I retired -- actually, handed down to son #2 -- was an ergonomically correct, (then) state-of-the-art job purchased from a Relax the Back store in Manhattan for almost $800 in early 1998.
Truth be told, it was an engagement gift from my then-fiance (not very romantic, unless you consider functionality romantic -- which I do).
While still serviceable, the gas lift had worn out, leaving me literally deflated and my rear end only about a foot off the ground.
Chair #2
I replaced it with a Chinese knock-off of the trendy Herman Miller Aeron chair pictured above.
Office Max had it discounted from the usual $175 to only $99.
Based on my "challenges" assembling various Ikea products, I braced for a long evening parsing instructions, puzzling over seemingly missing and mismatched parts, etc.
Instead, I found the instructions to be clear and concise, and assembled everything in 20 minutes, tops.
Chair Buyers vs. Chair Makers
Using only these two chairs as a microcosm, what can you say about how the economy has changed the last 13 years?
A couple observations come to mind:
--Cheap, overseas manufacturing is a mixed blessing.
As consumers, we definitely benefit from cheaper, imported goods.
As taxpayers and U.S. citizens, though, the loss of U.S. jobs undermines our well-being -- especially if your job used to be manufacturing office chairs.
Call it "the Wal-Mart effect" in a nutshell.
--Prices of many goods, especially manufactured ones, have experienced marked price deflation.
In fact, the $800-to-$99 price drop understates the deflationary effect.
That's because $1 in 1998 is worth about half that in 2010.
--Advances in product quality and features make apples-to-apples price comparisons difficult.
Not only is my Office Max chair dramatically cheaper than my old one, it has features the other one lacked: lumbar support adjustments, tension settings, etc.
How do you track price changes when products actually become better over time?
This challenge has given rise to the pseudo-science of "hedonics."
Hedonics Example
To take another example, consider a circa 2010 car, selling for $25,000, that has anti-lock brakes, power steering, and front and side air bags as standard equipment.
Now compare it to its 1995 counterpart -- lacking those features -- that sold for $15,000.
The $64,000 question: did car prices go up the last 15 years, and if so, how much?
At least nominally, they did, because $25,000 is more than $15,000.
On the other hand, the 2010 car buyer got more for their (less valuable) $25,000.
The answers to the foregoing are far from clear, and the stuff of what economists spend their time arguing about (no doubt sitting in their $99 Chinese knock-off chairs).
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