A Tale of Two . . . Chairs

"Hedonics," Defined

After 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).

December Case-Shiller Numbers

December S&P/Case-Shiller:
Minneapolis Down 18.5%

The latest S&P/Case Shiller numbers (for December) are out, and to no one's surprise, they're dreadful: all of the nation's 20 largest housing markets show decreases, from the merely bad (Dallas, Denver) to the shocking (Las Vegas, Phoenix).

Minneapolis shows an 18.5% drop from a year earlier.

Before you jump to the conclusion that this is dramatic new evidence of market deterioration, keep in mind two things:

One. Case-Shiller is a month behind other housing statistics. Locally, the Board of Realtors is already reporting January sales activity.

Two. Foreclosures are now dominating sales activity in many markets nationally, including the Twin Cities.

Foreclosure are not exactly known for being in pristine condition, or located in the toniest neighborhoods.

As I've blogged previously (yes, it's turned into a verb, like "Google"), when consumers all switch to buying $1.89 gallons of milk at Wal-Mart from $3.49 gallons at "Deluxe Groceries," it doesn't mean that the price of milk has dropped 46%. Rather, the product mix has changed.

That's equally true in today's housing market.