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Dear Editor:
James A. Shambo’s paper, “The Hedonic Pleasure IndexTM - An Enhanced Model for Spending Inflation,” does reflect information in the recent BLS report, which summarily dispels several myths about the BLS-produced CPI indexes. Mr. Shambo perpetuates these myths in his paper, although that’s probably because the BLS report wasn’t available when he submitted his paper. In any case, his anti-CPI position is substantially invalid.
Bob Bronson
Bronson Capital Markets Research
Denver, CO
Jim Shambo responds:
Mr. Bronson suggests my paper is substantially invalid because I perpetuate myths about the BLS-produced CPI indexes, citing a recently published paper “Addressing misconceptions about the Consumer Price Index” by Messrs Greenlees and McCelland in the August 2008 Monthly Review. Let’s be clear the target of this paper is not the “Hedonic Pleasure Index™” but rather critics of the construction of CPI, who claim it is understated by 7% or more.
Price indexes are constructed by the government to assist them in making macro-economic decisions. My paper does not challenge their methodology or their motives. Personal consumption and consumption growth, on the other hand, is a function of individual client behavior. My paper concludes that consumption growth is influenced not only by price changes but also by:
- Clients’ wage growth or contraction;
- Clients’ asset growth or contraction;
- Credit growth or contraction for both the individual and the economy as a whole;
- Changes in consumption behavior; and
- Changes in the economic climate
My paper further concludes that the level of individual consumption is a function, not only of the cost of the products purchased, but:
- Changes in product quantities purchased;
- Changes in the quality of products purchased; and
- Changes in attitudes toward spending
Table 1 below is an example of changing consumption behavior taken from the Pew Research Center’s “A Social Trends Report.” These consumption changes are evidence of a credit driven, instant gratification mentality and have nothing to do with the price index.
Table 1: Changing Consumption Behavior |
Consumer Item |
Necessity in 1996 |
Necessity in 2006 |
% Increase |
Microwave |
32% |
68% |
113% |
Home Computer |
26% |
51% |
96% |
Dishwasher |
13% |
35% |
169% |
Cable or Sat TV |
17% |
33% |
94% |
Cell Phone |
N/A |
49% |
N/A |
High Speed Internet |
N/A |
29% |
N/A |
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