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).

About the author

Ross Kaplan has 19+ years experience selling real estate all over the Twin Cities. He is also a 12-time consecutive "Super Real Estate Agent," as determined by Mpls. - St. Paul Magazine and Twin Cities Business Magazine. Prior to becoming a Realtor, Ross was an attorney (corporate law), CPA, and entrepreneur. He holds an economics degree from Stanford.

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