
A billion prices can’t be wrong - Symmetry
http://timharford.com/2016/05/a-billion-prices-cant-be-wrong/
======
s3r3nity
Ooh I worked on this project as an undergrad years ago as a research
associate! Awesome to see it get more press! It blows my mind that more
economists aren't leveraging big data to address macroeconomic problems &
models; the data is less actionable than microeconomic/game theory problems,
sure, but the learnings can be more impactful to policy in the long run.

When this project was started, we were only looking at three big markets: real
estate, groceries, and general "home goods" (washer machines are an example.)
Essentially, using the CPI for inspiration and neo-classical macroeconomics
with the "household unit" as the center of importance, those 3 groups seemed
ideal as an MVP for the project. What I worry about is how they're going to
update the model and structure of the project to incorporate the intersection
of globalized markets (going to the iPod example, what if some variability in
price can be explained by price stickiness, or lack thereof, of labor prices
in China? etc.)

Nevertheless - I'm all for the hacking/big data community seeing more of
what's going on in the macroeconomics world, as I think it's just ripe with
opportunity.

~~~
gshulegaard
As a student with an undergrad degree in Economics, I got into Python
programming specifically for the potential applications of Big Data to
Economic policy. A shame that my professional career took me a tangential
direction, but I hope to eventually take what I am learning now and direct it
back towards Economics at some point the future.

Glad to see actual Economists are exploring the area.

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emluque
This is a graph I made some time ago comparing the Billion Price Projects
index data (which I downloaded from their site) with the Argentine Monetary
Base as reported by the Argentine Central Bank:

[http://imgur.com/Xyd8RXa](http://imgur.com/Xyd8RXa)

The black line is Argentine Monetary Base as reported by the Argentine Central
Bank. The blue line is the BPP data, the green line is the official Inflation
rate as was reported by the government at the time. Note: the left Axis
numbers represent Millions of Pesos and represents the value of the black
line.

Kind of difficult not to jump into conclusions.

Last but not least I did a website that mines Argentine Central Bank Data
daily and produces Graphs and reports based on it:
[http://estadisticasbcra.com/en](http://estadisticasbcra.com/en) . It includes
a public API:
[http://estadisticasbcra.com/api/documentation](http://estadisticasbcra.com/api/documentation)
if someone wants to use the data I'm compiling.

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ChuckMcM
This is a great technique, at one point I had proposed to Google's economist
that once they had the last 100 years of newspapers digitized, one could go
through the advertisements in them to compute a variations on price indexes
and compare them. In particular how important was energy and food? or rent? or
substitution of goods?

I got interested in the question at a young age when my mother showed me a
picture of a grocery store, where new york strip steak was on sale for 10
cents a pound. And I asked why it cost so much more for steak when I was
looking at the picture versus when it was taken. And I got the "simple"
explanation of inflation, "Things cost more now."

The real value of the work being done by Cavallo though will be later water
when you have both 100 years of prices and the detailed news stream to go
along with it. People have a wide variety of opinions about whether or not
abandoning the Bretton Woods system had the effect on prices that some claim
or if other factors were to blame.

I expect we will see truly actionable economic insights from projects like
these.

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chris_va
One major problem with inflation tracking, which this approach has the
potential to solve (though does't appear to yet), is that measuring the
_quality_ of the product over time is hard.

Wages have averaged flat for the last 20 years "with inflation", but $1000 for
medicine buys you a much better product today than the "equivalent" amount of
money 20 years ago. Traditional basket of goods models tend to assume quality
parity.

~~~
Retric
Staple food, furniture, and clothing quality has been going down for decades.

In longer time frames food has maintained value for very long time periods,
but salt has dramatically dropped in value. If you compare baskets the prices
that stay drown out the ones that drop off a cliff. Which makes inflation a
tricky subject over very long time periods.

EX: Food and land in ancient Mesopotamia has value in our modern economy. Clay
tablets are kind of meaningless, and pottery is really hard to judge.

~~~
chris_va
How do you value the ability to buy oranges at any time of the year? The
ability to buy shirts of any color/size, within minutes? I don't know if I
would agree that the quality has been going down, it really depends on how you
define quality :).

Basically, I completely agree that it is tricky, and traditional hedonistic
adjustments really are pretty poor approximations.

~~~
Retric
It's a really complex question. As a trade-off between really tasty oranges or
good looking cardboard available year round I will take seasonal oranges. I
used to love Oranges, but they have become so bland I simply stopped.

As to clothing, I have bought cotton clothing that barely survives a single
wash. Sure it's cheap, but it's like they started designing clothing to look
good in your closet if you never wear them. It feels like your choices are 50
loads for 60$ or 2 +/-2 loads for 5$.

PS: The sad thing is even orange juice has gotten worse. Fresh or frozen makes
little difference they both suck.

~~~
chris_va
Random fact... Orange juice loses its flavor when pasteurized, always has. If
you want "real" orange juice, you need either fresh or cold (high pressure to
sterilize) pressed, which you can now buy.

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davidw
Tim Harford's a good writer - he's got some books that I highly recommend as a
gentle introduction to economic thinking:

* "The Undercover Economist" \- [http://amzn.to/1sCImVw](http://amzn.to/1sCImVw)

* "The Undercover Economist Strikes Back" [http://amzn.to/24bIFT3](http://amzn.to/24bIFT3) \- this one's about macroeconomics.

As well as various others. One thing I like is that they're mostly fairly
neutral - he's really trying to explain the thinking, rather than beating you
over the head or espousing one position.

~~~
njs12345
More or Less is also an excellent radio program he narrates on economics and
statistics, definitely worth a listen:
[http://www.bbc.co.uk/programmes/b006qshd](http://www.bbc.co.uk/programmes/b006qshd)

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chiph
> While the project confirmed that Argentina’s inflation numbers could not be
> trusted, it also showed that the US inflation numbers published by the US
> Bureau of Labor Statistics could be.

There were conspiracy theories floating around in the 2007-2010 time-frame
(and still may be) that the published BLS numbers were being manipulated for
political reasons (much as in Argentina), and it's reassuring that there's
some confirmation that they weren't.

~~~
neffy
The other way to cross check this is to look at the relevant M2/M3's
(definitions vary between countries), but otherwise knows as "the total sum of
bank deposits" in a countries banking system.

i.e. compare and contrast:

Argentina:
[https://research.stlouisfed.org/fred2/series/MYAGM2ARM189N](https://research.stlouisfed.org/fred2/series/MYAGM2ARM189N)

USA:
[https://research.stlouisfed.org/fred2/series/M2](https://research.stlouisfed.org/fred2/series/M2)

The USA's money supply has a doubling function of 2x decade, while Argentina
managed something like 12x 2006-2016.

The people who were predicting hyperinflation in the 2007-10 timeframe for the
USA were predicating the banking system's behaviour based on the regulatory
framework in the old gold standard regimes, and not under the newer Basel
capital controls. Which is not to say that you can't get hyperinflation with
Basel, but you need to do a little more than just inject asset money into the
system.

~~~
roymurdock
Stricter capital controls are only one (arguably less important) side of the
equation, with weak aggregate demand being the other.

~~~
neffy
There's really no evidence for that. The evidence is that the American banking
system doubles its money (and direct lending) every decade, and has done for
the last 50 odd years. If there was actual weak demand, you would expect it to
stop expanding, or expand at a lower rate, and that's exactly what you don't
see.

Compare and contrast with the UK for example (M3, because no standard
definitions etc.):

[https://research.stlouisfed.org/fred2/series/MABMM301GBM189S](https://research.stlouisfed.org/fred2/series/MABMM301GBM189S)

The UK btw, doesn't have a formal central bank reserve percentage (it has
fairly minimal liquidity provisions which are the same thing, but still).
Economics needs to wake up and realise it does not understand how the monetary
system actually works.

~~~
roymurdock
[https://research.stlouisfed.org/fred2/series/M2V](https://research.stlouisfed.org/fred2/series/M2V)
addresses your argument about the money supply. Important to look not only at
the aggregate amounts, but the velocity of money to see spend/save trends.

But there are a lot of other economic indicators that you need to consider
outside the money supply when talking about aggregate demand. Look at interest
rates as one example, which are a proxy for how expensive (highly demanded)
money is, and ask yourself why they are at an all-time low and stagnating at
the ZLB, with short-term rates even going negative in some countries.

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dnautics
> The Edison phonograph cost $20 at the end of the 19th century; an iPod Nano
> costs about $145 today.

It's also worth remembering that an edison phonograph would have probably been
useable for about 60-80 years if kept in good condition. Good luck getting 5
out of the Nano. But yeah, collecting a billion prices and forgetting about
each after a pairwise collection is a brilliant choice.

~~~
xenadu02
$20 in 1891 is ~$500 today. I'm sure the iPod nano could be an heirloom-
quality device if you were willing to pay $500 for it. The photograph was
certainly _not_ maintenance-free so for equal comparison we have to assume
even with a massive over-subscription of flash you'd need to replace the
memory every 10-15 years. The battery probably every 5.

It's a difficult problem to reason about because our own perceptions are
anchored to what we know. You couldn't have had a modern home air conditioner
at any price in 1891. Ten billion dollars couldn't have bought you the
computing power of a MacBook Pro in 1950.

The quantitative and qualitative gap between successive generations of
computing technology is many orders of magnitude beyond what any other
technology has ever experienced in human history, and the generations
themselves have happened orders of magnitude faster too. I don't even know how
you compare these things in economic terms because the baseline equivalence
between products is nonsensical to start with.

~~~
dnautics
> the baseline equivalence between products is nonsensical to start with.

That's exactly my point. Nonetheless, traditional econometric analyses do
exactly that, arbitrarily creating multipliers (hedonic adjustments, e.g.)
which normatively make assignments as to what a consumer "should" value in a
product. These assignments often throw out important considerations, merely
because they're 'difficult to calculate'.

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iheredia
For anyone wondering, this is the argentinian site that gathers the prices:
[https://www.preciosclaros.gob.ar/](https://www.preciosclaros.gob.ar/) (while
I wasnt involved in the development, I work in the same goverment dependency
that developed the site)

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Etheryte
Very interesting, doubt it will happen, but would love to see their data (or
some portion of it) released.

~~~
mikeyouse
[http://bpp.mit.edu/datasets/](http://bpp.mit.edu/datasets/)

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rwmj
If it doesn't include rental/mortgage payments, or the price of energy, it's
not really measuring inflation. It's absurd that inflation in the UK is
supposedly <0.5% when rents are going up so much each year.

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fiatjaf
How exactly do these people process the raw prices data? Where can I read
about it?

