According to the BLS, TV prices (olive green line) fell by 94.5% in between 1997 and 2015:
For many decades, the TELEVISION market has produced a large amount of consumer surplus. Individuals invest a lot of time watching TELEVISION, and would be ready to pay a fairly large amount for TV sets if they had to. They do not have to, since supply has actually increased greatly due to technological progress, and also since the industry is quite competitive, with lots of sellers to pick from. So the rate that individuals really pay for a TELEVISION set does not tell us how much worth they obtain from the set (other than at the margin).
A a little more sophisticated argument is that if one set sells for 10 times more than another set, then customers must obtain 10 times more worth for the fancier set. Once again, this is incorrect. Individuals purchasing expensive TV sets are different from those who select to buy cheaper sets. Why would not Bill Gates wish to get the very best Television Set at nearly any affordable rate?
In that case, even if I concerned the OLED as being just 7% better than a regular TELEVISION set, I d prefer it at a cost of $7000 over an ordinary TV selling for $1000.
Naturally, whats in fact going on here isnt a lot that people are investing less cash of TELEVISION sets, rather that they are improving TV sets when they invest $200 at the local merchant. How much better? The BLS estimate suggests that a $200 TV set bought in 2015 was 18.2 times better than a $200 set bought in 1997. What does that indicate?
Lets state the typical TELEVISION set is $200 (call it set A), and after that manufacturers bring out a fancier set (B) that offers for $1000. Some individuals then (wrongly) presume that set B is seen as 5 times much better than set A. Eventually, the price of set B falls to $200. At that point, manufacturers bring out even fancier set C, which costs $1000. Set C is (wrongly) viewed as 5 times better than set B, and by reasoning 25 times better than set A. Over time, the price of set C is up to $200. Now the BLS says that the rate of TVs has decreased by 96%, to only 1/25th of their original rate.
A TV set that cost $200 in 1997 cost $11 in 2015. Today the cost would most likely be even lower. Try to imagine visiting your regional BestBuy and asking to look at their $11 TELEVISION sets.
Does it mean the screen is 18 times bigger? Does it indicate that Georges characteristics on Seinfeld are 18 times funnier on the 2015 TV set? Is a 9th inning crowning achievement in Yankee Stadium 18 times more thrilling on the 2015 TV set?
When Ive raised this issue in the past, commenters have actually periodically recommended that “revealed preference” supplies some sort of unbiased way of ascertaining the subjective value of TV quality enhancements. That view is based on a misconception of concepts like “desire to pay” and “customer surplus”.
The older I get, the less positive I am that we have any objective way to determine utility. Keynes (1936, Ch. 4) had the very same view:
Attempt to envision visiting your local BestBuy and asking to look at their $11 TV sets.
The appropriate place for such things as net genuine output and the general level of rates lies within the field of statistical and historical description, and their function should be to satisfy historic or social curiosity, a function for which perfect accuracy– such as our causal analysis needs, whether or not our understanding of the actual values of the appropriate amounts is total or exact– is neither normal nor needed. To say that net output to-day is greater, however the price-level lower, than 10 years ago or one year back, is a proposition of a similar character to the declaration that Queen Victoria was a better queen but not a better female than Queen Elizabeth– a proposition not without significance and not without interest, but inappropriate as product for the differential calculus. If we try to use such non-quantitative and partly vague concepts as the basis of a quantitative analysis, our precision will be a mock precision.
PPS. After his discuss the rate level and real output, Keynes recommended that what we must actually be concentrating on is the cash value of income/output, and also the overall level of employment. I agree.
PS. On the other hand, the nominal aggregate expenditure on TVs is a fairly objective concept, and does have genuine significance.
BTW, Is there anything worse than an economist buffooning the general public for being regularly “prejudiced” in their forecasts of inflation, as if economic experts have some sort of clinical method of ascertaining the “real” rate of inflation? Should we truly be scolding the general public for not comprehending that given that 1997 the price of a brand brand-new $200 TELEVISION set has fallen to $11?
Is a 9th inning home run in Yankee Stadium 18 times more thrilling on the 2015 TELEVISION set?
The rate that people really pay for a TELEVISION set does not inform us how much worth they derive from the set (except at the margin).
Why would not Bill Gates want to get the best TV set at practically any reasonable price?
In that case, even if I regarded the OLED as being just 7% better than an ordinary TV set, I d prefer it at a cost of $7000 over an ordinary TV selling for $1000.