oops, again
Here is another article from my files. I have just included the parts relevant to the tail of the thread. Customers don't notice or don't care [or don't want to spend the time]. Most of the fees and usurious interest rates and the like fall on the backs of the poor. Besides falling outside the CPI calculations, they also mean that the distribution of income is even more lopsided. Mayer, Caroline E. 2002. Add-Ons Add Up: Firms Are Finding New Ways To Tack Fees on Basic Bills. Washington Post (17 November): p. H 1. And there's another reason companies do add-ons: Consumers let them do it. Most of the time, consumers don't notice the extra fees -- or feel they are so small, they don't care. There are only a few times when consumers have protested, most notably after Sprint decided to charge some of its PCS wireless customers -- primarily those with poor credit ratings who were on a special price plan -- $3 when they wanted to speak to a customer-service representative. -- Michael Perelman Economics Department California State University Chico, CA 95929 Tel. 530-898-5321 E-Mail michael at ecst.csuchico.edu
Re: oops, again
Michael Perelman wrote: Most of the fees and usurious interest rates and the like fall on the backs of the poor. Besides falling outside the CPI calculations, they also mean that the distribution of income is even more lopsided. How do you know they do? They should be included in the CPI calculations, based on the principles of the thing. Doug
Re: oops, again
I would be very interested to know if late fees or usurious interest rates are included. I have never heard anything about such inclusion. I would be very happy to learn more about it. On Mon, Jul 19, 2004 at 01:22:24PM -0400, Doug Henwood wrote: Michael Perelman wrote: Most of the fees and usurious interest rates and the like fall on the backs of the poor. Besides falling outside the CPI calculations, they also mean that the distribution of income is even more lopsided. How do you know they do? They should be included in the CPI calculations, based on the principles of the thing. Doug -- Michael Perelman Economics Department California State University Chico, CA 95929 Tel. 530-898-5321 E-Mail michael at ecst.csuchico.edu
Re: oops, again
they wouldn't, necessarily. The statistics people try to get a fix on the genuine average price of things, but it's a hell of a job to be sure you're comparing like with like, and the bias is likely to be entirely one way; as Michael noted earlier, how often do they make a mistake in your favour, or give you an undisclosed discount? The issues are not a million miles different from those involved in hedonic pricing. It's also very common indeed for price indices to be moved by cheap financing or discount deals which aren't necessarily available to poorer people; the differential between average prices and prices charged in poor urban areas where people don't have cars to drive to the supermarket is a known problem in the UK stats at least. dd -Original Message- From: PEN-L list [mailto:[EMAIL PROTECTED] Behalf Of Doug Henwood Sent: 19 July 2004 18:22 To: [EMAIL PROTECTED] Subject: Re: oops, again Michael Perelman wrote: Most of the fees and usurious interest rates and the like fall on the backs of the poor. Besides falling outside the CPI calculations, they also mean that the distribution of income is even more lopsided. How do you know they do? They should be included in the CPI calculations, based on the principles of the thing. Doug
Re: oops, again
Just read a bit in Tax Notes that shows you cannot logically separate financing arrangements from sticker price. Some Brit department stores are trying to finagle the VAT by characterizing part of the retail price as a credit card processing fee, thereby shunting taxable value added into non-taxable fees. This is a potential problem in the flat tax as well, if financial sector income is exempt from tax. mbs -Original Message- From: PEN-L list [mailto:[EMAIL PROTECTED] On Behalf Of Daniel Davies Sent: Monday, July 19, 2004 1:14 PM To: [EMAIL PROTECTED] Subject: Re: oops, again they wouldn't, necessarily. The statistics people try to get a fix on the genuine average price of things, but it's a hell of a job to be sure you're comparing like with like, and the bias is likely to be entirely one way; as Michael noted earlier, how often do they make a mistake in your favour, or give you an undisclosed discount? The issues are not a million miles different from those involved in hedonic pricing. It's also very common indeed for price indices to be moved by cheap financing or discount deals which aren't necessarily available to poorer people; the differential between average prices and prices charged in poor urban areas where people don't have cars to drive to the supermarket is a known problem in the UK stats at least. dd
Re: oops, again
It's true that often customers don't care. But often it's because they don't have the time, don't have the education, are totally overwhelmed by circumstances, trust authority too much, are depressed, or the like. Jim Devine [EMAIL PROTECTED] http://bellarmine.lmu.edu/~jdevine -Original Message- From: PEN-L list [mailto:[EMAIL PROTECTED] Behalf Of Michael Perelman Sent: Monday, July 19, 2004 10:21 AM To: [EMAIL PROTECTED] Subject: [PEN-L] oops, again Here is another article from my files. I have just included the parts relevant to the tail of the thread. Customers don't notice or don't care [or don't want to spend the time]. Most of the fees and usurious interest rates and the like fall on the backs of the poor. Besides falling outside the CPI calculations, they also mean that the distribution of income is even more lopsided. Mayer, Caroline E. 2002. Add-Ons Add Up: Firms Are Finding New Ways To Tack Fees on Basic Bills. Washington Post (17 November): p. H 1. And there's another reason companies do add-ons: Consumers let them do it. Most of the time, consumers don't notice the extra fees -- or feel they are so small, they don't care. There are only a few times when consumers have protested, most notably after Sprint decided to charge some of its PCS wireless customers -- primarily those with poor credit ratings who were on a special price plan -- $3 when they wanted to speak to a customer-service representative. -- Michael Perelman Economics Department California State University Chico, CA 95929 Tel. 530-898-5321 E-Mail michael at ecst.csuchico.edu
Re: oops, again
Michael Perelman wrote: I would be very interested to know if late fees or usurious interest rates are included. I have never heard anything about such inclusion. I would be very happy to learn more about it. As it says on the top of every CPI release: FOR TECHNICAL INFORMATION: Patrick C. Jackman (202) 691-7000 Doug
Re: oops, again
Daniel Davies wrote: they wouldn't, necessarily. Fees most certainly should be included. Usurious interest rates would be difficult to define in a world of 18-21% credit card rates. And if they're not changing, but just constantly high, it's a distributional issue, a form of secondary exploitation, but not really a CPI issue. But a fee added to a service that used to be free, or an increase in a fee, most certainly should be captured by the CPI. Doug
Re: oops, again
I called, but did not get the person Doug mentioned. a lower level person could not answer me because he had never heard of such a consideration, so I had to leave a message with someone else. -- Michael Perelman Economics Department California State University Chico, CA 95929 Tel. 530-898-5321 E-Mail michael at ecst.csuchico.edu
Re: oops, again
I would include check cashing businesses, rent to own, Doug, are you saying that they should or they are included? On Mon, Jul 19, 2004 at 02:56:01PM -0400, Doug Henwood wrote: Daniel Davies wrote: they wouldn't, necessarily. Fees most certainly should be included. Usurious interest rates would be difficult to define in a world of 18-21% credit card rates. And if they're not changing, but just constantly high, it's a distributional issue, a form of secondary exploitation, but not really a CPI issue. But a fee added to a service that used to be free, or an increase in a fee, most certainly should be captured by the CPI. Doug -- Michael Perelman Economics Department California State University Chico, CA 95929 Tel. 530-898-5321 E-Mail michael at ecst.csuchico.edu
Re: oops, again
In my limited understanding, there are two capture issues here (my missus used to work in statistics, but every time I ask her, she keeps talking about some plants I haven't watered or something). 1. Doug is entirely right, in principle, that if a service which used to be free is now paid for, that is the sort of thing that the CPI people would be interested in. On the other hand, no statistical body on earth has the resource to monitor the proliferation of mobile phone payment plan options; even the consumer press gets confused on this one regularly. So what they do is either a) take the plain vanilla tariff option and look for changes in that, b) take a sampling of the tariffs on offer and guesstimate or, most often, c) a mixture of a) and b), mostly a) but having a look at b) every now and then in the hope that that it won't be too far out of line. Note that this would probably give you a decent estimate of the overall economy-wide average price of mobile phone services, because you would often miss the funky fees they started adding on, but you would also miss the superduper discount plans that they put forward to preferred customers and the two would quite likely cancel out. On the other hand, note that this would mean that the CPI would systematically overstate the cost of living the life of a rich person but underestimate the cost of being poor, which is a known problem of RPI and related statistics. 2. There are also, on the other hand, the late payment fees that companies often tack on to bills. It would be pretty unusual for these to be part of any price index, since at least in principle, they are not transactions between willing parties (the company makes a big show of not wanting to miss the payment) and in general only willing transactions are considered to be part of the national economy. Again, the incidence of these fees falls on two groups, a) the poor and b) the terminally disorganised. 3. Also, in order to be part of a big aggregate index like CPI, something has to be reasonably widely consumed in the economy in order to make it worth while collecting the statistics. That means that hire-purchase fees are almost certainly in there (so the financing deals on SUVs will show up as falling prices), but check-cashing services and payday loans probably aren't. In general, financial services have a surprisingly low weighting in RPIX and HICP and I would imagine that they did in CPI too. Statistics bods tend to hate financial services because it's so difficult to work out what the hell the value added is. best, dd -Original Message- From: PEN-L list [mailto:[EMAIL PROTECTED] Behalf Of Doug Henwood Sent: 19 July 2004 19:56 To: [EMAIL PROTECTED] Subject: Re: oops, again Daniel Davies wrote: they wouldn't, necessarily. Fees most certainly should be included. Usurious interest rates would be difficult to define in a world of 18-21% credit card rates. And if they're not changing, but just constantly high, it's a distributional issue, a form of secondary exploitation, but not really a CPI issue. But a fee added to a service that used to be free, or an increase in a fee, most certainly should be captured by the CPI. Doug
Re: oops, again
Michael Perelman wrote: I would include check cashing businesses, rent to own, Doug, are you saying that they should or they are included? I may have misunderstood you. I thought you were talking about fees in general. If you're talking about finance-related fees (and interest), then those things aren't covered in the CPI, since they're considered savings investment-related, and not goods services-related. The CPI's focus is on the TV's price and features, not how it's paid for. It'd be great to have measures of the kind of bloodletting finance you're talking about, but it sure would be hard to gather the info and present coherent summary stats. Besides, the CPI's focus is on short- to medium-term price changes. The kind of finance you're talking about is a fairly timeless feature of American poverty. Doug
Re: oops, again
On the other hand, note that this would mean that the CPI would systematically overstate the cost of living the life of a rich person but underestimate the cost of being poor, which is a known problem of RPI and related statistics. I forgot to mention that this is the main reason why it is always vitally important when considering whether or not to lend your support to some well-meaning social benefit package, that it should always be indexed to average wages and not to CPI. dd
Re: oops, again
Daniel Davies wrote: On the other hand, no statistical body on earth has the resource to monitor the proliferation of mobile phone payment plan options; even the consumer press gets confused on this one regularly. The BLS has a page devoted to cell phones in the CPI: http://bls.gov/cpi/cpifactc.htm. Their weight in the index is something like 0.05%. 3. Also, in order to be part of a big aggregate index like CPI, something has to be reasonably widely consumed in the economy in order to make it worth while collecting the statistics. That means that hire-purchase fees are almost certainly in there (so the financing deals on SUVs will show up as falling prices), but check-cashing services and payday loans probably aren't. In general, financial services have a surprisingly low weighting in RPIX and HICP and I would imagine that they did in CPI too. Statistics bods tend to hate financial services because it's so difficult to work out what the hell the value added is. Oddly, there's no line for financial services in the monthly CPI release ftp://ftp.bls.gov/pub/news.release/cpi.txt, but it does appear as an option in the detailed data access http://data.bls.gov/cgi-bin/dsrv?cu. My guess is that straightforward things like checking accounts would be covered, since those are fairly straightforward and essential (though 20% of Wal-Mart customers don't have them). But anything more complicated would be too complicated, and as DD says, probably not widely enough used. No doubt Pat Jackman could clear it all up in a jiffy. Doug
Re: oops, again
Daniel Davies wrote: I forgot to mention that this is the main reason why it is always vitally important when considering whether or not to lend your support to some well-meaning social benefit package, that it should always be indexed to average wages and not to CPI. It's been a while, but don't I remember Keynes using the wage unit as the numeraire in cost comparisons? I'm writing something on oil right now, and it seems to make more sense to compare prices over time using the average hourly wage rather than the CPI, given all the guesswork involved in producing a price index. Doug
Re: oops, again
Doug writes: It's been a while, but don't I remember Keynes using the wage unit as the numeraire in cost comparisons? I'm writing something on oil right now, and it seems to make more sense to compare prices over time using the average hourly wage rather than the CPI, given all the guesswork involved in producing a price index. in the GT, Keynes proposed measuring total spending in wage units by deflating the nominal amount by the wage: (total nominal spending)/(average wage). He did this because it would be proportional to total employment. It's akin to Adam Smith's labor commanded theory of value, in which the value of a commodity is how much labor it can buy. (He also has a labor embodied theory of value, which produces different results. The two are akin to exchange-value and value in Marx.) jim devine
