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Thursday, October 14, 2010


Eleventh Post

My purpose in embarking on an extended discussion of the unemployment rate was to illustrate my thesis that the concepts we use when thinking about a large, complex society are embedded in a conception of society that is normatively and ideologically shaped. By using the carefully crafted BLS definition of unemployment, we are in effect accepting a John Galt conception of work, the labor market, capital, and all that goes with it. Quite obviously, I have not persuaded all of you [a condition with which I am long familiar, inasmuch as I am an atheist, an anarchist, and a Marxist]. So be it.

Now, I turn to a much more intractable problem. To put my claim simply and up front, the concepts we use to get a conceptual handle on a huge, complex, multi-faceted social reality cannot possibly be given a value neutral interpretation without reducing them to tautological triviality. Once again, I shall focus on a familiar concept to illustrate my claim. This time, it will be the Consumer Price Index.

I think it is fair to say that the Gross Domestic Product, the Unemployment Rate, and the Consumer Price Index are the three most widely used and cited social indices in discussions of the health or sickness of the American economy. The Consumer Price Index, or CPI, and a number of closely associated indices, are used as measures of the rate of inflation, and major economic decisions are taken by the Federal Reserve Board and the Congress on the basis of what happens to the CPI. So, let us spend a little time exploring what the CPI is, and how it is defined and calculated.

All of us, I take it, are familiar with the notion of price inflation [and some of us are even old enough to have heard old wives' tales of price deflation.] To put it simple-mindedly, inflation is a general devaluing of currency that results in smaller quantities of commodities being purchasable by the same nominal unit of money. A long, slow inflation took place over many centuries in medieval and early modern Europe as a result of the influx of quantities of gold from the New World, with the result that landed aristocrats became land poor and were forced to allow their serfs to convert their labor services into money rents, with dramatic consequences for the economic evolution of the continent. In 1960, Karl Heider, a fellow member of the Winthrop House Senior Common Room at Harvard, made ready to join an anthropological expedition to uplands New Guinea to study the nDani, a headhunting people who used cowrie shells as their currency. Cowrie shells, which were widely used in this manner in various parts of the world, are sea shells that were traded up from the New Guinea coast. A nice old lady in Lexington who knew the leader of the expedition gave them her prize shell, a monstrously large exemplar. At the farewell dinner for Karl, we joked that if he showed up among the nDani with that shell, he would inflate the currency. Sure enough, he wrote back some months later that although, when they arrived, one shell would buy a pig, after some months of their interactions with the locals, it took a number of cowrie shells to buy a comparable pig.
In the American economy, there are thousands upon thousands of distinguishable commodities and services, each priced in dollars. Some are clearly changing in price, either seasonally or persistently, regionally or nationally. Think, to take only one example, of the endless fluctuations in the price of a gallon of gasoline. How are we to grasp these bewildering changes conceptually?

Intuitively, it is obvious to all of us that prices have been rising over time. When I was a boy, my weekly allowance was twenty-five cents. With that quarter I could buy a ticket to the Saturday matinee at the Main Street Movie Theater [twelve cents], where I could see two main features, an episode of a serial, the News of the Week in Review, previews of coming attractions, and four or five Loony Tunes cartoons. That left twelve cents for a chocolate ice cream sundae with chocolate sauce on top, and a penny for mad money. Today, a senior citizen ticket costs me six dollars at the local Regal Cinema, and even allowing for the possibility that movies have gotten better, so that I am really paying for a superior product [a thesis that I will deny to my dying day], pretty clearly something is happening to the currency.

What to do? How can our trusty Bureau of Labor Statistics get a handle on what is happening nation-wide to prices, so as to determine definitively whether prices really are inflating, and if so, by how much?

There are really three distinct questions, all of which must be answered before we can attempt to identify and measure inflation. These are: What are we measuring? How do we measure it? And, most problematic of all, How do we translate what we have measured into a usable indicator of inflation?

The first question may seem trivial, but is in fact rather problematic. There are tens of thousands, if not millions, of distinct commodities and services offered in the America marketplace, and they carry different prices. Shoes? What sorts of shoes? Dress shoes, sneakers, flip-flops, heels, hiking shoes, hip boots, loafers, red shoes, brown shoes, shoes with tassels, shoes with wing tips? Is a shoe for sale in Boston a different commodity from the same shoe offered for sale in L.A.? Does a dress for sale at a designer boutique become a different commodity when it is remaindered at a discount house? Are organic tomatoes a different commodity from non-organic tomatoes? Is local produce at a farmer's market simply more expensive than the same local produce at a supermarket, or is the experience of shopping at the farmer's market part of what one is paying the higher price for? Does a designer label on a pair of slacks make that pair a different commodity from a pair of slacks turned out in the same Chinese factory without the designer label?

Services are no less difficult to classify. "A doctor's visit" is one thing at Massachusetts General Hospital and another thing at a storefront clinic [I decline to suggest which is the superior service.] Not all plumbers are equal, nor are all lawyers, or all rotorooter servicemen.

The only solution is to group commodities into classes and categories, and then try to track changes in the price of the category. But, as it will surely occur to you, this is going to pose very difficult problems, because the prices of some items in a category may move in one direction while the prices of other items in the same category may move in an opposite direction.

The BLS does just that. It groups commodities and services into categories, pretty finely broken down, and then checks regularly to see how prices in each category are changing. It should be obvious that this grouping encodes a certain way of understanding social reality, and very such way of understanding excludes other alternative and perhaps equally defensible ways of understanding. Just to take one example of many: Should commodities or services produced in accordance with religious laws be grouped together, and differentiated from commodities and services not so produced? [Is it relevant to the classification whether items are kosher or not?]

Once the grouping and classifying has been accomplished it is time to find out what is happening to each category of good or service. Now, in economics texts, all markets clear and all exemplars of a commodity sell at a price determined, we are assured, by the intersection of a demand curve with a supply curve. But as everyone knows who actually shops, nothing remotely like this is true in the real world. When I shop for dinner, [as I do each day, since I do the cooking in our little household], I buy staples at the Harris Teeter across the street, and then I drive to Whole Foods for the fish, because their fish is really of better quality. When I walk through the produce section on my way to the fish counter, I idly notice the exorbitant prices for zucchini [$2.2.9 a pound, as compared with $1.79 at Harris Teeter] or asparagus [a bunch of anemic asparagus at Whole Foods costs so much it ought to have its own lay away plan!] last week, I decided that I needed a barebones pair of spare glasses to take with me on trips in case something happened to my regular glasses. The local oculist, after some pressure, allowed as how they could do an absolutely basic pair of glasses in my prescription for $75 -- a bargain, considering that one can easily drop $800 there for a fancy pair. Walmart did it for me for $49.

What does the BLS do? Well, it identifies a sample of retail outlets and service providers, and sends interviewers fanning out across the land to find out what goods and services are going for in all the different categories in those sampling points this week. Once again, the BLS is well aware of all the problems I am talking about, and actually generates regional as well as national figures, to take account of the fact that, as we say, the cost of living is different in different parts of the country.

Well, this is running on, so I will stop for the moment, and get ready for my trip tomorrow to New York to give the keynote address at a Teachers College conference. I will try to resume this multi-part blog on Sunday.

There is an old joke about the little son of a philosopher who asks his mother, "Mommy, what are rainbows?" She is busy, and tells him, "Go ask your father." He replies, "I don't want to know that much about rainbows." Well, Luke's Mother, did you think this was what you would get when you asked me about studying society?


luke's mother said...

LOL. At most I thought the question would result in a brief blog post of about three paragraphs or so. Thankfully, you have expanded the topic into several posts, all of which have been a delight to read and learn from. You covered many topics I would not have considered asking about. The content dealing with Marx's thought is especially appreciated.

Have a good few days and I look forward to your next post in the series!

NotHobbes said...

Safe and pleasant trip

I too, eagerly await the next post in this series

David Pilavin said...

If jokes about philosphers are mentionned,

For a long time I am trying to verify a vicious rumor we have here in Israeli philosophical circles:

Is it true that philosophers in the States are exempt from Jury Duty because they lack commonsense?

Robert Paul Wolff said...

No. They are exempt because they cannot grasp the concept of "beyond a reasonable doubt."

David Pilavin said...

Ah! So it is true! Wow - now I have this fact confirmed "beyond a reasonable doubt"...