back to article Improved Apple Watches won't get more expensive? Hmmm

It really is true, economists are a bit weird, and this rubs off on those interested in the subject. Most people when confronted with the Christometer seem to think about the bling value. Or, when presented with the iPhone itself, those same people instead think about how great it is to do email while sitting on the lavvy. To …

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  1. The Crow From Below

    "That's just mad. $700 worth of iPhone in 2007 is worth the same as $700 of iPhone 6 in 2015? Adjusted only for the general inflation rate over those years and not for the improvement in performance? Whut?"

    Apple (it's manufacturers) have continued to improve the design, manufacturing and distribution costs over the years. I am pretty sure I have read somewhere (can't remember and can't be bothered to look for the article) that Apple have reduced the whole design, build, distribute process cost in half from what it once was. So they are factoring in the increased performance of the hardware in the price, they have just reduced the costs to themselves massively.

    So whilst people are saying "wow look at what you can get for the same money as 8 years ago" they really should be saying "hey Apple, you pay so much less now, where the fucks our discount"...

    1. Dave 126 Silver badge

      >they really should be saying "hey Apple, you pay so much less now, where the fucks our discount"...

      In terms of economics, what it costs Apple to actually make the iPhone 6 is irrelevant, except with relation to how much it costs Apple's rivals to make competing products. The manufacturer will sell their products at a price that suits them (usually to improve margins, but one might discount products to gain market share. Apple have done their sums and determined that enough people will pay the asking price - and APPL's bottom line suggests that they have pitched it well.

      Of course, it suits Apple to try and make sure there are no competing products; someone might instead buy a Samsung and it will still make phone calls and play YouTube videos, but it won't be a FaceTime terminal or iWatch companion. The user might have already invested (money and learning) in propriety iDevice-compatible kit, so a HTC handset won't be a swap-out alternative (, i.e level competition) for an iPhone.

      This isn't the area of economics that is being discussed in the article. The argument being made is that a computer sold in the eighties for £1000 was a word processor and spreadsheet. It then, slowly, acquired the ability to be a photograph archive, drafting board and music player. Today, it is also a video editor, physical model simulator, and video-phone. (And my ageing Core2 Duo laptop also functions as a fan-heater)

      1. Yet Another Anonymous coward Silver badge

        Meaning that the real rate of inflation has fallen dramatically.

        The Cray-YMP I started working on in the late 80s cost a £squllion and is now outclassed by the GPU in my laptop. Therefore inflation has fallen by £squllion/$500 in the last 25 years

        1. Dave 126 Silver badge

          Re: The Cray.

          That actual computation isn't directly affecting your quality of life - what you do with that computation might do. You might enjoy better weather forecasts today, or new pharmaceuticals, or a car that has made it market more quickly... but not by a factor of a squillion.

          1. Yet Another Anonymous coward Silver badge

            >That actual computation isn't directly affecting your quality of life

            It was a comment on the kind of inflation rate rigging that various governments do!

            Their "basket of houshold items" includes a 40" plasma TV - in 2005 that cost £1K, now it costs £200. So although food, fuel and housing costs have risen they can show that these have been cancelled out by the fall in the cost of their basket of goods/

            1. Ossi

              Why is that rigging, unless you define the inclusion of any items that fall in price as 'rigging'? The TVs or whatever are there because we, you know, sometimes buy TVs. Their weighting in the index is appropriate to how much of our income we spend on TVs.

              1. This post has been deleted by its author

          2. LucreLout

            @Dave126

            That actual computation isn't directly affecting your quality of life - what you do with that computation might do. You might enjoy better weather forecasts today, or new pharmaceuticals, or a car that has made it market more quickly... but not by a factor of a squillion.

            You have to account for the opportunity cost too. Just because you [1] might only use your computer to watch cat videos on the interwebs doesn't mean you don't have the opportunity to use it for so much more.

            Take a super computer 30 years ago. You'll be able to beat that spec with an off the shelf PC today. The price of the super computer is the opportunity cost - what it costs to have that facility made available to you. The value you derived from that depends on what you used it for.

            [1] You generic you, as opposed to a cat obsessed instance of Dave126

          3. Simon Harris

            "That actual computation isn't directly affecting your quality of life - what you do with that computation might do... but not by a factor of a squillion."

            The ability to do computations fast enough that you can do 2D FFTs in real time in an MRI scanner might affect your life if it allows a life-threatening condition to be found and treated in time. Some might say that avoiding a premature death makes you a squillion times better off.

            1. Anonymous Coward
              Anonymous Coward

              > The ability to do computations fast enough that you can do 2D FFTs in real time in an MRI scanner might affect your life

              Avoiding a premature death is a good thing. However, a MRI scanner becomes a component of the basket of goods and services that make up CPI, it won't affect the inflation rate.

        2. Fink-Nottle

          > The Cray-YMP I started working on in the late 80s cost a £ squllion

          To me, it's more like - in the old days, calculations were done on a £1 slide rule; now they're done on a £1000 MBP. On the face of it, the cost of calculating stuff has risen by %1000, and inflation rates reflect this. In reality, a laptop can actually contribute to lowering living costs.

          1. jonathanb Silver badge

            But if you had a whole page of calculations to re-do, it would take maybe an hour with a slide rule, a sheet of paper and a pen, whereas a spreadsheet can do it in considerably less than a second. That the total cost of performing the calculation in terms of equipment plus wages is much lower than it used to be.

            1. Justthefacts Silver badge

              Only if you do calculations for fun....

              The company gets one day's worth of competing in the market in return for one days worth of wages. Slide rules or supercomputers.

              Plus, research shows that broadly people aren't made happy by absolute material wealth. The only thing that makes them happy is being paid more than the average of their peers.

              Dealing with that at the moment at work. Eight people, each of who did not give a flying toss about the company bonus, but all want to be paid above average for the team and complain daily.

              Very hard to get hedonic rises in the real world

              1. Anonymous Coward
                Anonymous Coward

                @Justthefacts: Re: Only if you do calculations for fun....

                "Plus, research shows that broadly people aren't made happy by absolute material wealth. The only thing that makes them happy is being paid more than the average of their peers."

                The first part is true, but I'm not convinced about the second bit. In my experience, people's happiness in the workplace is an extremely complicated mix of factors - and relative pay is just one of them. Engineers, for example, will often care less about the financial rewards if the work is interesting and/or the tools are cool. Working for enlightened and competent managers can also be a big plus. However much you earn, crap management can make you unhappy.

            2. Fink-Nottle

              @jonathanb

              You're correct that in a business setting the total cost per calculation has reduced significantly.

              However, inflation is determined by a basket of consumer goods and this basket reflects the lifestyle of the average consumer. The OP suggested that the move from Cray to laptop should have resulted in a reduction of inflation.

              I was pointing out that the opposite is true. Over the past 30 years, there has been an increase in the number, and value, of tech items that make up the consumer basket - without a massive hike in inflation rates -m and that's hedonistic improvement.

              As the article points out, economic statistics cannot tell us how life is getting better, but a comparison of the current consumer basket with those of the past can be quite telling.

          2. Naughtyhorse

            To me, it's more like...

            and factor in the time taken to do the calc on a slide rule as opposed to a multi-petaflop machine...

            back up to the squillions.

            aythankeyew

    2. Anonymous Coward
      Anonymous Coward

      The fuck your discount is here

      The iPhone cost $599 subsidized at release. A few months later Apple reduced the price to $399 subsidized. Later they dropped it to $199 subsidized, which is roughly where it remains today.

      At least since the iPhone 3gs, the manufacturing cost has been roughly constant. Some things go up in cost, others go down, the total BOM is around $200 every year when the new model is released.

      Just because you think "hey, you guys are making a lot of money, you should charge less" doesn't mean they will or should do. If you found a cache of gold coins buried in your backyard, you're going to sell them for $5 each since they only cost you a couple hours of digging, right? No? Of course not, you'll sell them at a price the market will bear. The melt value of gold if they're common and pretty beat up, a large premium to that price if they are rare and/or in pristine condition.

      The iPhone costs what it costs because Apple believes that is the profit maximizing price. They could obviously sell it for less, but if they dropped $100 off the price they don't believe they'd sell enough more of them to make up for the $100 less on all the ones they would have sold anyway and thus their overall profit would be less. They also feel that if they charged $100 more they'd surely have plenty of takers, but they'd sell fewer to the point it would also lower their overall profit.

  2. John Miles

    RE: Meaning that income per inhabitant of a household has been rising

    Or more members of the household are working for longer - so possible wages have fallen which has been offset by higher percentage of households having multiple breadwinners spending more time at work (e.g. several part time jobs)

    1. Frederic Bloggs

      Re: RE: Meaning that income per inhabitant of a household has been rising

      My finger in the air guess is that the median number of persons that work / household has definitely increased since the 1960s.

      1. Naselus

        Re: RE: Meaning that income per inhabitant of a household has been rising

        We've called Tim out on this one before - household sizes haven't actually been decreasing since about 1990 anyway, so the it's not true that income per person has been secretly increasing.

  3. Yet Another Anonymous coward Silver badge

    Total compensation

    So because health insurance is so insanely expensive, and rising and employers have to pay it - that statistically is equivalent to rising wages?

    1. Tim Worstal

      Re: Total compensation

      "So because health insurance is so insanely expensive, and rising and employers have to pay it - that statistically is equivalent to rising wages?"

      Not quite: it's rising compensation, definitely, but not quite rising wages.

    2. jonathanb Silver badge

      Re: Total compensation

      Rising labour costs, certainly.

      You can argue that part of your income is a barter transaction of healthcare rather than cash, and because healthcare costs are rising, and you receive the same healthcare as before, your wages are rising by the same amount.

      1. Persona non grata

        Re: Total compensation

        Surely the flip side, a healthier workforce, is a balancing efficiency increase.

        Why doesn't this get factored in?

        There are two sides to a ledger after all.

  4. Zog_but_not_the_first
    Windows

    Hmmm... smoke and mirrors?

    I think we can all agree that people in the developed world have become richer in terms of stuff, but at the same time many are looking at working longer hours, living in smaller houses than their parents (and renting them) etc., etc. So, perhaps we also need some index on how people have become poorer to do the overall sum.

    I remember some think tank in the 70s predicting that citizens in the 21C could look forward to an income of $100k p.a.; what happened to that? Maybe if we divided up all the money equally... (trolling slightly here)

    On the plus side the tramp has never had it so good as he can now choose from discarded cans of beverages from around the world to enjoy in his skip (US dumpster) that his antecedents could only dream of.

    1. Tim Worstal

      Re: Hmmm... smoke and mirrors?

      "many are looking at working longer hours"

      Not true across the population. We all have more leisure than any previous generations ever did.

      Paid (or market) working hours for women are up, for men down. And unpaid (or household) working hours for both sexes are significantly down. The balance being fewer working hours and more leisure.

      We're getting ever more stuff and working ever less to get it.

      1. Yet Another Anonymous coward Silver badge

        Re: Hmmm... smoke and mirrors?

        >Paid (or market) working hours for women are up, for men down.

        For those paid hourly whose hours are logged.

        For the rest of us hours have definitely increased. My steelwork(ing) father worked shifts for 40hrs/week. I sit at a nice comfy desk - and it's a little bit safer - but I am at my keyboard for 10-12hours a day, a couple of times a year we have a crunch where we work weekends / all nighters for 2-3months. House prices in this city also mean I have a commute that he would consider a day trip. Any free time is taken up with professional development, meetups, networking events etc.

        I earn a lot more, contribute more to GDP, and I don't have to work in a coalmine - but in tech we have created jobs that are now completely your life.

        1. Dave 126 Silver badge

          Re: Hmmm... smoke and mirrors?

          >>" living in smaller houses than their parents (and renting them) etc., etc."

          >One would expect young adults to live in smaller houses than their parents (and renting them).

          I think he meant " living in smaller houses than their parents did when they were of an equivalent age.

          1. Zog_but_not_the_first

            Re: Hmmm... smoke and mirrors?

            I think he meant " living in smaller houses than their parents did when they were of an equivalent age.

            Yes.

          2. werdsmith Silver badge

            Re: Hmmm... smoke and mirrors?

            " living in smaller houses than their parents (and renting them) etc., etc."

            I live in an equivalent sized house, but in a "nicer" area.

            However, my parents drank and smoked a lot. I can't actually afford to drink and smoke as much as they did so I don't, therefore I am healthier and my quality of life is better. Health tax works!

            Hey! Every cloud!

      2. Gannon (J.) Dick

        Re: Hmmm... smoke and mirrors?

        "many are looking at working longer hours"

        Not true across the population. We all have more leisure than any previous generations ever did.

        --------------------------------------------------

        As you noted, Economists are weird, and quite full of shit as well. Your statistics are flawed because they are "across the population" rather than down the Meridian. The sun sets at the same time down the Meridian, but across the Australian population they are planning social events and across the European population they are shoveling snow in the dark so their income does not suffer - a fine use of the leisure time you grant them.

        The Luddites were on to something ... the invention of the electric vacuum cleaner did not "save labor", it led to a new normal in housekeeping (and wholesale dust bunny genocide)

        1. h4rm0ny

          Re: Hmmm... smoke and mirrors?

          >>"The Luddites were on to something"

          They were, but it wasn't anti-technology per se, despite how they are portrayed. It was that the profits from the technology came only to a select group. The looms meant actual starvation or the poorhouse for many of those workers. (If you want to know what the "poorhouse" was like, read Dickens).

          If someone invented a looming machine or a tractor or whatever and said, "everybody work a little less hard for the same money", few would mind. But what actually happens is "you and you, work even harder, you other dozen you have no jobs".

          So far, humanity has been able to just about keep racing ahead of the technology curve managing to upskill fast enough be useful - though every decade you need more skills and education to preserve the same level of success (outside of niche cases). There's no guarantee that we will be able to keep running forever. It may reach the point where the looms are so advanced that we are all luddites (except a small portion of owning classes).

      3. Persona non grata

        Re: Hmmm... smoke and mirrors?

        "We're getting ever more stuff and working ever less to get it." - TW

        Working fewer official hours and more unpaid, unofficial hours as headcounts are reduced and targets increased. All the changes in IR have been to this end, more ideologically driven than anything else.

        Employer (and that includes Government, as a large scale employer their figures are more impure than most) funded surveys do everything they can to hide this.

    2. midcapwarrior

      Re: Hmmm... smoke and mirrors?

      " living in smaller houses than their parents (and renting them) etc., etc."

      One would expect young adults to live in smaller houses than their parents (and renting them). You would expect as they age, gain experience, marry etc.. they would look for larger housing (if that's a goal) where they live or further out. You make choices like living in hip cool cities (and paying for it) vs bigger cheaper with longer commutes. Want a bigger house, move to the hinterlands.

      Same with paying for an iPhone vs and android. How much you have has a correlation to how you choose to spend and where you choose to spend it.

  5. Anonymous Coward
    Anonymous Coward

    Just because something can do more it does not necessarily mean it is more useful. I've used Word for almost two decades and I can't think of any new functionality that I regularly use or that has made me more productive. One could argue that PowerPoint has reduced productivity. The same applies to hardware. Many of the new capabilities fall into the "gee that's interesting" category rather than being that you need.

  6. Anonymous Coward
    Anonymous Coward

    The answer is Hollywood...

    The movie industry has existed in an alternative accounting universe for decades -- its an industry where product never makes a profit, many of the workforce are employed as casual labor (often not at very good wages) and yet despite all this some people end up making a great deal of money. This type of accounting reality has segued into real life -- you see this in the financial services industry where investor profit is marginal but somehow supports extremely well paid workers (again, like the movie industry, not everyone is well paid -- its just the insiders).

    I'd contend that this kind of creative accounting has now gone mainstream. A typical company these days is always running on empty -- there's never any money for wages, investment in equipment or anything like that because there's never any money, period. It just disappears down an accounting black hole. In a large public company where you can't quite hide the numbers you find that the money disappears and pops up in the Caymans or Ireland or somewhere like that.

    (The Guardian ran an in-depth series on this about a year ago....it should be in a text book but it disappeared....)

    1. Zog_but_not_the_first
      Thumb Up

      Re: The answer is Hollywood...

      I dunno if it originated in Hollywood, but you make an excellent point. I have seen accounting move from being an indispensable tool for managing a business to, let's face it, something a street magician would be proud of. Smoke and mirrors (pace earlier post) where "value" is extracted using financial tricks that are totally disconnected from what most people would recognise as the real world.

    2. Craigness

      Re: The answer is Hollywood...

      Google "control fraud"

    3. LucreLout

      Re: The answer is Hollywood...

      The Guardian ran an in-depth series on this about a year ago....

      Sorry, but the guardian simply aren't credible on tax avoidance issues. Anyone understanding what the Soctt trust is, where it is domiciled, who controls it, and what it is used for, could simply never trust the Guardian on this issue. They speak with a forked tongue.

  7. h4rm0ny

    I increasingly get the feeling with Worstall's articles that they're a reply to someone who's said something he's objected to and I'm hearing one half of a conversation.

    1. This post has been deleted by its author

  8. Doctor Syntax Silver badge

    Inflating computers

    "That XT that I first started on"

    With a teletype and a bit of effort I could crash the whole roomful of 1907 that I started on. Now a skiddie can lock out whole gaming networks. That's a hedonic improvement. Somewhere in the middle came crashing a Z80 box by switching on the microscope's xenons. That must have been the low point.

  9. Doctor Syntax Silver badge

    Gordon Brown

    "Gordon Brown famously changed the method of inflation measurement that he was going to use to uprate benefits, tax bands and so on, from one that included housing costs (RPI) to one that didn't (CPI) in the middle of a housing boom."

    The benefits part was only the minor problem. The big one was offloading interest rate policy to the BoE & then instructing them to base it on this same inflation measurement. So in the middle of a housing bubble interest rates were managed by a committee with their fingers super-glued in their ears going "Can't here anything. La la la".

    1. romanempire
      Headmaster

      Re: Gordon Brown

      "Can't hear anything. La la la".

      FTFY

      1. Doctor Syntax Silver badge

        Re: Gordon Brown

        Thanks. I was being hassled to go & collect grand-daughter from school.

  10. Will 28

    But Tim, didn't you classify the iPhone as a veblen good?

    Seems to me that if said classification is accurate then it makes sense that there's no hedonic adjustment. People are paying for something they could get for cheaper, and are buying a brand rather than functionality. So improvements to functionality do not change the value of the good, as it was not what was dictating it?

    Seems a bit silly though doesn't it. So I guess that the iPhone and iWatch are some kind of hybrid, only able to maintain their status as a veblen good by also keeping semi decent functionality.

  11. Anonymous Coward
    Anonymous Coward

    Just a thought

    Is there any such thing as a poor man's inflation index? A bit OT but this would surely be an important index, tracking the costs of basic essentials. Such as (the "basic" qualifier is implied):

    - foodstuffs

    - accommodation

    - white goods

    - mobile phone

    - TV and license

    - laptop/broadband

    - discount clothes

    - car/petrol/public transport

    - modest ents

    - etc etc

    OK I know this is just off the top of my head, incomplete and there will be gnashing of teeth for the TV/mobile/laptop/broadband but I do think these can rightly be viewed as "essential" for being able to pursue jobs and avoid social isolation.

    This is just because price rises (for essentials) will naturally hit those on the tightest budget hardest. Whether some new gadget has a minor effect or not on some clearly-massaged indices...well that is an issue but bigger household budgets can generally absorb such influences.

    1. Tim Worstal

      Re: Just a thought

      I think there are some attempts to calculate inflation rates for different segments of the population, yes. They might even be by ONS, I'm not sure.

      The general rule is that higher income people have higher inflation rates than lower income people. The richer you are the more services you consume, the poorer the more manufactures (and food, for this purpose, is a manufacture) as a portion of your income. And generally (over years and decades at least) services become more expensive relative to manufactures.

      1. Anonymous Coward
        Anonymous Coward

        Re: Just a thought

        I suspect that is a load of bollocks

    2. LucreLout

      Re: Just a thought

      Is there any such thing as a poor man's inflation index?

      There is something similar that tracks pensioner inflation.

      I am NOT trying to make a political point here one way or the other, its just that the list of items you give closely represents what many pensioners spend most of their income doing, so you may find it quite closely tracks the data you seek.

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