Thursday, August 28, 2008

Shrinking phones (and inflation?)

We take a lot of technological progress for granted these days, partly because we've become so used to it and partly because it sneaks up on you gradually. But every now and again you get a sudden jolt that reminds you just how amazing the improvements in technology are.

That's what happened when my wife recently got a new phone.

Here's Marie's old phone obtained in 2002 at a net cost of $50 ($90 with a $40 call credit).

Here's her new phone obtained last week at net cost of, well nothing ($20 with a $20 call credit).

What's my point? Well look at them side by side; the new phone is tiny in comparison.

And yet in this package that's about 15% of the volume you get a full colour screen vs. a green LCD, you get a built in web browser, you get polyphonic sound vs. a tinny mono speaker and the list goes on and on.

There's an important point here, not just about taking technology for granted but also about economics. Most economists will tell you that in our period of rapid technology improvement traditional measures of the Consumer Price Index overstate inflation because the items they are measuring now are not the same as the items that were measured in the past but are in fact much better. This case demonstrates that issue beautifully. How do you factor into the CPI something that has gone from $50 to $0 but is ten times as good? That's a problem that's more than hard to solve, it's damn near impossible.

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