What big data can tell us about the cost of living… and public policy

“A foundational assumption in these models is the idea that taste parameters never shift… [but] our analysis shows that the assumption of time-invariant preferences for each good is neither the correct nor necessary condition to make consistent comparisons of welfare over time when there are demand shocks for individual goods….[A]llowing for demand shifts is an economically important force in understanding price and real income changes.”

sausage stall Cologne station 715.JPG

This is new economic analysis of consumer price indices based on (big) (barcode) data about what is actually sold. It is interesting analysis, I feel, in its own right. But in addition changes in tastes, demand shifts, raise the issue of whether it is appropriate for public policy to aim (as it, as religion, as philosophy has, for thousands of years) to influence what economics calls tastes, what people want.

Can we as a society want to want different things from what we currently want? Is it OK for us to want that?

If what we as consumers want turns out to be mutable, how does that affect that discussion?

(I was once in a meeting where an economist said, You have not demonstrated that the optimal amount of waste is zero. Is economics the only way to find out that optimum?)

 

Published by

Paul Hodson

Head of Unit "EnergyEfficiency" at European Commission, Directorate-General for Energy

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