Economics is often referred to as "the dismal science." Yet, some of us find it interesting - even fascinating. Perhaps it helps to be Swiss. I cite the stability of the Swiss Franc in an unpredictable, troubled world as testimony to the economic pragmatism of our prudent race - but I digress.
Among the mundane exercises of economic discourse is the construction and use of price indices. The economists at PNC Wealth Management of Pittsburgh have introduced a bit of mirth and merriment into this utilitarian exercise with their annual measurement of the Christmas Price Index, tracking the cost of a complete set of the 12 items purchased by our True Love shopper in the classic Twelve Days of Christmas.
Major consideration in the construction of a price index is selection of components, and assigning relative weights. Killjoys and the seriously inclined may question the relevance and practicality of the selections of our True Love shopper. But c'mon, let's lighten up - they do reflect a range of goods, commodities and services. Here are some highlights based on statistics compiled by economists for the 2008 PNC Christmas price index.
The total cost of the complete set of items of the PNC Christmas in 2008 is $21,080, up $1,573, or 8.1 percent, from 2007. This is considerably above the 3.7 percent increase of the more familiar consumer price index compiled by the U.S. Bureau of Labor Statistics.
Let's look at the birds purchased by our True Love shopper. The cost of the partridge increased by 33.3 percent, due to short supply. The cost of the accompanying pear tree also increased by 33.3 percent, due to higher cost of diesel fuel for transport. The cost of the Two Turtle Doves increased by 37.5 percent. But because of their low cost and, therefore, low weight in the index, this had little effect on the total index.
The cost of the Three French Hens actually fell by 33.3 percent. The Four Calling Birds and the Six Geese-a-Laying carry a greater weight in the index. A 33.3 percent decrease in the cost of the Geese and an unchanged price of the Calling Birds, along with declining value of the French Hens, helped hold down the cost of Christmas.
Not so with the Seven Swans-a-Swimming. With their high cost ($5,600), the Swans carry a disproportionate weight in the index. Because of short supply, their price increased by a whopping 33.3 percent over 2007, and account for the vast majority (89 percent) of the increased cost of Christmas 2008.
Gold represents the commodities portion of the index. The economy minded True Love shopper will be pleased the cost of the Five (14-carat) Golden Rings has decreased by 11.4 percent. Those who follow these trends know that gold is off its recent highs.
What about the services portion of the Christmas index? The Pennsylvania Musicians Union informs us that the musicians, including the Eleven Pipers Piping and the Twelve Drummers Drumming, received a three percent cost of living increase.
According to the Pennsylvania Ballet, the Ten Lords-a-Leaping received a 3 percent raise. Philadanco, a Philadelphia modern dance company, informs us the Nine Ladies Dancing received no wage increase in 2008. At first glance it might appear to be a lack of union bargaining power - or perhaps gender discrimination? But on closer examination, we find that the Ladies Dancing not only receive higher remuneration than the Lords-a-Leaping, but received the highest compensation of any of the entertainers.
In fact, the Ladies Dancing and the Lords-a-Leaping received considerably higher compensation than the Pipers Piping and the Drummers Drumming. An economist would hypothesize that this is either because dancing skills are in short supply relative to musical talent, or because of more effective union representation of the dancers. Those versed in the arts may have an alternative explanation for this phenomenon.
The Eight Maids-a-Milking are not unionized and are paid minimum wage. As the lowest-paid members of the Christmas index service sector, they represent a small component of the index. But happily, they received a 27 percent increase due to the long overdue increase in minimum wage. This increase is richly deserved, as milking is hard work. And let us emphasize this increase is on a small base - the mathematically inclined know that even a 27 percent increase on a small base is still a small number. And there is an issue of social equity here. The long-suffering Maids-a-Milking prior to 2007 had received absolutely no increase since 1997. This situation is typical of stagnating wages for many Americans in the broader economy.
The familiar consumer price index often is expressed in terms of the "core index" that omits the volatile food and energy components (2.2 percent increase for the core as opposed to 3.7 percent that includes food and energy). The Christmas price index can also be cited as a core index, omitting the volatile Seven Swans-a-Swimming. Without the volatile Swans, the core Christmas price index increased by a modest 1.1 percent compared to a 2.2 percent increase of the core consumer price index.
Under ordinary conditions, our True Love shopper would be cautioned against being overly practical in selection of gifts, as one is hard put to price love and sentiment. But even the most love struck sentimentalist must consider the relative lower cost of gold as opposed to the increased cost of the pricey swans. Given lower costs of storage and maintenance of gold relative to swans, especially for urban dwellers, and a likely female predilection for gold over birds, going light on the swans and heavy on the gold almost surely would prove to be a win-win situation for the economy minded, and even for the most sentimental, True Love shopper - at least for 2008.
- John Waelti is former Professor of Applied Economics, University of Minnesota; and former Head, Department of Agricultural Economics, New Mexico State University. He resides in Monroe and can be reached at jjwaelti@charter.net.
Among the mundane exercises of economic discourse is the construction and use of price indices. The economists at PNC Wealth Management of Pittsburgh have introduced a bit of mirth and merriment into this utilitarian exercise with their annual measurement of the Christmas Price Index, tracking the cost of a complete set of the 12 items purchased by our True Love shopper in the classic Twelve Days of Christmas.
Major consideration in the construction of a price index is selection of components, and assigning relative weights. Killjoys and the seriously inclined may question the relevance and practicality of the selections of our True Love shopper. But c'mon, let's lighten up - they do reflect a range of goods, commodities and services. Here are some highlights based on statistics compiled by economists for the 2008 PNC Christmas price index.
The total cost of the complete set of items of the PNC Christmas in 2008 is $21,080, up $1,573, or 8.1 percent, from 2007. This is considerably above the 3.7 percent increase of the more familiar consumer price index compiled by the U.S. Bureau of Labor Statistics.
Let's look at the birds purchased by our True Love shopper. The cost of the partridge increased by 33.3 percent, due to short supply. The cost of the accompanying pear tree also increased by 33.3 percent, due to higher cost of diesel fuel for transport. The cost of the Two Turtle Doves increased by 37.5 percent. But because of their low cost and, therefore, low weight in the index, this had little effect on the total index.
The cost of the Three French Hens actually fell by 33.3 percent. The Four Calling Birds and the Six Geese-a-Laying carry a greater weight in the index. A 33.3 percent decrease in the cost of the Geese and an unchanged price of the Calling Birds, along with declining value of the French Hens, helped hold down the cost of Christmas.
Not so with the Seven Swans-a-Swimming. With their high cost ($5,600), the Swans carry a disproportionate weight in the index. Because of short supply, their price increased by a whopping 33.3 percent over 2007, and account for the vast majority (89 percent) of the increased cost of Christmas 2008.
Gold represents the commodities portion of the index. The economy minded True Love shopper will be pleased the cost of the Five (14-carat) Golden Rings has decreased by 11.4 percent. Those who follow these trends know that gold is off its recent highs.
What about the services portion of the Christmas index? The Pennsylvania Musicians Union informs us that the musicians, including the Eleven Pipers Piping and the Twelve Drummers Drumming, received a three percent cost of living increase.
According to the Pennsylvania Ballet, the Ten Lords-a-Leaping received a 3 percent raise. Philadanco, a Philadelphia modern dance company, informs us the Nine Ladies Dancing received no wage increase in 2008. At first glance it might appear to be a lack of union bargaining power - or perhaps gender discrimination? But on closer examination, we find that the Ladies Dancing not only receive higher remuneration than the Lords-a-Leaping, but received the highest compensation of any of the entertainers.
In fact, the Ladies Dancing and the Lords-a-Leaping received considerably higher compensation than the Pipers Piping and the Drummers Drumming. An economist would hypothesize that this is either because dancing skills are in short supply relative to musical talent, or because of more effective union representation of the dancers. Those versed in the arts may have an alternative explanation for this phenomenon.
The Eight Maids-a-Milking are not unionized and are paid minimum wage. As the lowest-paid members of the Christmas index service sector, they represent a small component of the index. But happily, they received a 27 percent increase due to the long overdue increase in minimum wage. This increase is richly deserved, as milking is hard work. And let us emphasize this increase is on a small base - the mathematically inclined know that even a 27 percent increase on a small base is still a small number. And there is an issue of social equity here. The long-suffering Maids-a-Milking prior to 2007 had received absolutely no increase since 1997. This situation is typical of stagnating wages for many Americans in the broader economy.
The familiar consumer price index often is expressed in terms of the "core index" that omits the volatile food and energy components (2.2 percent increase for the core as opposed to 3.7 percent that includes food and energy). The Christmas price index can also be cited as a core index, omitting the volatile Seven Swans-a-Swimming. Without the volatile Swans, the core Christmas price index increased by a modest 1.1 percent compared to a 2.2 percent increase of the core consumer price index.
Under ordinary conditions, our True Love shopper would be cautioned against being overly practical in selection of gifts, as one is hard put to price love and sentiment. But even the most love struck sentimentalist must consider the relative lower cost of gold as opposed to the increased cost of the pricey swans. Given lower costs of storage and maintenance of gold relative to swans, especially for urban dwellers, and a likely female predilection for gold over birds, going light on the swans and heavy on the gold almost surely would prove to be a win-win situation for the economy minded, and even for the most sentimental, True Love shopper - at least for 2008.
- John Waelti is former Professor of Applied Economics, University of Minnesota; and former Head, Department of Agricultural Economics, New Mexico State University. He resides in Monroe and can be reached at jjwaelti@charter.net.
