by Russ Roberts on October 23, 2006

in Prices

The iPod is five years old today. When it first came out, it held 1000 songs and cost $399. Today, for $349, you get 20,000 songs. It can also display videos and photos. It’s smaller, too. So it’s $50 cheaper and more than 20 times better.

I wonder how the BLS handles this when it calculates the CPI.

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Chris Meisenzahl October 23, 2006 at 5:41 pm

Good point, that's an example of why I'm convinced that those numbers are VERY rough estimates, at best.

Robert Cote October 23, 2006 at 5:48 pm

Why is a 20x capacity the only metric? The iPod is exactly like the early automobiles or airplanes. A distance of 200 miles is not 20x better than 10 miles.

The metrics you use are only applicable to mature tecnologies.

joan October 23, 2006 at 6:05 pm

Apple sells the ipod nano which holds 1000 songs for $199. If I were trying to estimate the CPI I would say the price decline was a factor of 2, not 20.

iceberg October 23, 2006 at 6:08 pm

The new iPod is not 20x better, its 45.691 utils better :P

[For the record, I'm an austrian and I don't subscribe to the quantifiability of utility.]

quadrupole October 23, 2006 at 6:21 pm


I can understand sketicism about the quantifiablility of utility, but do you consider it to be orderable?

Hmm… thinking thoughts about utility not as mapping between a single outcome and the number line but rather as a mapping between two ordered outcomes and {1,0,-1}… or to put it clearer… perhaps utility isn't:

u(o1): {outcomes} -> Real Number Line

but rather

u(o1,o2): {outcomes x outcomes} -> {1,0,-1}

ie, utility applies a partial order to outcomes… hmm…

Steve Miller October 23, 2006 at 6:42 pm

Joan, you'd be ignoring many of the qualitative improvements in the Nano over the first-gen iPod: color screen, miniscule size, solid-state storage, etc.

Rex Pjesky October 23, 2006 at 6:57 pm

Possibly the 1st generation IPod was better since there were no (fewer) substitutes back then.

This certainly highlights the fact that the CPI is a very poor measure to use in standard of living measures over long or med. time horizons.

Alex October 23, 2006 at 8:45 pm

Knowing BLS, the iPod has been accounted for as causing the loss of 3,000 domestic jobs over its five years on the market. Of course, this will be corrected by next decade.

triticale October 23, 2006 at 8:59 pm

There aren't 20,000 songs worth carrying around in my shirt pocket, therefore the capacity is not an increase in utility…

bbartlog October 24, 2006 at 9:12 am

skepticism about the quantifiability of utility, but do you consider it to be orderable

I am not an austrian, but if I remember my Mises correctly he also discards the notion of stable ordering as a necessary prerequisite for his economic theories. I could be wrong though, it's been a long time since I read (most of) Human Action…

jon October 24, 2006 at 11:02 am

I like my ipod, it makes me happy and run fast.

Matt October 24, 2006 at 11:26 am

I would just like to add that the first gen iPod was not the first on the market and there were substitutes. Creative and other manufactures had MP3 players. Apple just did a much better job of making it more user friendly. $399 was cheap for 1,000 songs then. Others cost up to $500 prior to Apple came out and made music players.

I would also argue that there may not be 20,000 songs you'd like to have, but you can play movies (which take up more space). All that for a cheaper price its got to be a better value in my opinion. Of course as Mises would said, value is subjective, so who cares what the BLS says. The BLS calculating CPI is like using a Packard Bell 386, in the real world, its worthless.

cpurick October 24, 2006 at 11:38 am

And yet the poor keep getting poorer…

E=MC2 October 24, 2006 at 12:29 pm

Has anybody actually stopped to think that Apple Computers recognised that by dropping the price of the ipod:

a) They are able to remain the dominant figure in the ever competitive mp3 player market (currently 76% of market share, up from 74% the previous quarter)

b) The advances of itunes, with the choice of music & video increasing at a staggering pace, more than compensates for any significant fall in profit margin for the ipod (which I should point out has actually improved since inception).

In concusion, the ipod (the family of rather than anyone in particular) is actually 23 times better than the 1st generation.

Rex Pjesky October 24, 2006 at 12:43 pm

cpurick, would you really rather be poor today or poor a generation ago? Or poor at any time in the past.

The notion that the poor are generally getting poorer is nonsense.

cpurick October 24, 2006 at 1:01 pm

Sorry for the confusion. I was only being sarcastic. When the poor are really too poor, they'll stop buying iPods, cellphones and Big Macs.

Noah Yetter October 25, 2006 at 10:39 am

"There aren't 20,000 songs worth carrying around in my shirt pocket, therefore the capacity is not an increase in utility…"

Maybe not for you, but I have more music than will fit on even an 80GB iPod.

And as others have pointed out, you can take the improvement in a reduction in size/weight and increase in battery life instead if you like, at a lower price tag to boot.

Aaron Krowne October 25, 2006 at 12:35 pm

Yeah, there is not sufficient hammering-down-the-throats of the middle class that they're doing "20 times better" now (in terms of iPods). We should fire those slackers at the BLS!

Then again, maybe we should leave the CPI alone and put things like this in a separate "hedonic" index, if you simply must numerically track technological progress.

Separate the measurement of relative and absolute wealth! Conflating them as severe as confusing welfare and insurance:


happyjuggler0 October 25, 2006 at 7:47 pm

"maybe we should leave the CPI alone and put things like this in a separate "hedonic" index, if you simply must numerically track technological progress."

Are car airbags hedonic? How about a fridge whose freezer doesn't need defrosting ever? What if you can't any longer get one of those horrible freezers? When healthier and cooler looking purple tomatoes eventually hit the grocery stores, will that be hedonic? What do we do if no one wants to buy red tomatoes anymore because they are less healthy? How do we keep the original, unadulterated CPI and manage to keep it seperate from the "hedonic" CPI?

Purple (non-GM, not that that should matter) tomato link: http://www.enn.com/today.html?id=11503

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