This is not…

Magritte-Treachery of Images

My wife and I were visiting the Museum of Modern Art a few weeks ago, and we encountered The Treachery of Images at the Magritte exhibit.  The words in French read, ‘This is not a pipe.’

The painting is an iconic image; I had seen it before.  I had thought of it as somewhat of a joke.  But Magritte’s reason for painting a beautiful illustration of a pipe with the legend ‘This is not a pipe’ was to remind us that it is a picture of a pipe, and not a pipe itself.  You can’t fill it or smoke it.  It is a simple yet profound truth.

The thought came back to me yesterday when I heard on the news that the Dow Jones Industrials closed at 16,479.88, a new record.  We like to believe that a surging stock market is a sign of prosperity.

But it isn’t.  The economy is still doing rotten for most of us; the official unemployment level has dropped to around 7% only because people are giving up on working in droves.

And price inflation is still very much with us: one of my little pleasures is Chewy Chips Ahoy cookies.  A year ago, there were 28 cookies in a package; the most recent package I opened, a couple of days ago, had 23.  The price, of course, has remained unchanged.

If I eat five cookies for an evening snack (belated dessert?) instead of six, it’s probably better for my waistline.  But does that count as a hedonic adjustment?  In other words, it’s still an evening snack, even though it’s smaller, so the effective price of the cookies hasn’t changed: I still get about 4.5 evening snacks out of a package.

But then again, if I had six kids, the difference between 23 and 28 cookies would be glaringly obvious.

The Dow at 16,479 is a datum of prosperity.  A picture, perhaps.

But it isn’t the real thing.

Just like the pipe….

2 thoughts on “This is not…”

  1. Shrinkage of packages while holding the price the same has been going on for at least five years. It lends itself best to items that come in bags, because putting less weight in the same size bag doesn’t require much in the way of retooling.

    Hedonic adjustments are usually used to argue that the item purchased now has a higher value compared to similar items of the past because the new item has more features. If the cookies are the same size and weight on a per cookie basis, you are having a negative hedonic adjustment because it costs you more per cookie, the change to zero trans fats aside.

    I believe that the only stock that has remained in the DJIA since its beginning is General Electric. Changes in the DJIA components is coming more frequently than a few decades ago. I believe that three companies were changed out in September, and we’ve had a total of 13 companies taken out of the index over the last decade. All that is done when a new company is added is to change the divisor to account for the price difference between the the old and new company’s price. I’ve ignored companies that merged with other companies and stayed in the DJIA.

    Don’t get me started on additions and deletions from the S&P 500.

  2. On another side I frequent someone posted an article claiming that there is a boom in tech jobs now. There might be but not in this country. I know many tech workers and other skilled professionals long unemployed.

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