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Google Price Index — A Shining Example of Socially Useful Data

Posted October 13th, 2010 by Andrew Goodman

In 2008, in the requisite “predict the future” chapter (12: Online Targeting, 1995-2015 — Fast Start, Exciting Future) of Winning Results With Google AdWords, I had the good fortune to write/predict as follows:

“It is far from out of the question that these trends will deeply alter the way that public policy is made. Today, for example, measures of inflation may be led by an arbitrary government-led data-gathering process. With enough committed members, a measure of ‘true’ inflation as experienced by peers would not be that difficult to arrive at based on a willing constituency of participants willing to log purchases over the long haul. It’s not a matter of whether such data revolutions are possible — they are, in nearly every field — but more a matter of how they will be implemented, by whom, and how they might be used to better our lives.”

This week, Google’s Chief Economist Hal Varian revealed that the company is working on a Google Price Index,

Clearly, the Google Price Index is a blunt, early-stage tool, but a great, shining example of how real-time and broader-based data can give us more accurate measurements of, among other things, key social and economic indicators.

Varian noted that the US data show a “very clear deflationary trend,” whereas similar data in the UK shows a “slight inflationary trend.”

Of course the key to social policy oriented data is, in part, interpreting it correctly, especially here given the beta style methodology. Deflation is common and pervasive in some categories, and the Internet is still a rapidly evolving buying platform that doesn’t account for the lion’s share of retail sales today.

And even if all signs pointed to deflation, pushing one or two policy levers may not help unwind the spooky dynamics already set in motion by the rise and fall of certain asset bubbles.



4 Responses to “Google Price Index — A Shining Example of Socially Useful Data”

  1. Did you know that there is already a price index created by ex-Google software engineer available at website http://www.numbeo.com? It’s crowedsourced like wikipedia. It might be interesting to your readers as well.

  2. I have a hard time sharing your enthusiasm in this specific example. GPI is going to tell us that hard drive prices drop every month on newegg.com. Thanks for the insight because no one knew! I bet the caveats you do mention at the end of your post will overwhelm any utility that could be found in this.

    I’ve done online research recently on a variety of very different products, from intraocular lenses to nets used to protect orchards from birds to pool cleaning systems. Good luck finding *any* real pricing information, let alone reliable, frequently updated street prices. There’s a huge number of product categories (not to speak of services) for whom there’s just no online pricing information whatsoever.

    Given today’s media environment and Google’s clout, they have much more potential to cause damage, to the effect of: “STOP THE PRESSES, GOOGLE SAYS WORST DEFLATION EVER HITS USA!” The fineprint on how biased their index is will be lost in the shuffle. In terms of social impact, this can badly misfire since inflationary public policies are highly destructive.

    I would love to see better inflation numbers from third-parties (shadowstats.com is a start) given how the official numbers are egregiously cooked by many government stat offices, but I don’t think this is it.

  3. I suppose the famed Justice Brandeis maxim, “the remedy to be applied is more speech,” applies here. Incomplete methodologies can be misleading and Google’s, to be sure, won’t be an advance on existing statistics if all it can do is “tell us hard drive prices are falling on NewEgg.” ;)

    That being said, I favor what I did originally, which is more discussion about competing definitions and measures of inflation, including (no doubt much cheaper to set up than it once would have been) a *voluntary* program where a crowd of people (controlling for demographic representativeness, even) agree to track all of their spending over time.

    Economics always goes on guesses about the meanings of partial indicators like “factory orders,” and such.

    And yet we put so much stock in “the inflation numbers” without really knowing where they come from.

    One thing’s for sure, we need more alternates to “the inflation numbers,” and the media need to be more curious about those alternatives.

  4. Olivier Travers says he can’t find any kind of real-world pricing information on the web. Excuse me, Mr. Travers, but might I suggest a visit to a quaint little out-of-the-way site called amazon.com?


 


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