Community > Forum > National Aeronautics and Space Administration (NASA) > Something seems to be going wrong...

Something seems to be going wrong...

Posted by: Ekkehard Augustin - Wed Nov 14, 2007 10:18 am
Post new topic Reply to topic
 [ 20 posts ] 
Something seems to be going wrong... 
Author Message
Moderator
Moderator
avatar
Joined: Thu Jun 03, 2004 11:23 am
Posts: 3745
Location: Hamburg, Germany
Post    Posted on: Thu Nov 15, 2007 11:44 am
Hello, xiphius,

there is a crucial reason why inflation and the rate of inflation can't be linked to labour costs.

That reason is the capital intensity of production - those costs caused by the macines required to produce rockets and the like. The capital intensity is the higher the more industrial the product is - and a rocket is a highly industrial product.

Another point is that there are products within the commodity basket applied to get the rate of inflation the costs and prices of which raise by less than the labour costs - for different reasons than capital intensity. One such reason may be changes of demand or structure of demand.

Next inflation and the ways to get the rate of inflation implicitly assume that today's commodities - products and services - are precisely the same as last year, the year before last year and so on. This assumption is very unrealistic - in particular regarding rockets.

Such changes of products mean that they are inhomogenous over time. If the Saturn V would be built today the design etc. would include technologies unknown 35 years ago. And this would mean that a today's Saturn V couldn't be compared to the real Saturn V of the 1970ies - it would be a quite different rocket, a quite different product.

This again also means that the costs of a today's Saturn V would be quite different to those of the 1970ies - and they might be below them.

Since this concerns all products in each commodity basket applied to get the rate of inflation and since it is known to those measuring the rate of inflation the commodity basket is changed every few years - 4 years to 8 years.

So calculations of rocket costs using the rate of inflation must be doubted extremely - rates of inflation can be applied ONLY to get the LEVEL of prices but NEVER to get the price of a single product.

The commodity basket applied to measure the rate of inflation the average joe experiences consists of several hundred products and services offered and sold by shops, travel bureaus, car dealers, companies selling houses, prices to be paid to the government for services that aren't financed by taxes and so on.

For this reason I cannot but again urgently call upon never to apply rates of inflation the way done in this thread - it's highly misleading and you would loose your money if you would base speculative trades of stocks at the stock exchange on it - that is likely by more than 99%.



Dipl.-Volkswirt (bdvb) Augustin (Political Economist)

EDIT: IMPORTANT: As long as there is unemployment in a country increasing labour costs should be suspected to cause that unemployment. If they do that really they will NOT cause inflation.


Back to top
Profile
Moon Mission Member
Moon Mission Member
User avatar
Joined: Tue Oct 05, 2004 5:38 pm
Posts: 1361
Location: Austin, Texas
Post    Posted on: Thu Nov 15, 2007 7:37 pm
In the absence of an aerospace specific inflation index, the regular consumer price index will have to do. I did have some reservations about using it for this purpose, knowing that it is not truly representative of the aerospace sector, but I think it is good enough for a rough estimate. If anyone knows where to find a more targeted index or calculator, please post a link so we can all use it.


Back to top
Profile WWW
Space Walker
Space Walker
avatar
Joined: Sun Jul 29, 2007 5:18 pm
Posts: 124
Location: UK
Post    Posted on: Thu Nov 15, 2007 8:14 pm
None of us were trying to cost anything, I was just applying a crude credibility test to an apparently incredible cost - "$ 104 bio for lunar missions are said to be for one manned lunar landing" - well over an order of magnitude greater than expected. Using a credible approximation for inflation was perfectly adequate for this purpose.

Save the split-penny accounting for things like evaluating the relative merits of HLLV v. little-and-often, where it would make a lot more sense.


Back to top
Profile
Moderator
Moderator
avatar
Joined: Thu Jun 03, 2004 11:23 am
Posts: 3745
Location: Hamburg, Germany
Post    Posted on: Fri Nov 16, 2007 8:15 am
Hello, xiphius,

only to clarify the details why the rate of inflation really can't and mustn't applied.

The rate of inflation is calculated by division of two values of a price index. The value of the price index first is calculated by multiplying the price of each product by the amount it is bough by:

P = x1*p1 + x2*p2 + ... + xn*pn

where 1 to n are the products 1 to n.

This price index P is calculated each year:

...

P(2007) = x1(2007) * p1(2007) + x2(2007) * p2(2007) + ... + xn(2007) * pn(2007)

P(2008) = x1(2008) * p1(2008) + x2(2008) * p2(2008) + ... + xn(2008) * pn(2008)

P(2009) = x1(2009) * p1(2009) + x2(2009) * p2(2009) + ... + xn(2009) * pn(2009)

...

Then the rate of inflation in % is got as

I(2007) = (P(2007)/P(2006) - 1) * 100

.

In the reality some products have higher prices while others have lower ones - so a shift of demand from cheaper products to more expensive ones is sufficient to generate inflation - without the products having become more expensive.

So there can be inflation withour increasing prices. The reason can be increasing income making not that wealthy people wealthier and thus buying more expensive products now while making already wealthy people saving more instead of shifting their demand.

This next means that it is more proper to keep the amounts of the previous year - which is done indeed. This way real inflation is calculated - the shift of demand isn't involved no longer. But this now also warps the rate of inflation somehow. If cheaper products have become a bit more expensive but aren't bought by the fromer amount no longer the rate of inflation got is too high - for example.

The price index calculated in Germany includes 790 products - that of the USA might contain more.

The products having the main effect on the price index P are those bought most. Rockets aren't included in the price index P not only but are never bought by a number comparable to the 790 products the german price index is calculated by. Because of this the price index - even that the USA calculate - will no way be effected by rockets.

This means that the price index and thus the rate of inflation is no proper number to calculate what a Saturn V would cost today - the costs got would be much too high by billions.



Dipl.-Volkswirt (bdvb) Augustin (Political Economist)


Back to top
Profile
Moon Mission Member
Moon Mission Member
User avatar
Joined: Tue Oct 05, 2004 5:38 pm
Posts: 1361
Location: Austin, Texas
Post    Posted on: Fri Nov 16, 2007 2:49 pm
xiphius wrote:
Save the split-penny accounting
I agree 100%


Back to top
Profile WWW
Display posts from previous:  Sort by  
Post new topic Reply to topic  [ 20 posts ] 
 

Who is online 

Users browsing this forum: No registered users and 10 guests


© 2014 The International Space Fellowship, developed by Gabitasoft Interactive. All Rights Reserved.  Privacy Policy | Terms of Use