Question

In 1968, the average price of a new house in the United States was $25,300. Today, this price is about $350,000. Because today’s average price is about 13.8 times greater than the 1968 price, the price compari-sons that media commentators typically have undertaken would imply that the prices of new houses have increased by that multiple over the past five decades.

By and large, however, media fail to adjust their price comparisons for the effects of changes in the GDP deflator. After using the GDP defla-tor, which currently is based on values of goods and services expressed in 2009, the inflation-adjusted price of a new house in 1968 was $115,000. The current inflation-adjusted price of a new house is about $308,000, which is about 2.7 times greater than the inflation-adjusted price in 1968. Thus, the increase in the price of a new home in the United States during the past 50 years has been substantially smaller than implied by new-home price comparisons undertaken in media reports.

If claims that media commentators prefer to report the largest possible, attention-grabbing changes in numbers are correct, why might they pre-fer to report economic data that have not been adjusted for changes in the price level?

Answer 1

Media commentators prefer to report economic data that have not been adjusted for changes in the price level because of the fact that without making any adjustments for changes in price level leads to a number that is much higher when compared to the situation in which it is adjusted for changes in the price levels.

For instance media commentators will prefer using the figure of 13.8 (i.e. today’s average price is about 13.8 times greater than the 1968 price) than the figure of 2.7. Note that the figure of 13.8 is arrived at without making any adjustments for changes in price level while the figure of 2.7 is arrived at after making the necessary and appropriate adjustments for changes in price level during the time period 1968 to 2009.

Media commentators prefer to report data that are not adjusted for price level changes simply because of the fact that the data will be magnified and hence this will give the media commentators an opportunity to sensationalize the issue of price rises in the housing sector in the country. The figure of 13.8 will give media commentators a better chance to highlight the issue as the larger number of 13.8 will grab more attention and more eyeballs. This would not have been possible if they had used the lower figure of 2.7. While this is unethical media commentators are doing this to drive home their agenda and garner more attention and viewers.