Why Have Policymakers Abandoned the Working Class?

[Loren Pechtel]

You have two things, you have an asset price inflation for real estate and you would have a general increase in overall inflation. People would understand inflation of other things like milk, gas prices, car prices. The Fed person even called it wage inflation. So how can he can he be worried about wage inflation if inflation just means general price increase.

As far as families go, they think of it in their terms. These items that I normally buy have gone up by X% or whatever. Measuring inflation is very imprecise though we treat it as something absolutely set in stone.

No, measuring inflation is actually pretty easy. It is nothing but price increases year to year. Prices are easy to track.

You can easily track the inflation in the price of <x>. Determining overall inflation is a different matter as you have to decide what mix of goods to use and how to handle changes to those goods over time.

 

[SimpleDon]

No, measuring inflation is actually pretty easy. It is nothing but price increases year to year. Prices are easy to track.

CPI not equal "inflation". It is an estimate of it based on certain assumptions.

Inflation is defined as a general rise in the price of goods. This is indeed impossible to measure. CPI is an index that measures the price of a specific basket of goods that is deemed to be representative of what a consumer would buy. There are a lot of judgement calls that must go into what is in this basket, and indeed what the price of anything is. Even if I asked for something far simpler such as "what's the price of TVs?" there is no easy answer.

See my response to colorodo. It answered your complaints tot We are not measuring an absolute basket of goods and saying that it represents something, we are measuring the change in prices from year to year. dP/dt.

It is pretty easy to look up prices for TVs on the internet. I can show you dozens of sites that do just that.

 

[arkirk]

It's not, it's an art form. The issues that are an art, are what goods to throw in the basket, where to measure those prices, how to weight the items in the basket, how to measure the product itself, and when to replace the items in the basket. The 60s didn't even have Internet, cell phones, color TV, etc, but we supposedly we can say its easy to compare? ...I can give examples of each and the issues. It's been known to overstate inflation over the long run.

It doesn't much matter what goods are in the basket as long as you maintain the same goods. Once again, you are not trying to measure an absolute value, you are measuring the change from year to year. Inflation is a general increase in prices. You want to avoid volatile commodities like oil and a lot of food stuffs like coffee, because they will take sudden jumps that will reduce the value of the index over the short term. But every time someone thinks that they have come up with a better consumer price index it is tested against historical data and after an initial blip correction they quickly revert to the same year to year price increase, inflation, as the current CPI. As you would expect it to do.

And new products like computers in the 1980's or more recently, smartphones aren't included because their prices are volatile when they are first introduced.

And yes, people who have to pay based on the CPI naturally feel that it overstates inflation. But any time that they have tried to come up with a better CPI they have failed to prove the point. Once again, after a short correction the improved index invariably returns to tracking the same as the current CPI. So that the people who believe that the CPI have resorted to just repeating over and over again very loudly that the CPI overstates inflation, in the hopes that people who hear it often enough will come to believe that the falsehood is the truth. Obviously it works with people who don't understand what is being measured and how it is being measured.

With the internet we are now capable of tracking the prices of almost everything in almost real time, certainly, day by day. And as you would expect, it shows that the current CPI is representative of the inflation that consumers face and the core inflation index that is used to set interest rates is a good representation of core inflation that providers of goods and services face. MIT is doing this research with a crawler that checks prices on the internet daily. Try searching for 'MIT inflation research'or something like it.

CPI avoids the volatile commodities like oil, coffee, etc. etc. because they prove the lie of this system of predatory capitalism. If the whole system is dependent on petrochemicals to keep working, you cannot leave it out of your economic considerations. Yes, smart phones, TV, computers, etc. have volatile price swings and also swings in the usefulness to society, but nobody ever guaranteed that economics would be uncomplicated. And...we have not even counted the environmental costs of profligate and wasteful production and products that have become common in our society.

We are a society in denial of where it is going and CPI is one of the vehicles of denial. The society actually experiences the volatility, and the CPI simply ignores it.

 

[coloradoatheist]

CPI not equal "inflation". It is an estimate of it based on certain assumptions.

Inflation is defined as a general rise in the price of goods. This is indeed impossible to measure. CPI is an index that measures the price of a specific basket of goods that is deemed to be representative of what a consumer would buy. There are a lot of judgement calls that must go into what is in this basket, and indeed what the price of anything is. Even if I asked for something far simpler such as "what's the price of TVs?" there is no easy answer.

See my response to colorodo. It answered your complaints tot We are not measuring an absolute basket of goods and saying that it represents something, we are measuring the change in prices from year to year. dP/dt.

It is pretty easy to look up prices for TVs on the internet. I can show you dozens of sites that do just that.

Yes at one time. But which model and features of TV are you going to use as your baseline?

 

[Loren Pechtel]

No, measuring inflation is actually pretty easy. It is nothing but price increases year to year. Prices are easy to track.

CPI not equal "inflation". It is an estimate of it based on certain assumptions.

Inflation is defined as a general rise in the price of goods. This is indeed impossible to measure. CPI is an index that measures the price of a specific basket of goods that is deemed to be representative of what a consumer would buy. There are a lot of judgement calls that must go into what is in this basket, and indeed what the price of anything is. Even if I asked for something far simpler such as "what's the price of TVs?" there is no easy answer.

And even if you asked "What's the price of 19" TVs?" it's still hard to answer. The new version has a better picture which has to be worth something, the new version uses less power--you have to adjust the costs for the power they use to compare them fairly (and how many hours will it be on??), the new version takes less space--and housing space is expensive.

 

[dismal]

CPI not equal "inflation". It is an estimate of it based on certain assumptions.

Inflation is defined as a general rise in the price of goods. This is indeed impossible to measure. CPI is an index that measures the price of a specific basket of goods that is deemed to be representative of what a consumer would buy. There are a lot of judgement calls that must go into what is in this basket, and indeed what the price of anything is. Even if I asked for something far simpler such as "what's the price of TVs?" there is no easy answer.

See my response to colorodo. It answered your complaints tot We are not measuring an absolute basket of goods and saying that it represents something, we are measuring the change in prices from year to year. dP/dt.

It is pretty easy to look up prices for TVs on the internet. I can show you dozens of sites that do just that.

OK, let's give it a shot. What's the price of TVs?

 

[SimpleDon]

Asset price inflation is a bubble which is why it made no sense when you wrote "inflation and bubbles" above.

There are pros and cons to each type of inflation. Though the problems of deflation are overrated.

I guess if you consider entering another depression as not much to worry about.

Deflation is like a fever in a body, it's used to kill off the underlying disease. And deflation is the self-correcting mechanism if allowed to work. Instead we want to try and stop the recovery because it may take a bit.

Inflation and deflation are monetary concerns. To you and I money is very important. It is not overstating the matter to say that it is life itself to you and I. But to the overall economy money is not important. How could it be? The government can produce as much money as it wants to by simply typing some numbers into the right computer.

To the overall economy money is nothing more than a means to an end, an incentive to get the people who have it to invest in production facilities, places that make the products and services that consumers need and want.

Deflation impedes this. It is money increasing in value. Literally holding money competes with other investments. Inflation on the other hand encourages investment to try to avoid the decreasing value of the money under inflation.

There is even a larger problem with deflation than that. Under deflation people are reluctant to borrow money because they know that they will have to pay back the loan with more valuable money than they borrowed. Money is created by debt. Less borrowing means less money creation which means more deflation which means even less borrowing and even less money creation and even more deflation, etc. The economy spirals out of control.

Inflation can also spiral out of control too, but in spite of the fact that we have almost always run the economy with moderate inflation we still have been driven into more recessions and depressions by debt deflation spirals than inflationary ones.

The major reason that we have had such a slow recovery from the 2008 financial crisis is because of the high personal debt that we had going into the recession. People decided that the best course of action was to pay off their debts rather than spend money on consumption. It is called ’debt deflation' because it has the same negative effects of deflation without having overall deflation.

 

[ksen]

Gee, I guess we can't measure anything reliably and so should just give it up and go back to gold.

 

[Nice Squirrel]

Gee, I guess we can't measure anything reliably and so should just give it up and go back to gold.

Now your talking!

 

[fromderinside]

It never ceases to amaze me how some folks can latch on to the least significant aspect of a thread and run with it, stepping in minutiae the whole way.
Why not just go with appreciation and depreciation and call it done.

First you are amazed then you go back and provide two more undefinable terms for the hoi polloi and unwashed to pontificate on.

- - - Updated - - -

Gee, I guess we can't measure anything reliably and so should just give it up and go back to gold.

Now your talking!

Can't. We're running out of gold and population shows every sign of being on the increase.

 

[coloradoatheist]

Gee, I guess we can't measure anything reliably and so should just give it up and go back to gold.

It's an estimation, though an exact figure and know that as time goes on it gets further and further off.

 

[arkirk]

First you are amazed then you go back and provide two more undefinable terms for the hoi polloi and unwashed to pontificate on.

- - - Updated - - -

Gee, I guess we can't measure anything reliably and so should just give it up and go back to gold.

Now your talking!

Can't. We're running out of gold and population shows every sign of being on the increase.

I don't remember just which H.G. Wells novel it was where one of the characters described gold as "that yellow metal that makes men kill each other for its mere possession." Why the fuck pick that?

 

[SimpleDon]

It doesn't much matter what goods are in the basket as long as you maintain the same goods. Once again, you are not trying to measure an absolute value, you are measuring the change from year to year.

But they don't maintain the same basket. They shift it constantly to reflect what they think people are buying. In 1950 people didn't have cell phones or cable TV bills.

Yes, that is true. It wouldn't measure inflation correctly if it still included buggy whips would it? they have to eliminate obsolete products because their price will drop not from a drop in inflation but because no one buys them. It is the same reason why they wait for new products to become established and their prices to stabilize before they are added to the basket.

But when they change the composition of the basket they compensate for the change by factoring in the change to transition from one basket to another to avoid an inflection point, a sudden change in slope, or a serious discontinuity.

 

[SimpleDon]

It doesn't much matter what goods are in the basket as long as you maintain the same goods. ...

And there is a reason why they all have their challenges. It's because its an art form not a science. Dismal asked an easy question about something simple. TVs. How do you calculate the utility increase values of what TVs do? And TVs are something simple, unlike a comparison of healthcare or education. And you say they leave out important things like how much computers or TVs have improved. So when they come out with things how productivity and inflation have split, looking at the measures and seeing if they might be off, is a good thing.

The indexes are not trying to measure utility, they are measuring the prices. Prices are easy to measure. It cost X last year, it costs X + Y this year so Y ÷ X × 100 = the inflation rate. No utility, no productivity questions beyond what is reflected in the price, which is quite a bit actually. Whether it is an art form or science depends on how much you believe that utility and other subjective ''good' is reflected in the price, but as a measure of prices and their changes from year to year the CPI is an objective measure of what it claims to measure, year to year changes in price. It is nothing more.

 

[SimpleDon]

No, measuring inflation is actually pretty easy. It is nothing but price increases year to year. Prices are easy to track.

You can easily track the inflation in the price of <x>. Determining overall inflation is a different matter as you have to decide what mix of goods to use and how to handle changes to those goods over time.

Yes, what you are measuring as overall inflation has to be defined, that is obvious. How do you define overall inflation?

The BLS doesn't claim that any of their indexes measure overall inflation. They have a cosumer price index, a core index and a producer price index, that I am familiar with, maybe more.

 

[SimpleDon]

It doesn't much matter what goods are in the basket as long as you maintain the same goods. Once again, you are not trying to measure an absolute value, you are measuring the change from year to year. Inflation is a general increase in prices. You want to avoid volatile commodities like oil and a lot of food stuffs like coffee, because they will take sudden jumps that will reduce the value of the index over the short term. But every time someone thinks that they have come up with a better consumer price index it is tested against historical data and after an initial blip correction they quickly revert to the same year to year price increase, inflation, as the current CPI. As you would expect it to do.

And new products like computers in the 1980's or more recently, smartphones aren't included because their prices are volatile when they are first introduced.

And yes, people who have to pay based on the CPI naturally feel that it overstates inflation. But any time that they have tried to come up with a better CPI they have failed to prove the point. Once again, after a short correction the improved index invariably returns to tracking the same as the current CPI. So that the people who believe that the CPI have resorted to just repeating over and over again very loudly that the CPI overstates inflation, in the hopes that people who hear it often enough will come to believe that the falsehood is the truth. Obviously it works with people who don't understand what is being measured and how it is being measured.

With the internet we are now capable of tracking the prices of almost everything in almost real time, certainly, day by day. And as you would expect, it shows that the current CPI is representative of the inflation that consumers face and the core inflation index that is used to set interest rates is a good representation of core inflation that providers of goods and services face. MIT is doing this research with a crawler that checks prices on the internet daily. Try searching for 'MIT inflation research'or something like it.

CPI avoids the volatile commodities like oil, coffee, etc. etc. because they prove the lie of this system of predatory capitalism. If the whole system is dependent on petrochemicals to keep working, you cannot leave it out of your economic considerations. Yes, smart phones, TV, computers, etc. have volatile price swings and also swings in the usefulness to society, but nobody ever guaranteed that economics would be uncomplicated. And...we have not even counted the environmental costs of profligate and wasteful production and products that have become common in our society.

We are a society in denial of where it is going and CPI is one of the vehicles of denial. The society actually experiences the volatility, and the CPI simply ignores it.

The CPI doesn't ignore the volatility of oil prices, it just doesn't include them directly in the index because the prices are set by a cartel as much as they are able. But the price of oil is reflected in nearly the price of everything in the index, but the swings in the oil prices are dampened, which fits in with the CPIs purpose, to measure inflation over time. To be able to compare prices today with those of yesterday. Nothing more. They are not some cosmic plot to hide the evils of predatory capitalism.

 

[SimpleDon]

It doesn't much matter what goods are in the basket as long as you maintain the same goods. Once again, you are not trying to measure an absolute value, you are measuring the change from year to year.

But they don't maintain the same basket. They shift it constantly to reflect what they think people are buying. In 1950 people didn't have cell phones or cable TV bills.

Yes, they have to remove obsolete products that no one buys and include new ones that people do buy. Obsolete products dropping in price tells you that the products are obsolete, not anything about the general level of prices. And changes in new products that substitute for the obsolete products do reflect the changes in the general price level so that they should be included. But the new ones are factored in to maintain continuity with the older prices so that they don't cause an inflection point or a discontinuity in the inflation.

I thought that I had answered this already. It wouldn't be the first time that the go to the first unread button has failed me. I apologize if I have answered this twice, especially if I answered it differently before!

 

[SimpleDon]

CPI not equal "inflation". It is an estimate of it based on certain assumptions.

Inflation is defined as a general rise in the price of goods. This is indeed impossible to measure. CPI is an index that measures the price of a specific basket of goods that is deemed to be representative of what a consumer would buy. There are a lot of judgement calls that must go into what is in this basket, and indeed what the price of anything is. Even if I asked for something far simpler such as "what's the price of TVs?" there is no easy answer.

And even if you asked "What's the price of 19" TVs?" it's still hard to answer. The new version has a better picture which has to be worth something, the new version uses less power--you have to adjust the costs for the power they use to compare them fairly (and how many hours will it be on??), the new version takes less space--and housing space is expensive.

Once again, the CPI measures the price of the TVs that people are buying. It doesn't delve into the subjective questions of utility. It doesn't maintain obsolete 19" CRT TVs because people aren't buying them. But they still buy TVs. People decide the utility of TVs and it is reflected in the number and prices of the TVs that they buy. And that is reflected in the CPI, as it should be.

If people need more room because of a change in TV viewing it will be reflected in the cost of housing that they live in, say that they want a media room. (The CPI don't include home price, it accounts for housing costs by including rent in the index. Rent does track home values but it is dampened over time, it is not as volatile over time.)

 

[Loren Pechtel]

You can easily track the inflation in the price of <x>. Determining overall inflation is a different matter as you have to decide what mix of goods to use and how to handle changes to those goods over time.

Yes, what you are measuring as overall inflation has to be defined, that is obvious. How do you define overall inflation?

The BLS doesn't claim that any of their indexes measure overall inflation. They have a cosumer price index, a core index and a producer price index, that I am familiar with, maybe more.

The problem is that the products now are for the most part not the products of the past. It's not just the buggy whips, most every manufactured good changes substantially over time.

 

[Loren Pechtel]

And even if you asked "What's the price of 19" TVs?" it's still hard to answer. The new version has a better picture which has to be worth something, the new version uses less power--you have to adjust the costs for the power they use to compare them fairly (and how many hours will it be on??), the new version takes less space--and housing space is expensive.

Once again, the CPI measures the price of the TVs that people are buying. It doesn't delve into the subjective questions of utility. It doesn't maintain obsolete 19" CRT TVs because people aren't buying them. But they still buy TVs. People decide the utility of TVs and it is reflected in the number and prices of the TVs that they buy. And that is reflected in the CPI, as it should be.

If people need more room because of a change in TV viewing it will be reflected in the cost of housing that they live in, say that they want a media room. (The CPI don't include home price, it accounts for housing costs by including rent in the index. Rent does track home values but it is dampened over time, it is not as volatile over time.)

1) The CPI does attempt to correct for such things.

2) The modern TV is much smaller than the old one, it's going to save space. This house was built in the era of CRTs--and has a niche in the family room meant for TVs. That's a few hundred dollars of floor space that is of little use the era of flat screens.

3) A change in the area the family needs is not going to automatically reflect in the CPI because it compares like with like.