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Yes, the author is debating a straw man. The argument that the government is understating inflation is a pretty simple one. 1) The government is heavily incent
by PhaedrusV 6y ago
Yes, the author is debating a straw man. The argument that the government is understating inflation is a pretty simple one.
1) The government is heavily incentivized to understate inflation in order to limit its expenditures for social security and TIPS, both of which are indexed to inflation. Social security in particular would explode in costs if, say, the official rate had been 1% higher on average over the past 30 years since the inflation measure got significantly changed during the late 80s and early 90s. In fact, if you look back at the discussion surrounding those changes, bringing down the costs of social security was an explicit reason for the redesign.
2) Complexity and obscurity. None of the input data is released, and there's this thing called 'hedonic quality adjustments' which is the umbrella beneath which economists decide how much to lower inflation when the quality of goods gets a little bit better. The FED economists point out that a car from 2018 is better than a car from 2012 and they adjust inflation downwards in order to account for the increase in value that consumers are getting in their car. Consumers counter by pointing out that they still have to spend the actual money...
Analysis) With transparency and a lack of incentive to cheat (see 1) hedonic quality adjustments would be an allowable modification, but with opacity and a strong incentive to cheat, they pretty much guarantee that inflation is fudged downwards. The debates around changing the inflation measure have focused heavily on reducing social security payments. In short, any time you have excessive complexity, lack of transparency, and an incentive to cheat, you can expect cheating.
Why should we care? First and foremost, Anyone who has a relative collecting social security would probably be upset to hear that grandma is getting about 60% of what she should be getting, given the promises made and the value of the money she contributed.
Second, and the big point that the article missed entirely, is that real gdp per capita HAS been declining, reflecting that decrease in standard of living that one would expect to see if inflation were understated.
- throw0101a 6y ago> Yes, the author is debating a straw man. No, the author is debating crazy people: > Unfortunately, the pandemic has permanently broken every economic chart in existence. > But if we take away the outlier 2020 data points, the average real annual GDP growth from 2010-2019 was 2.3%. The inflation rate in that time averaged roughly 1.8% per year. > If you’re one of the conspiracy people who believe inflation has actually been running at 5-6% per year, that would assume the economy has been contracting by 1-3% per year over the past 10 years. > And if you’re a full tinfoil hat person who assumes inflation is actually 10-12% per year[fn2], that’s like saying we’ve been in a full-blown depression and the economy has lost 80% of its value. > This is absurd and patently false but that’s the claim you’re making if you really think inflation is this high. [fn2] then points to a tweet: * https://twitter.com/tanayj/status/1345080274107785216?s=20 https://twitter.com/tanayj/status/1345080274107785216?s=20 Which has inflation at 10-12%, per: * https://chapwoodindex.com/ https://chapwoodindex.com/ The creator of this report is Ed Butowsky: * https://chapwoodindex.com/contact-us/ https://chapwoodindex.com/contact-us/ Butowsky is one of the people who put forward the idea that the DNC murdered Seth Rich for Hillary's Wikileaks e-mails: * https://en.wikipedia.org/wiki/Ed_Butowsky#Murder_of_Seth_Rich_conspiracy_theories https://en.wikipedia.org/wiki/Ed_Butowsky#Murder_of_Seth_Ric... If GDP was growth for the last decade was "only" ~2.5%, then how could have inflation been higher than that? It would have meant we were in a recession/depression.
- TheTrotters 6y agoYeah, and the claim that inflation has been at 10-12% per year for the past 5 years is so ridiculous that it can be discarded without any analysis. If they claimed that inflation is, say, 3.5% instead of ~2% then we could look at their arguments. But to claim that it's at ~10-12% is a little like claiming that all our thermometers are faulty and it's actually 40 degrees Celsius outside. Complete detachment from reality.
- TheTrotters 6y ago>Second, and the big point that the article missed entirely, is that real gdp per capita HAS been declining, reflecting that decrease in standard of living that one would expect to see if inflation were understated. Not true. See https://fred.stlouisfed.org/series/A939RX0Q048SBEA https://fred.stlouisfed.org/series/A939RX0Q048SBEA And why resort to conspiracy theories? Look at other data sources. They are consistent with the official inflation rate. E.g. https://fred.stlouisfed.org/series/T10YIE https://fred.stlouisfed.org/series/T10YIE or MIT Billion Prices Project.
- PhaedrusV 6y agoExcuse me, real median per capita income. And it hasn't been declining but it has been flat. https://commons.wikimedia.org/wiki/File:US_GDP_per_capita_vs_median_household_income.png https://commons.wikimedia.org/wiki/File:US_GDP_per_capita_vs...