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What is your response to the argument that - CPI(-U) is not a suitable measurement of inflation anymore since it discarded fixed basket goods somewhere in the

What is your response to the argument that - CPI(-U) is not a suitable measurement of inflation anymore since it discarded fixed basket goods somewhere in the 90s and that - inflation measures with "old-school" fixed baskets report inflation rate in the range of 6-10%/year - production of goods became much more efficient but instead of being reflected in cheaper prices it increased shareholder profits and wealth inequalities?

arcticbull 6y ago
My take on it re CPI is that I don’t know enough to know whether CPI is a suitable metric or not. I defer to economists here which is something you’re free to hold against me. Re (2) I’d be very interested in learning more about the delta between CPI and these baskets. Do you happen to have a reference? I’m always down to learn more. Re (3) I agree that inequality has gotten worse but I see that as a social and fiscal policy matter and not a monetary policy matter. If we’d been using gold, the same trend would have manifest. Poor people don’t hold onto money anyways they’re hand to mouth. And any extra they happen to hold onto could have been invested anyways. Frankly minimum wage over the period hasn’t been indexed to inflation either! I’m a huge advocate of decreasing the gap between the rich and poor, I have more than I need to be sure, and the best way to do that is taxation. This gap between rich and poor really started widening after the Reagan era tax cuts and trickle down economics. If you look back the top marginal tax rate in the US in much of the 1900s was 80-90%. Estate tax the same. If you reduce that to 37%, rich people get richer because they keep more and more of their wealth. A practically 0% estate tax ensures the next generation starts on a monopoly board where there’s a hotel on every square. To me that’s a much clearer correlation than the spooky action at a distance of this 2% (a figure you admittedly contested) inflation rate. Do the ultra wealthy really hold cash? Do the poor? Does anyone?
- astrange 6y ago
  CPI matches other measures of inflation like http://bpp.mit.edu http://bpp.mit.edu pretty well. People who think inflation is high are cranks - the history of cranks goes from Austrians, to Shadowstats, and currently is on Chapwood Index. If we had inflation at 10% the economy would be smaller now than it was in 2010. It's under 2% and we can't get it up no matter how hard we try (not that hard so far.) > If you look back the top marginal tax rate in the US in much of the 1900s was 80-90%. Note that the effective rate was nothing like this because there were also lots of deductions.
  - frankenst1 6y ago
    To be fair I actually thought that inflation was measured using a fixed basket of goods. Apparently that was changed in the 90s. An example I read (of which I am not sure if it is entirely accurate) was: "if steaks become too expensive, its weight in the basket will be reduced because people are expected to buy more chicken instead. this results in lower inflation estimates". If true, why do you feel a fixed basket should not be used to determine inflation even though it is probably what most people would expect in such a measure?
    - arcticbull 6y ago
      In your example of steak, there are macroeconomic changes which may well cause the specific commodity to change in price substantially over time. Inflation isn't determined as a function of "steak" but rather as a function of "protein." For instance, industrial agriculture, the farm bill subsidizing corn to below the cost of production starting in 1933, and many other things may change the relative cost of beef over time as compared to, for instance, pork and chicken. That's not inflation, and as such it doesn't really make sense to define inflation in terms of these factors which affect only a specific industry.
      - erichocean 6y ago
        Eat the bugs! It's still protein. Live in the pod! It's still shelter. Fuck the computer peripheral! It's still sex. Dystopian. At least the official inflation metric is low.
        arcticbull 6y ago
        Haha, that's not what I'm saying, however. Although bugs are a delicacy in a number of cultures! [0] Just that factors outside inflation influence the pricing of certain commodities. Nobody's guaranteed a specific commodity forever, and the definition of luxury, and commodity expectations, changes over time. For instance, pig feet are having a moment (or at least were pre-pandemic). They used to be discarded as waste, but now you'll find them in haute cuisine. [1] Sweetbreads too! Tastes change, expectations change, cost structures change. The world isn't static, and nor should our metric be. [0] https://recipes.timesofindia.com/us/articles/food-facts/these-insects-are-actually-popular-delicacies-around-the-world/photostory/61007787.cms?picid=61007806 https://recipes.timesofindia.com/us/articles/food-facts/thes... [1] https://www.jancisrobinson.com/articles/pierres-worldfamous-pigs-trotter https://www.jancisrobinson.com/articles/pierres-worldfamous-...

arcticbull 6y ago

My take on it re CPI is that I don’t know enough to know whether CPI is a suitable metric or not. I defer to economists here which is something you’re free to hold against me. Re (2) I’d be very interested in learning more about the delta between CPI and these baskets. Do you happen to have a reference? I’m always down to learn more. Re (3) I agree that inequality has gotten worse but I see that as a social and fiscal policy matter and not a monetary policy matter. If we’d been using gold, the same trend would have manifest. Poor people don’t hold onto money anyways they’re hand to mouth. And any extra they happen to hold onto could have been invested anyways. Frankly minimum wage over the period hasn’t been indexed to inflation either! I’m a huge advocate of decreasing the gap between the rich and poor, I have more than I need to be sure, and the best way to do that is taxation. This gap between rich and poor really started widening after the Reagan era tax cuts and trickle down economics. If you look back the top marginal tax rate in the US in much of the 1900s was 80-90%. Estate tax the same. If you reduce that to 37%, rich people get richer because they keep more and more of their wealth. A practically 0% estate tax ensures the next generation starts on a monopoly board where there’s a hotel on every square. To me that’s a much clearer correlation than the spooky action at a distance of this 2% (a figure you admittedly contested) inflation rate. Do the ultra wealthy really hold cash? Do the poor? Does anyone?

astrange 6y ago
CPI matches other measures of inflation like http://bpp.mit.edu http://bpp.mit.edu pretty well. People who think inflation is high are cranks - the history of cranks goes from Austrians, to Shadowstats, and currently is on Chapwood Index. If we had inflation at 10% the economy would be smaller now than it was in 2010. It's under 2% and we can't get it up no matter how hard we try (not that hard so far.) > If you look back the top marginal tax rate in the US in much of the 1900s was 80-90%. Note that the effective rate was nothing like this because there were also lots of deductions.
- frankenst1 6y ago
  To be fair I actually thought that inflation was measured using a fixed basket of goods. Apparently that was changed in the 90s. An example I read (of which I am not sure if it is entirely accurate) was: "if steaks become too expensive, its weight in the basket will be reduced because people are expected to buy more chicken instead. this results in lower inflation estimates". If true, why do you feel a fixed basket should not be used to determine inflation even though it is probably what most people would expect in such a measure?
  - arcticbull 6y ago
    In your example of steak, there are macroeconomic changes which may well cause the specific commodity to change in price substantially over time. Inflation isn't determined as a function of "steak" but rather as a function of "protein." For instance, industrial agriculture, the farm bill subsidizing corn to below the cost of production starting in 1933, and many other things may change the relative cost of beef over time as compared to, for instance, pork and chicken. That's not inflation, and as such it doesn't really make sense to define inflation in terms of these factors which affect only a specific industry.
    - erichocean 6y ago
      Eat the bugs! It's still protein. Live in the pod! It's still shelter. Fuck the computer peripheral! It's still sex. Dystopian. At least the official inflation metric is low.
      - arcticbull 6y ago
        Haha, that's not what I'm saying, however. Although bugs are a delicacy in a number of cultures! [0] Just that factors outside inflation influence the pricing of certain commodities. Nobody's guaranteed a specific commodity forever, and the definition of luxury, and commodity expectations, changes over time. For instance, pig feet are having a moment (or at least were pre-pandemic). They used to be discarded as waste, but now you'll find them in haute cuisine. [1] Sweetbreads too! Tastes change, expectations change, cost structures change. The world isn't static, and nor should our metric be. [0] https://recipes.timesofindia.com/us/articles/food-facts/these-insects-are-actually-popular-delicacies-around-the-world/photostory/61007787.cms?picid=61007806 https://recipes.timesofindia.com/us/articles/food-facts/thes... [1] https://www.jancisrobinson.com/articles/pierres-worldfamous-pigs-trotter https://www.jancisrobinson.com/articles/pierres-worldfamous-...