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When prices rise and wages don't keep pace, individual solvency forces substitution of inferior goods. CPI's methodology then updates the basket to reflect the

When prices rise and wages don't keep pace, individual solvency forces substitution of inferior goods. CPI's methodology then updates the basket to reflect the forced substitution and pretend it was voluntary. You think you are looking at rising real wages, but due to the basket methodology you are actually looking at the individual solvency constraint in a mirror. The economy could reduce people to eating bug burgers in homeless encampments and that line would still go up through the entire process. Repeat the exercise using a real deflator and the results are different. Ideally, this would mean constructing a basket of things you (or the people in question) want to buy. In practice, nobody has time for that so people just use an asset with a reputation for holding value (gold) or a proxy for their most important aspiration (housing). These both have problems, but the problems are not nearly as bad as the circular logic in the CPI.

cheriot 2mo ago
Agree that measuring inflation is complex and expensive. It also glosses over devices getting new features and networks improving latency and bandwidth. Unfortunately alternative measures are worse. Gold increased in price 37% in the last year. What does that tell me about the price of groceries? Housing prices depend on government committees approving what can be built where. We have no idea what a free market would produce.
- smallmancontrov 2mo ago
  No, CPI does not gloss over improvements in quality. CPI gets diligent hedonic adjustments. Good news is always welcome, it seems. By contrast, BLS usually doesn't even try to track enshittification. This compounds, and that's another reason why CPI is a poor measure. Not to mention the recent statistical fuckery with trimmed means or the less recent fuckery around excluding energy costs during bouts of energy inflation. How much proof do you need that CPI is a political quantity not a measure of the economy? Hypothetical YIMBY parallel universes have no place in an inflation discussion. If NIMBYs inflated the price of houses and you want a house, it's inflation that is relevant to you, end of story. As for the volatility of gold, yeah, that disqualifies gold from being a good measure on short timescales. Fortunately, we have a good short-timescale inflation measure: CPI. But gold compounds correctly whereas CPI does not. In the short run, volatility is everything, in the long run, compounding is everything. Don't use gold to figure out how much inflation happened last year and don't use CPI to figure out how much inflation happened last decade. Reminder: I presented gold and housing as dirty hacks. The correct methodology is to construct a basket of things you care about and track them. If the dirty hacks have dirty hack problems, well, such is the nature of dirty hacks.
  - deleted 2mo ago
    [deleted]
  - cheriot 2mo ago
    Then what number would you use instead? A "correct methodology" that's not done is useless. Complaining about CPI to defend using nominal values poorly is not improving the article's analysis.
    - smallmancontrov 2mo ago
      Housing and gold, to be used when the timescale is more than a few years. CPI is fine if the timescale is under a few years, because that is not enough time for its sins to compound. You posted an incorrect interpretation of the FRED real wages line. All I owe the discussion is an explanation of why I believe your interpretation was incorrect. Which I gave. The fact that I went above and beyond to provide and defend both a theoretical alternative and practical alternatives is a nice extra. Your complaints that the practical alternatives aren't simultaneously perfect and easy is praise by faint damnation. Perfect and easy aren't the ways of this world. No, they only have to be better than CPI on long timescales to be good alternatives -- but the CPI methodology places that bar very low and both gold and housing clear it easily.
      - cheriot 2mo ago
        My analysis was "Doesn't look so dire to me?" and I don't think the point you raised leads to a different conclusion. I can tell you know the topic well, but we're at the same place CPI criticism always come back to: "It's flawed, but the alternatives are worse, don't exist, or in some way not practical."
        smallmancontrov 2mo ago
        Exactly the opposite: CPI is worse than the alternatives at long timescales, despite their flaws. I know you really really want to make this about the flaws in the alternatives, but I have spent many sentences dealing with the flaws in those in good faith while you have yet to reciprocate at all with any in defense of CPI, either in comparative or absolute terms. Because you know that's a losing game. CPI is cooked, the FRED real wages graph is cooked, your conclusion from it is cooked, and you know it's cooked.

cheriot 2mo ago

Agree that measuring inflation is complex and expensive. It also glosses over devices getting new features and networks improving latency and bandwidth. Unfortunately alternative measures are worse. Gold increased in price 37% in the last year. What does that tell me about the price of groceries? Housing prices depend on government committees approving what can be built where. We have no idea what a free market would produce.

smallmancontrov 2mo ago
No, CPI does not gloss over improvements in quality. CPI gets diligent hedonic adjustments. Good news is always welcome, it seems. By contrast, BLS usually doesn't even try to track enshittification. This compounds, and that's another reason why CPI is a poor measure. Not to mention the recent statistical fuckery with trimmed means or the less recent fuckery around excluding energy costs during bouts of energy inflation. How much proof do you need that CPI is a political quantity not a measure of the economy? Hypothetical YIMBY parallel universes have no place in an inflation discussion. If NIMBYs inflated the price of houses and you want a house, it's inflation that is relevant to you, end of story. As for the volatility of gold, yeah, that disqualifies gold from being a good measure on short timescales. Fortunately, we have a good short-timescale inflation measure: CPI. But gold compounds correctly whereas CPI does not. In the short run, volatility is everything, in the long run, compounding is everything. Don't use gold to figure out how much inflation happened last year and don't use CPI to figure out how much inflation happened last decade. Reminder: I presented gold and housing as dirty hacks. The correct methodology is to construct a basket of things you care about and track them. If the dirty hacks have dirty hack problems, well, such is the nature of dirty hacks.
- deleted 2mo ago
  [deleted]
- cheriot 2mo ago
  Then what number would you use instead? A "correct methodology" that's not done is useless. Complaining about CPI to defend using nominal values poorly is not improving the article's analysis.
  - smallmancontrov 2mo ago
    Housing and gold, to be used when the timescale is more than a few years. CPI is fine if the timescale is under a few years, because that is not enough time for its sins to compound. You posted an incorrect interpretation of the FRED real wages line. All I owe the discussion is an explanation of why I believe your interpretation was incorrect. Which I gave. The fact that I went above and beyond to provide and defend both a theoretical alternative and practical alternatives is a nice extra. Your complaints that the practical alternatives aren't simultaneously perfect and easy is praise by faint damnation. Perfect and easy aren't the ways of this world. No, they only have to be better than CPI on long timescales to be good alternatives -- but the CPI methodology places that bar very low and both gold and housing clear it easily.
    - cheriot 2mo ago
      My analysis was "Doesn't look so dire to me?" and I don't think the point you raised leads to a different conclusion. I can tell you know the topic well, but we're at the same place CPI criticism always come back to: "It's flawed, but the alternatives are worse, don't exist, or in some way not practical."
      - smallmancontrov 2mo ago
        Exactly the opposite: CPI is worse than the alternatives at long timescales, despite their flaws. I know you really really want to make this about the flaws in the alternatives, but I have spent many sentences dealing with the flaws in those in good faith while you have yet to reciprocate at all with any in defense of CPI, either in comparative or absolute terms. Because you know that's a losing game. CPI is cooked, the FRED real wages graph is cooked, your conclusion from it is cooked, and you know it's cooked.