Keynesian: Doing the math: what the FEDs 2% inflation goal and CPI fudging means for purchasing power

[Acala]

http://www.ssa.gov/policy/docs/ssb/v69n3/v69n3p1.html

I know its from the devil, but here are some details.

So 20% of the entire private work force seems insignificant to you?

 

[ababba]

So 20% of the entire private work force seems insignificant to you?

20% is the percentage that have a defined benefit pension plan, not the percentage that relies largely on the defined benefit plan to survive. Most if not all have other assets like social security, stocks, bonds, family to help them etc. I would feel bad for those that have only a defined benefit plan if I believed inflation was really above 2%, which I don't.

 

[Acala]

20% is the percentage that have a defined benefit pension plan, not the percentage that relies largely on the defined benefit plan to survive. Most if not all have other assets like social security, stocks, bonds, family to help them etc. I would feel bad for those that have only a defined benefit plan if I believed inflation was really above 2%, which I don't.

It is easy to wave your hand at this problem and pretend it is no big deal. You might think differently when millions of old people lose the income they worked their whole lives for. Or maybe you won't. But don't think a few million hungry and angry people will not have something to say about it, your hand waving notwithstanding.

 

[ababba]

It is easy to wave your hand at this problem and pretend it is no big deal. You might think differently when millions of old people lose the income they worked their whole lives for. Or maybe you won't. But don't think a few million hungry and angry people will not have something to say about it, your hand waving notwithstanding.

I don't know, I thought maybe a group of libertarians might believe in personal responsibility. So if a group of people screws themselves over hardcore by denominating all their assets in nominal terms, well they should have known better. You act as if these people had no control over their own lives.

But in all seriousness, I believe inflation is 2% and the Fed wants to keep inflation low. I would prefer a higher inflation target personally, but that's not coming anytime soon.

 

[Steven Douglas]

I don't know, I thought maybe a group of libertarians might believe in personal responsibility.

Sounds trollishly reasonable to me.

But in all seriousness, I believe inflation is 2% and the Fed wants to keep inflation low. I would prefer a higher inflation target personally.

What target rate would you prefer, and why, specifically?

I would prefer a higher target rate as well - something with a doubling rate of, oh, say, every 3 to 6 months? My reason for that, of course, is so that the festering boil can be brought to head and lanced all the faster, but I'm curious about your reasons for wanting an increase in the value-dilution rate of the currency.

 

[Acala]

I don't know, I thought maybe a group of libertarians might believe in personal responsibility. So if a group of people screws themselves over hardcore by denominating all their assets in nominal terms, well they should have known better. You act as if these people had no control over their own lives.

But in all seriousness, I believe inflation is 2% and the Fed wants to keep inflation low. I would prefer a higher inflation target personally, but that's not coming anytime soon.

Oh man. So it isn't the fault of the self-appointed guardians of the currency (which people are forced to use) that the currency has lost most of its value, it is the fault of the idiots who saved their money!

 

[ababba]

Sounds trollishly reasonable to me.



What target rate would you prefer, and why, specifically?

I would prefer a higher target rate as well - something with a doubling rate of, oh, say, every 3 to 6 months? My reason for that, of course, is so that the festering boil can be brought to head and lanced all the faster, but I'm curious about your reasons for wanting an increase in the value-dilution rate of the currency.

4% would be better for a variety of reasons. Sticky wages, debt deflation and monetary policy flexibility near the zero lower bound.

 

[ababba]

Oh man. So it isn't the fault of the self-appointed guardians of the currency (which people are forced to use) that the currency has lost most of its value, it is the fault of the idiots who saved their money!

No, its the fault of people that denominated all their savings in assets that aren't hedged against inflation. But again, inflation is around 2%, so it doesn't matter that much.

Actually the funny thing is that we are talking about people which have all their assets in a defined benefit pension plan. Its funny because these people really don't exist, since they get indexed social security. Its also funny because these people, by definition, didn't actually save any money on their own. So instead I'm blaming the people that just thought, oh well my company will take care of everything, I don't need to think about my future and take my life into my own hands.

 

[Zippyjuan]

No, its the fault of people that denominated all their savings in assets that aren't hedged against inflation. But again, inflation is around 2%, so it doesn't matter that much.

Actually the funny thing is that we are talking about people which have all their assets in a defined benefit pension plan. Its funny because these people really don't exist, since they get indexed social security. Its also funny because these people, by definition, didn't actually save any money on their own. So instead I'm blaming the people that just thought, oh well my company will take care of everything, I don't need to think about my future and take my life into my own hands.

If everything is indexed to inflation it will only push inflation higher. One cannot always stay ahead of it. It is impossible to guarantee that any investment or hedging will always beat inflation. No matter what the rate of price inflation is, there will be some people who come out ahead and some who lose.

 

[Steven Douglas]

No, its the fault of people that denominated all their savings in assets that aren't hedged against inflation. But again, inflation is around 2%, so it doesn't matter that much.

Around 2%? Where did you get that number? Did the government tell you so?

I would be more inclined to stick with the BLS' broader, more "real world" straight reporting pre-1980-methodology-based estimates (just the straight-reporting facts, ma'am), as published by shadowstats, which would put inflation closer to 10% (and climbing), and not so "Hey, Piss In Your Face = Warm Rain!", as the current CPI-U does, with its constantly revised hedonics, quality adjustments and geometric weightings (which has ZIP, ZERO, NADA to to do with modelling human behavior).

Anyone who honestly believes that real price inflation due to monetary inflation is the 1.7% (COLA adjustment based on BLS data) is completely out of touch with reality, and living in a world of mental absurdities.

I think you have to operate from inside an unbelievably credulous vacuum to buy into think that price inflation (due to monetary inflation only) is really is "around 2%". But it doesn't matter. Here's the beauty (or ugliness, or reality) of it: Whatever the fundamentals are in terms of real numbers, these will all play out as mathematical certainties, REGARDLESS OF BELIEF.

So if price inflation really is "around 2%", as declared in the updated CPI-U Scriptures, that's a doubling rate of around 35 years. If true, then OOH LA LA, and yippee-kai-ay, that's great news for everyone! The Fed, Treasury and banks can probably milk that system for a good time to come.

IF, on the other hand, the rate of price inflation is closer to 10% now, and accelerating, as I believe it is, then we're talking about a doubling rate of around 7 years -- and decreasing.

 

[ababba]

Around 2%? Where did you get that number? Did the government tell you so?

I would be more inclined to stick with the BLS' broader, more "real world" straight reporting pre-1980-methodology-based estimates (just the straight-reporting facts, ma'am), as published by shadowstats, which would put inflation closer to 10% (and climbing), and not so "Hey, Piss In Your Face = Warm Rain!", as the current CPI-U does, with its constantly revised hedonics, quality adjustments and geometric weightings (which has ZIP, ZERO, NADA to to do with modelling human behavior).

Anyone who honestly believes that real price inflation due to monetary inflation is the 1.7% (COLA adjustment based on BLS data) is completely out of touch with reality, and living in a world of mental absurdities.

I think you have to operate from inside an unbelievably credulous vacuum to buy into think that price inflation (due to monetary inflation only) is really is "around 2%". But it doesn't matter. Here's the beauty (or ugliness, or reality) of it: Whatever the fundamentals are in terms of real numbers, these will all play out as mathematical certainties, REGARDLESS OF BELIEF.

So if price inflation really is "around 2%", as declared in the updated CPI-U Scriptures, that's a doubling rate of around 35 years. If true, then OOH LA LA, and yippee-kai-ay, that's great news for everyone! The Fed, Treasury and banks can probably milk that system for a good time to come.

IF, on the other hand, the rate of price inflation is closer to 10% now, and accelerating, as I believe it is, then we're talking about a doubling rate of around 7 years -- and decreasing.

The shadowstats bull was what my original post in this thread was about. See my response there.

 

[Steven Douglas]

The shadowstats bull was what my original post in this thread was about. See my response there.

Yep, I said I rolled my eyes, remember? Here's part of your response again (broken down to for the sake of ridiculing it):

I have an income of 10 dollars in year one.
I buy five apples and five oranges in year 1, each of which cost one dollar.
In year 2, the price of apples increases to 2 dollars and I decide to buy 10 oranges with my 10 dollars.
What is the rate of decrease in my standard of living?

Shadowstats says its a 50% inflation rate but that is mind blowing idiocy. Not so Q.E.D. after all.

How about, rather than an oversimplified bullshit strawman and its equally idiotic non sequitur conclusion, why not instead quote something directly from Shadowstats that actually shows how apples and oranges (of all choices!) are treated as substitutions.

If the cost of a computer in 10 years goes from 1000 to 1500, but the quality of the computer doubles or triples, then there very well may be deflation in the cost of computers, while shadowstats would claim major inflation. Not so Q.E.D. again.

That's like telling an atheist that if he doesn't believe in God he must believe in the Devil instead. Hello, Earth to hedonics-believing guy: Shadowstats is not on the other side of the hedonics coin. Stating that a methodology (e.g., hedonics) is not applicable is not the same thing as a claiming the opposite of whatever that methodology produced as an answer.

And of course, surprise surprise, new goods get introduced. Good luck using the same basket from 1950 to measure the cost of living in 2012. People purchase dramatically different baskets of goods in the two years. You have to change the basket over time. Not so Q.E.D. again.

Yeah, which is why you start new trends with new data. But you don't fucking SPLICE it. You don't PROXY it. It makes a case for KEEPING IT SIMPLE, STUPID - as you concentrate on a basket of goods that really is as universal as possible, and as close to raw forms as possible through all generations. So what about complex finished goods (not simple things, like bread)? Totally fucked, and completely irrelevant, unless you can break it down. You don't compare buggies to automobiles, and typewriters to computers. Only a fucking moron would even begin to think that was meaningful in anyway---or someone whose sensibilities are tickled by apples-to-transmissions obfuscation.

 

[ababba]

Yep, I said I rolled my eyes, remember? Here's part of your response again (broken down to for the sake of ridiculing it):



How about, rather than an oversimplified bullshit strawman and its equally idiotic non sequitur conclusion, why not instead quote something directly from Shadowstats that actually shows how apples and oranges (of all choices!) are treated as substitutions.



That's like telling an atheist that if he doesn't believe in God he must believe in the Devil instead. Hello, Earth to hedonics-believing guy: Shadowstats is not on the other side of the hedonics coin. Stating that a methodology (e.g., hedonics) is not applicable is not the same thing as a claiming the opposite of whatever that methodology produced as an answer.



Yeah, which is why you start new trends with new data. But you don't fucking SPLICE it. You don't PROXY it. It makes a case for KEEPING IT SIMPLE, STUPID - as you concentrate on a basket of goods that really is as universal as possible, and as close to raw forms as possible through all generations. So what about complex finished goods (not simple things, like bread)? Totally fucked, and completely irrelevant, unless you can break it down. You don't compare buggies to automobiles, and typewriters to computers. Only a fucking moron would even begin to think that was meaningful in anyway---or someone whose sensibilities are tickled by apples-to-transmissions obfuscation.

Well that didn't answer anything. Shadowstats doesn't account for substitution, quality improvements or changes in the basket, therefore its a piss poor way to measure the standard of living.

I don't think you answered any of my points with any kind of logical response. You are just going off again on the CPI. Doesn't mean that Shadowstats is a good response. I think the CPI is imperfect but shadowstats is several orders of magnitude worse.

 

[ababba]

Let's say you give the person in my point 1 enough income to be able to afford their original consumption bundle of 5 apples and 5 oranges at the new prices. Would they be better off than before the price change, worse off or you can't tell?

This is a basic question from any intro Micro Econ course. If you get it right, you will be telling yourself why shadowstats is wrong.

 

[Danke]

Well that didn't answer anything. Shadowstats doesn't account for substitution, quality improvements or changes in the basket, therefore its a piss poor way to measure the standard of living.

I don't think you answered any of my points with any kind of logical response. You are just going off again on the CPI. Doesn't mean that Shadowstats is a good response. I think the CPI is imperfect but shadowstats is several orders of magnitude worse.

Aren't we talking about if there was not manipulation, prices should be going down across sectors with productivity gains? Eggs, milk, etc, not just electronics?

 

[Steven Douglas]

Well that didn't answer anything. Shadowstats doesn't account for substitution, quality improvements or changes in the basket...

Which is why your apples to oranges substitution strawman and its non-sequitur conclusion about what Shadowstats is saying about such a thing was meaningless.

...therefore its a piss poor way to measure the standard of living.

No, what's piss-poor is even saying "standard of living" in the first place, as if everyone knew what that ill-defined mushy-fuzzy relativist term even means. We're talking about price inflation, not standard of living. They are not synonymous.

I don't think you answered any of my points with any kind of logical response.

I addressed your points, which could not be answered, as I didn't accept the premise of your points, and challenged your assumptions, as well as the very framing of your arguments. You're still arguing as if all of that had merit, and was even worthy of a response.

If I ask you, "What's the difference between a duck?" and you ask for clarification, it would be kind of poop-stupid of me to accuse you of not "answering" my points, and worse if I don't acknowledge that they had been "addressed".

You are just going off again on the CPI. Doesn't mean that Shadowstats is a good response. I think the CPI is imperfect but shadowstats is several orders of magnitude worse.

Well, now who's making generalized assertions without forming any logical arguments? You don't say why YOU think CPI is "imperfect", or what that even means, let alone why shadowstats is "several orders of magnitude worse". Really, you've quantified it to several orders of magnitude? Do you even know what that term means, or are you using it as a mushy-fuzzy substitution for "really REALLY very much"?

Let's say you give the person in my point 1 enough income to be able to afford their original consumption bundle of 5 apples and 5 oranges at the new prices. Would they be better off than before the price change, worse off or you can't tell?

This is a basic question from any intro Micro Econ course. If you get it right, you will be telling yourself why shadowstats is wrong.

Source? Don't paraphrase, cite it. And I hope you're not assuming that just because something is in an intro in a course, that it is presumed to be correct, and somehow has authority. Textbooks are written by humans, are often notoriously wrong, and are always subject to challenge. Furthermore, make sure when you cite that source that it talks about INFLATION--quantitatively-- not "standard of living", and not "worse off, or better off", which is subjective and meaningless. And if you insist on "standard of living", DEFINE IT (again, citing a source, assuming you have one).

 

[ababba]

Which is why your apples to oranges substitution strawman and its non-sequitur conclusion about what Shadowstats is saying about such a thing was meaningless.



No, what's piss-poor is even saying "standard of living" in the first place, as if everyone knew what that ill-defined mushy-fuzzy relativist term even means. We're talking about price inflation, not standard of living. They are not synonymous.



I addressed your points, which could not be answered, as I didn't accept the premise of your points, and challenged your assumptions, as well as the very framing of your arguments. You're still arguing as if all of that had merit, and was even worthy of a response.

If I ask you, "What's the difference between a duck?" and you ask for clarification, it would be kind of poop-stupid of me to accuse you of not "answering" my points, and worse if I don't acknowledge that they had been "addressed".



Well, now who's making generalized assertions without forming any logical arguments? You don't say why YOU think CPI is "imperfect", or what that even means, let alone why shadowstats is "several orders of magnitude worse". Really, you've quantified it to several orders of magnitude? Do you even know what that term means, or are you using it as a mushy-fuzzy substitution for "really REALLY very much"?



Source? Don't paraphrase, cite it. And I hope you're not assuming that just because something is in an intro in a course, that it is presumed to be correct, and somehow has authority. Textbooks are written by humans, are often notoriously wrong, and are always subject to challenge. Furthermore, make sure when you cite that source that it talks about INFLATION--quantitatively-- not "standard of living", and not "worse off, or better off", which is subjective and meaningless. And if you insist on "standard of living", DEFINE IT (again, citing a source, assuming you have one).

I don't know what planet you are on. I asked a simple question. Is the person better off, worse off or as well off. Cut through all the horse shit and just answer. Thanks.

 

[ababba]

Here's the point. If we want to use CPI to index social security, we want to give people increases in income that make them as well off as before. This is why the question is relevant. This is why standard of living is relevant. It is as simple as do you prefer one basket of goods to another. More preferred is a higher standard of living. We want an index that roughly keeps people indifferent between the different consumption bundles they buy over time.

 

[Steven Douglas]

I don't know what planet you are on. I asked a simple question. Is the person better off, worse off or as well off. Cut through all the horse shit and just answer. Thanks.

Cut through your own horse shit and learn to ask a meaningful question. Words mean things. It's not a case of relativistic garbage in/garbage out. It's a case of garbage in, and you get your garbage thrown back in your face. Oh, and for the record, we on this part of the planet I am on call it Earth. Welcome.

 

[Steven Douglas]

Here's the point. If we want to use CPI to index social security, we want to give people increases in income that make them as well off as before.

More qualitative, relativistic equivocating nonsense. This is why your question is irrelevant.

Likewise with your absolute bullshit nonsense of "do you prefer one basket of goods to another", which has only the most subjective and tenuous ties to price inflation, and the reason why terms like "standard of living", "worse off/better off/as well off" are completely irrelevant.

We want an index that roughly keeps people indifferent between the different consumption bundles they buy over time.

Thank you, social engineer, for your indifference, and desire and objective toward other people's indifference. Now go take a Soma, and Be One With The Indifferent Masses.

I would be far more interested in knowing how, quantitatively and objectively, not qualitatively and subjectively, PRICE INFLATION has taken place (since that is what we are actually talking about). It may well be :: think think think :: that they would have been BETTER OFF, not just neutral, or indifferent, or the same without monetary inflation that led to price inflation. We know that to be true, in fact, because it is well known that raw scarce goods do not "HOLD" or "MAINTAIN" value, but can actually INCREASE, becoming MORE VALUABLE over time in a growing economy.

Thus, if you can prove the very neutrality, or zero-sum-game indifference you think is such a valid metric for comparison, it can be argued that they are indeed WORSE OFF (for not having reaped the gains that would otherwise have been theirs and theirs alone).



Let's put it another way, in terms that any would-be social engineering thief should appreciate. You hold stock. That stock periodically pays a dividend. I steal that dividend, intercepting it, forging your signature, and cashing it EVERY TIME YOU RECEIVE IT. And let's say that you're none the wiser. You didn't even know you had a dividend coming. Furthermore, I don't touch your stock. That's yours to keep. Can I now declare with a straight face that you are "no worse off" than before, or "as well off" as before, and is there anything whatsoever even meaningful about that?