"There's no inflation."

[oyarde]

On the other hand, the traditional metrics, gold, silver, oil, interest rates, all have one thing in common: the government can control them.

Yeah , I look at everything , but a pound of bacon may be a better look .

 

[Madison320]

On the other hand, the traditional metrics, gold, silver, oil, interest rates, all have one thing in common: the government can control them.

They can control interest rates for awhile, but not forever. Eventually market forces will win in the end.

I don't see how the government can lower the price of gold, silver or oil. It seems to me they'd have to sell large quantities of those commodities and I doubt they have any. The only thing they have is a printer and the only thing printing will do is drive the price up.

 

[Madison320]

Here's the rub. The problem. The downfall. We do not know what that demand limit is. Even if we did, we also do not know how soon "eventual" will come. We also do not even know that the key essential assumption will be true: that "the supply of money continues to increase rapidly." We don't know what the Fed will do next quarter, much less going forward and years in the future. So really, you can see, we know very little.

I think the mistake you are making is that you are too "US-Centric" when it comes to economics. You act like there's only been one experiment in fiat currency in the history of the world. As I recall you thought that the US dollar was the only fiat currency in history. Do some research. There are thousands of examples of fiat currency and what happens when the monetary base gets expanded. Look at the ruble, the drachma, the lira, the deutschmark, the peso, etc, etc. look at what happens 99.99% of the time instead of focusing on the .01%.

http://dailyreckoning.com/fiat-currency/

 

[Original_Intent]

Workforce participation rate has gone from 66% to 63%. Is that a huge change?

Yeah, it's a big change when I am participating my ass off for the least I have made in the last 15 years, and with essentially a non-existent benefits package (and the last time I made this little I had a primo benefits package that basically provided top of the line everything at NO out of pocket cost to me, and if I opted for lesser benefits the difference was paid to me in cash.)

So the fact that workforce participation has dropped 3% AND just about everybody I know of that isn't a government employee is underemployed or taken a significant paycut...yeah, it's a pretty big deal.

 

[Original_Intent]

I think the mistake you are making is that you are too "US-Centric" when it comes to economics. You act like there's only been one experiment in fiat currency in the history of the world. As I recall you thought that the US dollar was the only fiat currency in history. Do some research. There are thousands of examples of fiat currency and what happens when the monetary base gets expanded. Look at the ruble, the drachma, the lira, the deutschmark, the peso, etc, etc. look at what happens 99.99% of the time instead of focusing on the .01%.

http://dailyreckoning.com/fiat-currency/

and realize that the most that can be said for that .01% is that they haven't failed yet.

 

[helmuth_hubener]

On the other hand, the traditional metrics, gold, silver, oil, interest rates, all have one thing in common: the government can control them.

No, they cannot. The market controls them. Silver is the only one of those items with a small enough market that it conceivably could be manipulated. Even if that were attempted, the effect would only be temporary.

The government does not control gold price.
The government does not control silver price.
The government does not control oil price.
The government does not control interest rates.

The market controls these things.

 

[helmuth_hubener]

Eventually market forces will win in the end.

Exactly!

 

[helmuth_hubener]

I think the mistake you are making is that you are too "US-Centric" when it comes to economics.

I am sure that's true.

You act like there's only been one experiment in fiat currency in the history of the world.

I do not intend to act like that, but maybe I do. I don't know how one should act if this were the case (that there had been only been one experiment in fiat currency in the history of the world), and so it's possible that I'm accidentally acting like that. But it is not true that there's only been one experiment in fiat currency in the history of the world. And I do not believe that it's true. So any similarity is coincidental.

As I recall you thought that the US dollar was the only fiat currency in history.

I do not think this. I have never thought this (to my memory).

Do some research.

A good idea.

There are thousands of examples of fiat currency and what happens when the monetary base gets expanded.

And many of them, in fact, are here alive and well for us to observe this very day! In real time! So it is exceedingly convenient and easy to see "what happens". You can track the behavior of these currencies on any world currency market site.

I personally don't see any pattern. Nothing I'd be willing to risk my life savings on. Looks like a lot of unpredictable up and down.

 

[devil21]

Yes, because inflation is solely determined by the price of a McDonalds hamburger...

As HOLLYWOOD's post demonstrates:

There's not enough attention paid to the component of monetary inflation (not sure if it has a name) where the quantity and quality of product received keeps going down, while prices continue to go up. If the quantity and quality remained steady and only prices were adjusted, what would the rate of price inflation be? A 2004 Big Mac would cost $10 a piece! But since today's Big Mac is much smaller and the input products are of lower quality than in 2004, the "price inflation" has been mostly hidden. Where's the measure of that? Someone should create an index tracking this part of inflation because combined with actual price inflation it would reveal the real rate of inflation.

No, they cannot. The market controls them. Silver is the only one of those items with a small enough market that it conceivably could be manipulated. Even if that were attempted, the effect would only be temporary.

The government does not control gold price.
The government does not control silver price.
The government does not control oil price.
The government does not control interest rates.

The market controls these things.

Correction. The Banks control those things. And Banks are in bed with the government (TARP anyone?) so it's disingenuous to say the government doesn't control those things.

 

[helmuth_hubener]

There's not enough attention paid to the component of monetary inflation (not sure if it has a name) where the quantity and quality of product received keeps going down, while prices continue to go up.

That would be a component of price inflation.


Monetary inflation is when the money supply increases.

Price inflation is when the general price level of goods increases (which for some products, as you say, may mean the quality/quantity of the product unit is adjusted downward in order to maintain the same price per transaction).

 

[devil21]

That would be a component of price inflation.


Monetary inflation is when the money supply increases.

Price inflation is when the general price level of goods increases (which for some products, as you say, may mean the quality/quantity of the product unit is adjusted downward in order to maintain the same price per transaction).

First of all, Austrian econ doesn't even acknowledge inflation as anything but a monetary function. Second, thank you for your input but you didn't address what my post was about. We can argue whether it's a Keynesian price inflation measure or a Austrian monetary inflation measure but it's still there and doesn't get accounted for in any way I've seen.

 

[helmuth_hubener]

First of all, Austrian econ doesn't even acknowledge inflation as anything but a monetary function.

I respectfully disagree. But obviously if we are to speak about the phenomenon of the price level moving -- a phenomenon which operates non-identically with the phenomenon of the money supply increasing or decreasing -- we should call it something.

Price inflation is a good term for the price level increasing. What is increasing is the prices.

Monetary inflation is a good term for the supply of money increasing. What is increasing is the quantity of monetary media. Many times, it is true, we Austrians will refer to monetary inflation simply as "inflation," period. This can be confusing to people.

Second, thank you for your input but you didn't address what my post was about. We can argue whether it's a Keynesian price inflation measure or a Austrian monetary inflation measure but it's still there and doesn't get accounted for in any way I've seen.

Actually, the CPI does make an attempted adjustment, I believe, for quality changes in products. For example, computers, TVs, and electronics in general have had a trend of getting much, much better. So although a TV may still average $300, it is now an HD flat screen instead of a CRT box. While a computer may still average $500, it is a much more capable machine, ten-thousand times over.

This adjustment is one of the things that people like the ShadowStats guy object to. Because although candy bars and fast food have gotten smaller and worse in recent decades, the effect of that is relatively tiny on the economy compared to the number of products that have gotten better and cooler.

 

[HOLLYWOOD]

Light Snack on other inflationary pressures

Average credit card interest up to shocking 21% | New York Post

 

[devil21]

Actually, the CPI does make an attempted adjustment, I believe, for quality changes in products. For example, computers, TVs, and electronics in general have had a trend of getting much, much better. So although a TV may still average $300, it is now an HD flat screen instead of a CRT box. While a computer may still average $500, it is a much more capable machine, ten-thousand times over.

It is debatable whether they are "better" since that's a relative concept. A big screen HDTV looks better but is it better materially? Is it more durable than a CRT box? Are there more commodity based components in an HDTV than a CRT? Most people would question whether today's HDTVs are more durable. They don't require as much raw material to produce (they're mostly plastic, LED bulbs and circuit boards...the initial high costs are to recoup R&D expenses) and the low cost of labor in foreign countries figures into that too. I have a nice big Samsung HDTV but I have no delusions that it will last as long as the 36" CRT it replaced that was bought in 2000 and is still running at a friend's house. If I have to buy two HDTVs in the same time frame as a single CRT would have lasted, is there really a savings there? I don't think technology is a good measure of inflation for those reasons. Seems to me that it follows the same trend of less raw material used to offset rising raw material costs, as with a McD's burger. Advances in technology can offset rising materials costs caused by inflation but it doesn't deem the inflation non-existent. It just hides it. Besides, no one needs a TV or a computer. They do need food, gas, and other necessities that are quickly rising.

This adjustment is one of the things that people like the ShadowStats guy object to. Because although candy bars and fast food have gotten smaller and worse in recent decades, the effect of that is relatively tiny on the economy compared to the number of products that have gotten better and cooler.

Again, better is relative and I'm not aware of any economic measure of "coolness" as a factor in keeping inflation subdued.

 

[Brian4Liberty]

Light Snack on other inflationary pressures

Average credit card interest up to shocking 21% | New York Post

So the "more free" market of credit cards tells us that inflation is much higher than 1-3%?

 

[Zippyjuan]

First of all, Austrian econ doesn't even acknowledge inflation as anything but a monetary function. Second, thank you for your input but you didn't address what my post was about. We can argue whether it's a Keynesian price inflation measure or a Austrian monetary inflation measure but it's still there and doesn't get accounted for in any way I've seen.

Inflation doesn't have just one meaning- not even for economists. Some people get too hung up on this. Inflation is the process of something getting larger. Monetary inflation is growth of the money supply. Price inflation is an increase in prices. Both are valid usage of the term. When no modifier is used inflation generally refers to an increase in price levels. If you read a headline discussing inflation, you don't assume it is the money supply growing but a reference to prices. Your car tire can also be inflated or a balloon or an ego.

 

[Zippyjuan]

I respectfully disagree. But obviously if we are to speak about the phenomenon of the price level moving -- a phenomenon which operates non-identically with the phenomenon of the money supply increasing or decreasing -- we should call it something.

Price inflation is a good term for the price level increasing. What is increasing is the prices.

Monetary inflation is a good term for the supply of money increasing. What is increasing is the quantity of monetary media. Many times, it is true, we Austrians will refer to monetary inflation simply as "inflation," period. This can be confusing to people.

Actually, the CPI does make an attempted adjustment, I believe, for quality changes in products. For example, computers, TVs, and electronics in general have had a trend of getting much, much better. So although a TV may still average $300, it is now an HD flat screen instead of a CRT box. While a computer may still average $500, it is a much more capable machine, ten-thousand times over.

This adjustment is one of the things that people like the ShadowStats guy object to. Because although candy bars and fast food have gotten smaller and worse in recent decades, the effect of that is relatively tiny on the economy compared to the number of products that have gotten better and cooler.

Some people prefer Shadow Stats measures of price inflation but they are using a 1980 basket of goods. The CPI gets updated every ten years to what people are actually spending money on. The 1980 basket doesn't even consider things like cell phones or Plasma or LCD TVs or computers since they weren't really around then. That assumes that people are not buying such things today. They had VCRs and CD players. Is that a more accurate way to calculate changes in prices today- by leaving them out?

CPI does account for changes in sizes of packaging and attempts to compensate for increased quality like more features for cars and TVs and cell phones.

http://stats.bls.gov/cpi/cpifaq.htm#Question_6

The recorded information is sent to the national office of BLS, where commodity specialists who have detailed knowledge about the particular goods or services priced review the data. These specialists check the data for accuracy and consistency and make any necessary corrections or adjustments, which can range from an adjustment for a change in the size or quantity of a packaged item to more complex adjustments based upon statistical analysis of the value of an item's features or quality. Thus, commodity specialists strive to prevent changes in the quality of items from affecting the CPI's measurement of price change.

The index isn't perfect- there is no perfect measure- but the CPI does a pretty good job.

 

[devil21]

Inflation doesn't have just one meaning- not even for economists. Some people get too hung up on this. Inflation is the process of something getting larger. Monetary inflation is growth of the money supply. Price inflation is an increase in prices. Both are valid usage of the term. When no modifier is used inflation generally refers to an increase in price levels. If you read a headline discussing inflation, you don't assume it is the money supply growing but a reference to prices. Your car tire can also be inflated or a balloon or an ego.

If you're a Keynesian, yes, it means price inflation. If you're an Austrian, price increases are simply an effect of monetary inflation, not a separate measure of it.

 

[devil21]

Some people prefer Shadow Stats measures of price inflation but they are using a 1980 basket of goods. The CPI gets updated every ten years to what people are actually spending money on. The 1980 basket doesn't even consider things like cell phones or Plasma or LCD TVs or computers since they weren't really around then. That assumes that people are not buying such things today. They had VCRs and CD players. Is that a more accurate way to calculate changes in prices today- by leaving them out?

CPI does account for changes in sizes of packaging and attempts to compensate for increased quality like more features for cars and TVs and cell phones.

http://stats.bls.gov/cpi/cpifaq.htm#Question_6



The index isn't perfect- there is no perfect measure- but the CPI does a pretty good job.

Which CPI are you talking about? From your own BLS link there are multiple versions of "CPI" that can be presented based on whatever the argument to be supported is. Interesting that the BLS maintains an index that allegedly includes packaging and quality adjustments, yet the widely reported CPI (1%-3% right?) doesn't even include food and energy in the basket. So the CPI accounts for those changes but doesn't include the changes in the CPI? Huh?

 

[helmuth_hubener]

If you're a Keynesian, yes, it means price inflation. If you're an Austrian, price increases are simply an effect of monetary inflation, not a separate measure of it.

As an Austrian, let me just say: this makes Austrians sound stupid. I disagree with your phrasing entirely.

Austrians also think that unemployment is one effect of the minimum wage. But we do not call unemployment "minimum wage". When the unemployment report comes out and says that unemployment is down, we do not say "looks like minimum wage went down yet again." We certainly do not say "this bogus report says that minimum wage went down by 1%, but we know that's a lie because actually the DoL report shows clearly that minimum wage actually went up by 1 trillion dollars."

Why not? Because saying that would be stupid. It would also be nonsensical gibberish to anyone not initiated into the specialized usage of technical terms you're employing.

Price increases can result from things other than monetary inflation. For instance, a typhoon. A fender-bender with a comet. Nuclear holocaust. Christmas. So price increases are not, as you say, "simply an effect of monetary inflation." Increase in money supply is one factor -- among many -- which can result in increased prices, and increased prices are one effect -- among many -- of an increase in the money supply. To simplify it to the point where you're saying (as you seem to be) that it's a simple, direct, one-to-one relationship between money supply and price level is to over-simplify it.

For example, there was no price inflation during the 1920s. But yet there was lots of monetary inflation. The money supply was increasing like crazy. It's just that the growth of the economy and advances in productivity were even more dramatic, outpacing the growth of the money supply.

Austrians say a very particular thing about the relationship between monetary inflation and price level (monetarists say it, too): That if the money supply is inflated, then, all else equal, the price level will become higher (eventually) than it would have otherwise been. That is what the theory teaches us. But there is a whole lot of "all else," and it never, ever stays equal.