In my opinion, the economic statistics generated by government provide no genuine value - at least not in the economic arena. Rather, they have value only in the political arena. I believe their purpose is to manipulate the general public. It's generally understood, particularly among those active in these forums, that the various aggregates such as CPI and GDP are not generated in the same manner today as in the past. That is, their very definitions have continually shifted over the years. Now, assuming economics has any value at all as a science, then how can this state of affairs be acceptable to those who practice this "science"? It makes more sense to me to consider that the cart is leading the horse here. That is, the aggregates are not generated in an objective manner. If the underlying definitions and the data do not generate a favorable value, then it's easy enough to make the necessary changes.
There is a continual expansion of the currency and credit. Nobody can deny this with a straight face. The rate has been particularly high over the last 20 years or so. This will likely lead to price inflation. However, not in any predictable fashion. Personally, I don't consider price inflation to be the major concern. Rather, I consider a different effect. Currency expansion does change the price structure. That is, relative prices are affected. This effect is most important to recognize, and it's a shame that so many self-described "Austrians" fail to emphasize it. I've considered several metaphors that can help to describe how this process affects the economy (often called "malinvestment"). Imagine that a power plant is operated continually without a regular calibration of its indications (gages, meters, etc.) and without maintenance of its control circuits. Clearly, it will become increasingly difficult to operate the plant as systems will start to break down. The proper course of action is to shut down the plant and conduct repairs. If this is not done, then the only option is to patch things up in a shoddy manner as they break, and change the operating procedures to allow continued operation outside the original parameters (because indications are no longer accurate). Well, it should be clear that the systems will see problems of increasing frequency as they operate outside their specifications for an increasing duration. We can keep things going for a long while, but only until a major system fails catastrophically.
Consider another metaphor. A physicist conducts a lengthy experiment. Later he discovers that his measuring equipment was not properly calibrated. What is the proper course of action? The answer is to throw out the data, calibrate the gear, then start over. After all, the data has no value. The distortion of relative prices caused by currency expansion should be considered similarly. After all, prices are not arbitrary. Decisions are made based on these prices. Capital will be allocated along different lines as the changes are made, and the underlying structure of the economy will change. More important, the changes are cumulative over time. A power plant will fail in a short period under such conditions as described in the previous paragraph. An economy can continue to operate much longer because it's based not only on simple physics and engineering principles, but largely on the perceptions of the participants. Keeping it going requires increasingly less emphasis on economics, and more emphasis on politics.
