SO TONIGHT, I WAS thinking about what every normal person thinks about on a Saturday night: inflation figures.
Earlier this week, I was surfing around the Internet when I came to a fascinating site called Shadow Government Statistics, which a researcher in Oakland, Calif., compiles. It's a subscription site but I found the main graph on it particularly interesting. Apparently, the Government has changed the way it calculates inflation, and Dr John Williams has been tracking not only the Government's official inflation rate but also the old inflation rate, the way it used to be calculated. Sadly, the inflation rate -- when calculated like it used to be -- is significantly higher than the official rate. By, like, four percentage points.
This means, as one can deduce from the helpful main graph on Dr Williams' site, that official inflation is now around 3 pc, while the arguably real rate of inflation is about 7 pc. One could thus argue we've gone from a situation where inflation is under control to one where inflation is now somewhat worrisome. Even worse, one could argue that if this real inflation gets any higher, we'll find ourselves dealing with stagflation. This is doubleplusungood.
But then -- how does one measure the thing?
On one hand, we know the prices of basic staples and goods are increasing. We know food prices have gone up, that energy prices have gone up, and that medical costs have gone up. In all three cases, one can point to double-digit annual cost increases. The price of housing has gone up remarkably over the past several years, this present downturn notwithstanding. The price of raw materials has increased markedly, as one can see from looking at the commodities markets.
On the other hand, though, we know that technological innovation, competition among businesses, and unbalanced trade equations have helped push the price of many goods down. For instance, computers and other electronic gadgets have become cheaper as technology improves. One could argue the cost of clothing and other essential goods has gone down due to cheap imports from abroad. Technological innovation has also arguably pushed down the cost of major durable goods. For instance, my new used car is more technologically advanced than my old car, even though it cost half what my old car cost back in 1998.
This puts us in a quandary. For we also know that in some cases, official statistics are often subject to extensive revision. For instance, the Government's jobs figures are reported every month on a preliminary basis. Later, we learn revisions were made and suddenly, the picture is far brighter (or dimmer) than it had been. Yet everyone jumps on the initial report and no one notices the revised numbers.
This leads me to two conclusions. The first is that one can solve the initial quandary through splitting the difference, putting inflation at about five percent or so. This may not be an elegant solution but it would at least counter the Government's seemingly low inflation figures with data that reflects real-world experience. The second is to argue that there are really two different inflation rates: one for the elite and one for the masses. A significant uptick in food and energy prices will necessarily hit the poor harder than it would the middle or upper-middle class, while a drop in electronics prices will necesssarily benefit the better-off portion of society more than the poor.
See, this is why you read The Rant -- because you know that you'll necessarily get something different, because I'm one of four people interested in these types of things!Posted by Benjamin Kepple at December 8, 2007 11:38 PM | TrackBack