Everything you want to know about CPI (almost).
My take is that judging economic performance on figures like per capita GDP for "growth," CPI for "inflation," and U3 for "unemployment" is myopic and misleading. But it's these numbers that make news headlines and dominate "popular economics."
BTW, unleaded was $2.77 today at Costco, Iowa City/Coralville. That's a pretty huge "tax cut."
The Economic Populist
Inflation Deceptive, CPI 0.1% Yet Some Items Off the Charts
Robert Oak
The Economic Populist
Inflation Deceptive, CPI 0.1% Yet Some Items Off the Charts
Robert Oak
5 comments:
Well, at least one assertion he makes is wrong (that cpi assumes consumers will substitute hamburger for steak).
"http://www.bls.gov/cpi/cpiqa.htm#Question_3"
This, I think, is more to the point.
"Many of the challenges in producing a CPI arise because the number and types of goods and services found in the market are constantly changing. If the CPI tried to maintain a fixed sample of products, that sample quickly would shrink and become unrepresentative of what consumers were purchasing. Each time that an item in the CPI sample permanently disappears from the shelves, the BLS has to choose another, and then has to make some determination about the relative qualities of the old and replacement item. If it did not--for example, if it treated all new items as identical to those they replaced -- significant upward or downward CPI biases would result."
Over time, at what point is it the same index? Take the DJI, for instance, the original companies have been replaced by more representative ones. Is the DJI the same index?
It's like the joke about George Washington's axe with which he chopped down the cherry tree as a boy. It's had seven new handles and three new heads. Is it the same axe?
Unleaded was $2.77 today at Costco, Iowa City/Coralville. That's a pretty huge "tax cut."
Well it is and it isn't.
It's good for you because you can now buy more real resources. Your real standard of living goes up.
But your overall spending does not increase. It's the overall spending that drives the economy.
If you use the money saved on cheap gas to pay down your debts or to buy Chinese imports at Walmart, that reduces domestic aggregate demand.
If the fracking bubble collapses and if cheap imported oil is substituted for expensive domestic oil, that reduces domestic aggregate demand.
Anyway, I'm glad the Economic Populist has resumed posting. I've learned a lot from him about FRED and about what all the statistics mean.
The US is well-known for good data reporting, and the people that do it deserve kudos for diligence. It's the use of it that often problematic. People with different viewpoints spin it differently, and the media picks up on a version that pandits think will resonate and echoes it with little or no analysis of nuance.
I don't think that there is an issue with those that collect and process the data and put together the stats. Where I have a problem is the way the output is used in many cases, which sees to me to disregard many of the relevant issue, leaving most people either ill-informed or confused, for example, when the reporting seems to run counter to their experience.
Another example is the claim that the value of the dollar has eroded "98%" over the last hundred years without mentioning standard of living. The price level may have increased but the standard of living has risen comparatively more.
It is often argued, for instance, that a nation is more prosperous owing to rising GDP per capita when per capita growth says nothing about distribution. It is sophistry to conflate growth and prosperity as if they were the same thing or that growth implies distributed prosperity through trickle down.
Moreover, historical studies are done using interest rate, growth, inflation, and employment data over periods of time and across countries as if the figures were based on the same measurements when they are not. A recent example was Reinhart and Rogoff, which the MMT economists picked up on right away while other economists, the media and politicians ran with it only to be embarrassed later.
In the course of perusing the feeds I look at a lot of headlines, and some that are based on the same data state the case in opposite terms owing to selective interpretation.
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