- CPI(-U) is not a suitable measurement of inflation anymore since it discarded fixed basket goods somewhere in the 90s and that
- inflation measures with "old-school" fixed baskets report inflation rate in the range of 6-10%/year
- production of goods became much more efficient but instead of being reflected in cheaper prices it increased shareholder profits and wealth inequalities?
My take on it re CPI is that I don’t know enough to know whether CPI is a suitable metric or not. I defer to economists here which is something you’re free to hold against me.
Re (2) I’d be very interested in learning more about the delta between CPI and these baskets. Do you happen to have a reference? I’m always down to learn more.
Re (3) I agree that inequality has gotten worse but I see that as a social and fiscal policy matter and not a monetary policy matter. If we’d been using gold, the same trend would have manifest. Poor people don’t hold onto money anyways they’re hand to mouth. And any extra they happen to hold onto could have been invested anyways. Frankly minimum wage over the period hasn’t been indexed to inflation either!
I’m a huge advocate of decreasing the gap between the rich and poor, I have more than I need to be sure, and the best way to do that is taxation.
This gap between rich and poor really started widening after the Reagan era tax cuts and trickle down economics. If you look back the top marginal tax rate in the US in much of the 1900s was 80-90%. Estate tax the same. If you reduce that to 37%, rich people get richer because they keep more and more of their wealth. A practically 0% estate tax ensures the next generation starts on a monopoly board where there’s a hotel on every square. To me that’s a much clearer correlation than the spooky action at a distance of this 2% (a figure you admittedly contested) inflation rate. Do the ultra wealthy really hold cash? Do the poor? Does anyone?
CPI matches other measures of inflation like http://bpp.mit.edu pretty well. People who think inflation is high are cranks - the history of cranks goes from Austrians, to Shadowstats, and currently is on Chapwood Index.
If we had inflation at 10% the economy would be smaller now than it was in 2010. It's under 2% and we can't get it up no matter how hard we try (not that hard so far.)
> If you look back the top marginal tax rate in the US in much of the 1900s was 80-90%.
Note that the effective rate was nothing like this because there were also lots of deductions.
To be fair I actually thought that inflation was measured using a fixed basket of goods.
Apparently that was changed in the 90s. An example I read (of which I am not sure if it is entirely accurate) was: "if steaks become too expensive, its weight in the basket will be reduced because people are expected to buy more chicken instead. this results in lower inflation estimates".
If true, why do you feel a fixed basket should not be used to determine inflation even though it is probably what most people would expect in such a measure?
In your example of steak, there are macroeconomic changes which may well cause the specific commodity to change in price substantially over time. Inflation isn't determined as a function of "steak" but rather as a function of "protein."
For instance, industrial agriculture, the farm bill subsidizing corn to below the cost of production starting in 1933, and many other things may change the relative cost of beef over time as compared to, for instance, pork and chicken. That's not inflation, and as such it doesn't really make sense to define inflation in terms of these factors which affect only a specific industry.
> In your example of steak, there are macroeconomic changes which may well cause the specific commodity to change in price substantially over time. Inflation isn't determined as a function of "steak" but rather as a function of "protein."
I don't think this applies to the general population's understanding of inflation. The layman's interpretation would be "how much more expensive would it be today if I bought the exact same things 1/2/5/10 years ago". This is actually how inflation was measured up until the 90s.
"Removing" (i.e. reducing the weight) of a good when it becomes more expensive is contradictory to measuring the price increase of an average basket of goods. Especially if you do it on short timeframes. CPI-U is reweighed every 2 years and C-CPI-U is reweighed every month. How are you expected to measure inflation* beyond those timeframes? Housing too expensive? Rent. Cars too expensive? Public transport. Steaks too expensive? Eat chicken. Chicken too expensive? Ramen. Ramen too expensive? Food stamps.
The result? Population on food stamp in the US rose from ~6% in 2001 to ~15% in 2017, while unemployment rate and wages stayed the same. They can't protect themselves via buying stocks or other assets because they need their money to survive months by month. All the while, the riches are getting richer by pocketing efficiency gains and bailouts.
People have learned that the 2% inflation (of a fixed basket) is nothing to worry about in the past. The same measurement would now yield a 10% inflation rate which is unprecedented and worrisome. So the inflation measure was changed to a dynamic basket in which expensive items are reduced, cheaper items are increased and magically inflation* is around or even below 2%. Nothing to see here, nothing to worry about - we always had 2% and 2% is fine. Except the poor are getting poorer and more desperate and susceptible to fascism.
So the idea people have about "inflation" as the increase of costs of a fixed average basket of goods is as obsolete as the idea of "money" being backed by gold.
> I don't think this applies to the general population's understanding of inflation. The layman's interpretation would be "how much more expensive would it be today if I bought the exact same things 1/2/5/10 years ago". This is actually how inflation was measured up until the 90s.
The layman's interpretation of a lot of things isn't right or useful - just ask antivaxxers. As our standards for what luxury is change, what we're willing to pay for them (in the supply and demand sense) changes.
Things that used to be "poor-mans food" like lobster and caviar are now high-end food. Monkfish, oysters, foie gras. Even sushi was street food. Skirt steak was crap meat! Now they're incredibly expensive. Is that inflation? Of course not, that's a change in tastes.
Similarly, spices like clove, nutmeg, cinnamon and pepper used to be hugely expensive but are now dirt cheap. Is that deflation? Of course not, that's a change in productivity and availability.
The fact that the basket wasn't adjusted seems like a huge oversight to me.
> The result? Population on food stamp in the US rose from ~6% in 2001 to ~15% in 2017, while unemployment rate and wages stayed the same.
This is a completely unfounded leap. You have not presented any evidence for a cause-effect relationship, just simply asserted it. Correlation is not causation.
This is a social policy issue and not a monetary policy issue. Even if we pretend for a second that the situation was exacerbated by monetary policy, it doesn't matter - it's still a social policy issue to resolve.
> People have learned that the 2% inflation (of a fixed basket) is nothing to worry about in the past. The same measurement would now yield a 10% inflation rate which is unprecedented and worrisome.
Sure only if you ignore that that's not how inflation is calculated and for a good reason.
Haha, that's not what I'm saying, however. Although bugs are a delicacy in a number of cultures! [0]
Just that factors outside inflation influence the pricing of certain commodities. Nobody's guaranteed a specific commodity forever, and the definition of luxury, and commodity expectations, changes over time.
For instance, pig feet are having a moment (or at least were pre-pandemic). They used to be discarded as waste, but now you'll find them in haute cuisine. [1] Sweetbreads too!
Tastes change, expectations change, cost structures change. The world isn't static, and nor should our metric be.
- CPI(-U) is not a suitable measurement of inflation anymore since it discarded fixed basket goods somewhere in the 90s and that
- inflation measures with "old-school" fixed baskets report inflation rate in the range of 6-10%/year
- production of goods became much more efficient but instead of being reflected in cheaper prices it increased shareholder profits and wealth inequalities?