Discussion in 'Economy' started by ScreamingEagle, Oct 12, 2005.
Two excerpts on the topic:
The Phillips Curve is dead.
So you think we are in for a period of stagflation?
Really? You have it figured out, explain.
Surely he means foreign currencies or something. Of course, gold is always an investment option too. If we've got stagflation, then inflation is part of that, and the value of your money is going down. That's not too surprising when the Federal Reserve has been creating money out of thin air at such a brisk pace since just after 9/11.
Fun fact: unless I have read wrong, the rise in housing prices--the most expensive purchase you will probably ever make--is not included in inflation numbers! So the inflation rate of "only" 3.1% or whatever is actually higher. Also, they don't count it as inflation when a company reduces the quality or quantity of their products while holding the price steady (I've noticed that some brands of ice cream have quietly dropped the "1 US GALLON" note, while others have raised prices and put "STILL 1 GALLON" notes on the front).
Moral of the Story: Taxes are only one way for the government to rape your wallet. Borrowing and inflation by the Fed are the other way, except they're worse because inflation is a stealth tax, and people will blame "greedy capitalists" for the higher prices. Don't be too impressed if your local Republican congressman brags about tax cuts, but isn't interested in spending cuts.
No, not like we saw back in the 1970s. Stagflation is persistent high unemployment and high inflation. Currently, inflation is rising, which means interest rates are going up, which means the economy slow, which means unemployment will rise. When inflation starts to slow, the Fed will start easing, the economy will pick up and employment will start rising again. For true stagflation, we would need to see inflation at 7-9%, which isn't going to happen.
Gold did very well in the 1970s.
This is true. But rent is included. Rent is 23% of the CPI calculation. And 15% is something known as "owner's implied rent," a fancy-dancy calculation that econometricians make that "implies" how much rent would be imputed in the average house if the average home owner rented his/her house instead of living in it. So, soaring housing prices have not caused the CPI to move up because rents, and implied rents, have not. This is known as "heuristics" in economics.
I think they do. Over half the CPI are heuristical adjustments, which tries to factor out both the improvement in the product and changes to unit size. So, for example, if your computer was worth $600 two years ago, and if you wanted to buy another one today and it cost $600 but the processing power doubled, the statisticians make the adjustment for the increase in processing power. Thus, in two years, according to their calculations, the cost per MPU has gone down 50%. This adjustment is reflected in the statistics.
I've heard we have been actually experiencing anywhere from 12 to 15% "hidden" inflation. If we take into account your explanation of hueristics and "owner's implied rent" and the fact that inflated housing prices are not really included in the CPI figures, that would seem realistic.
Me too. Something about looking at 'oil' as a replacement for 'gold standard.' If one adjusts the prices at 1980 prices-then figures how much oil it would take to buy X, inflation running about 12%, which DOES include housing prices.
The bit about house prices vs. rent prices is interesting...but I'm afraid I don't understand the logic behind it.
Another thing occurred to me too. Let's say you correct your numbers for reduced sizes, ie a smaller bag of potato chips for the same price. That ought to be easy enough to figure, it's straight and simple.
But what if you're talking about something which would have gone down in price otherwise? Production techniques are contrantly improving as a whole (leaping upwards for some industries), so we should see the price of a bag of potato chips go slightly down from year to year. (This is exactly what used to happen--production increases, the gold supply stays nearly the same, so prices drop slowly over a number of years.) So if the price of potato chips stays the same when it should have been falling...is that counted as inflation?
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