Economics is not hard - Part I: Don’t let professional economists tell you otherwise

[metalman]

Re: Economics is not hard - Part I: Don’t let professional economists tell you otherwise

Throw in the towel on this one and go back to beating Eric up on Premature ejanszinflation.
(please don't boot me for that one!) :-]

ejanszinflation

seriously... name for deflation in quality/quantity of goods from a decline in purchasing power of income & savings w/o a nominal increase in finished goods prices?

SMALLER PACKAGING FOR SAME PRICE

Posted Thu by DEBORAH B. written to Kellogg Company

----- Original Message -----
From: Deborah
To: kellogg@casupport.com
Cc: Clark
Sent: Thursday, September 25, 2008 7:29 AM
Subject: Fw: Consumer Affairs 013649751A

Consumer Affairs Department

Per your email below: As you know, recent economic pressures have affected all of us as we see higher prices on goods and services we purchase for our families and homes. As a company, we also face significantly higher prices for ingredients, energy, packaging materials, labor, equipment, freight and warehousing.

It is interesting that the response by Kellogg to the economic situation is to reduce
package size, while maintaining cost. As a family, we also face the same higher prices - and paying the higher cost of gas to commute to work and school is significant. Our response is somewhat different however. Since it is not possible for us to reduce the hours that we work and still get paid the same amount of money (which would allow us time to go out and get a second job - wow - I wonder if my boss would go for that), we are forced to reduce our spending. That means finding the best deals we can on all goods that we buy, and purchasing smaller quantities for the same price we paid for larger packages is NOT an option. I will look for product that is on sale, less expensive, and not repackaged in smaller quantities just so that YOU can continue making the same amount of money, paying C Level staff ridiculous amounts for their salary and annual bonuses.

Shame on Kellogg.
Deborah

----- Original Message -----
From: Clark To: kellogg@casupport.com
Sent:Tuesday, September 23, 2008 9:20 PM
Subject: Re: Consumer Affairs 013649751

Mr. G.
I understand that we are in hard times but we are all used to having to pay a little more at the pump, at the grocery store, restaurants, etc. What we as consumers DON"T want to see is getting less product for price as the previous size larger package that contained more product and that is what you are doing by cutting down the size of your packaging. As a result, you can not count on me as a continued customer any longer. Doesn't get it for me or anybody I know for that matter.
May want to rethink this. I am going to CC my large family on this so you may get further comments on cutting down the size of your Famous Amos cookies and other Kellogg products but NOT the prices.
Lastly, why in the world would you think that reducing the size of your package and giving less pr
oduct is beneficial to the consumer? Consumers are much smarter than that and I am amazed that you obviously do not know that.

Wow!
Sincerely yours,
A Former Customer of many years.


---- Original Message ----
From: "kellogg@casupport.com"

Sent: Tuesday, September 23, 2008 7:30:58 PM
Subject: Re: Consumer Affairs 013649751A

Mr.
Thank you for contacting us regarding our recent reduction of our carton sizes on select Kellogg's cereal. We appreciate the opportunity to respond. The Kellogg Company remains committed to providing consumers with healthy and nutritious foods at a fair price. As you know, recent economic pressures have affected all of us as we see higher prices on goods and services we purchase for our families and homes. As a company, we also face significantly higher prices for ingredients, energy, packaging materials, labor, equipment, freight and warehousing. To help offset those increased costs, Kellogg is reducing the size of some of our products to help consumers. We hope we may count you among our valued family of consumers in the years ahead as we continue to offer you delicious and nutritious products at an affordable price.
Sincerely,
Consumer Affairs Department
013649751A
Kellogg NorthAmerica
PO Box CAMB
Battle Creek, MI 49016-1986

the forecast was correct... but what to call it? ej is the only analyst to forecast it correctly... er, why not call it janszinflation

[Chris Coles]

Re: Economics is not hard - Part I: Don’t let professional economists tell you otherwise

Had the same reaction. What a great idea if you like the lifestyle anyway.

A great friend, just over a year ago, set off for deepest Africa having been challenged to create a simple but effective transport infrastructure to bring out a once war torn region's Cocoa crop. He whizzed past a week ago in his shiny new Jag grinning broadly. I am also reminded of a photograph I once saw in a book about square rigger ships of trade showing a group of shipwrights building a large wooden ship on a beach in the South of England. No infrastructure, just wood and hard work. All anyone with the gumption to needs - is the opportunity, usually provided by someone investing in their potential.

[MTH]

Re: Economics is not hard - Part I: Don’t let professional economists tell you otherwise

The independent economics analyst offends everyone by failing either to align with the dominant ideology, such as the neo-Keynesian religion that Athreya’s employer follows, or mine a thick vein of anger and disillusionment that runs through an intellectually appealing but impossibly flawed counter-ideologies such as Austrian economics.

Could you elaborate on your assessment of Austrian economics?

My views of Austrian economics center around two ideas: 1) Ludwig Von Mises correctly explained why socialism was doomed to failure because of the lack of free market prices, and 2) the Austrian business cycle theory which explains how when interest rates are held below their free market rates, it causes a shift of capital into longer term projects which are doomed to failure because the savings does not exist to allow their completion.

Both of these Austrian concepts are not only intellectually appealing but also in my view correct. What aspects od Austrian economics are you referring to that are impossibly flawed?

[vinoveri]

Re: Economics is not hard - Part I: Don’t let professional economists tell you otherwise

All anyone with the gumption to needs - is the opportunity, usually provided by someone investing in their potential.

Ah, well there's the rub isn't it, the perceived need for someone else to "invest in their potential "

Certainly their are counter-examples, e.g., Chris Columbus needed a benefactor to discover the new world, but I would suggest that the vast majority of humanity has always been pulling itself up by its bootstraps. A well defined goal coupled with gumption, moxie, perseverence will likely result in some form of success. Governments enable this when they allow unfettered, the seemingly semi-chaotic activities of individual, and insuring individual rights are not infringed by it or fellow citizens.

We live in a culture that teaches people that they need to do well in school, so they can get a good job, and climb the corporate ladder. When the goal of the vast majority becomes get a good job ... versus find a way to contribute/produce value for others.... not that these are always exclusive, but the attitude sure is different, we have surely lost our way as "economic innovators".

[Chris Coles]

Re: Economics is not hard - Part I: Don’t let professional economists tell you otherwise

Ah, well there's the rub isn't it, the perceived need for someone else to "invest in their potential "

Certainly their are counter-examples, e.g., Chris Columbus needed a benefactor to discover the new world, but I would suggest that the vast majority of humanity has always been pulling itself up by its bootstraps. A well defined goal coupled with gumption, moxie, perseverence will likely result in some form of success. Governments enable this when they allow unfettered, the seeminly semi-chaotic activities of individual, and insuring individual rights are not infringed by it or fellow citizens.

We live in a culture that teaches people that they need to do well in school, so they can get a good job, and climb the corporate ladder. When the goals of the vast majority become get a good job ... versus find a way to contribute/produce value for others.... not that these are always exclusive, but the attitude sure is different, we have surely lost our way as "economic innovators".

It is not the economic innovators that have lost their way, it is simply a lack of access to the investment. In which case it is the idea of a recognised responsibility, to invest in such economic innovators, by today's holders of the nation's savings that have lost their way. What I am saying is everyone is concentrating upon the wrong end of the stick; the problem is the attitude of the institutions, not the innovators.

[bart]

Re: Economics is not hard - Part I: Don’t let professional economists tell you otherwise

Actually, I agree with EJ that we are likely to see a decline in standards of living as a result of this "Great Recession," if that's what you mean by a fall in purchasing power of income and savings. If you lose your job, you're income has fallen precipitously, as has your purchasing power.

The decline in the standard of living been going on for many many years, when CPI-U ("inflation") is correctly accounted for per an apples to apples comparison with how it used to be calculated.

I noted John Williams ( shadowstats.com ) fine & accurate work to you almost a year ago and not only don't recall you ever looking at it or acknowledging it, but also suspect that you still haven't looked at his voluminous and fact based research on how the CPI-U has been seriously fiddled since 1980. It includes "special" items like OER, the Boskin Commission, geometric weighting, bad general weighting (health/medical is a *much* higher proportion of GDP than it is in CPI), hedonic adjustments, etc. and ad nauseum.


Here's just one example:

Call it deflation, call it disinflation. "Flat/falling prices" seems the most accurate to me, but I don't really care all that much about the terminology. What is abundantly clear to me, and what I do think is important, is that the numbers do not support significant inflation over this time period.

As far as PPI, PPI finished good trails PPI commodities. The red line below is PPI finished goods and both the short and long term trends are unmistakable.









PPI also strongly tends to lead CPI:









As far as inflation not being apparent to you in early 2010 as EJ and others predicted, I draw your attention to the bold portion below which shows real inflation in the 9-10% area since late 2009.

	CPI-U	Annual change rate	CPI without lies	Annual change rate
1/1/2006	198.30	4.0%	307.06	8.06%
2/1/2006	198.70	3.6%	310.56	8.69%
3/1/2006	199.80	3.4%	312.35	8.33%
4/1/2006	201.50	3.5%	315.70	7.46%
5/1/2006	202.50	4.2%	319.69	8.45%
6/1/2006	202.90	4.3%	322.60	9.18%
7/1/2006	203.50	4.1%	325.05	8.98%
8/1/2006	203.90	3.8%	327.56	9.46%
9/1/2006	202.90	2.1%	328.60	8.88%
10/1/2006	201.80	1.3%	330.31	7.67%
11/1/2006	201.50	2.0%	330.23	7.06%
12/1/2006	201.80	2.5%	332.38	8.27%
1/1/2007	202.42	2.1%	334.17	8.83%
2/1/2007	203.50	2.4%	337.00	8.51%
3/1/2007	205.35	2.8%	340.68	9.07%
4/1/2007	206.69	2.6%	346.18	9.66%
5/1/2007	207.95	2.7%	350.38	9.60%
6/1/2007	208.35	2.7%	355.74	10.27%
7/1/2007	208.30	2.4%	357.79	10.07%
8/1/2007	207.92	2.0%	359.75	9.83%
9/1/2007	208.49	2.8%	361.67	10.06%
10/1/2007	208.94	3.5%	364.68	10.40%
11/1/2007	210.18	4.3%	367.50	11.28%
12/1/2007	210.04	4.1%	372.25	12.00%
1/1/2008	211.08	4.3%	374.07	11.94%
2/1/2008	211.69	4.0%	379.65	12.66%
3/1/2008	213.53	4.0%	381.76	12.06%
4/1/2008	214.82	3.9%	387.21	11.85%
5/1/2008	216.63	4.2%	391.72	11.80%
6/1/2008	218.82	5.0%	397.77	11.81%
7/1/2008	219.96	5.6%	404.02	12.92%
8/1/2008	219.09	5.4%	407.40	13.25%
9/1/2008	218.78	4.9%	409.74	13.29%
10/1/2008	216.57	3.7%	411.53	12.85%
11/1/2008	212.43	1.1%	410.30	11.65%
12/1/2008	210.23	0.1%	404.75	8.73%
1/1/2009	211.14	0.0%	405.14	8.31%
2/1/2009	212.19	0.2%	407.42	7.32%
3/1/2009	212.71	-0.4%	411.70	7.84%
4/1/2009	213.24	-0.7%	414.97	7.17%
5/1/2009	213.86	-1.3%	420.07	7.24%
6/1/2009	215.69	-1.4%	422.38	6.19%
7/1/2009	215.35	-2.1%	428.34	6.02%
8/1/2009	215.83	-1.5%	430.60	5.69%
9/1/2009	215.97	-1.3%	433.94	5.90%
10/1/2009	216.18	-0.2%	436.59	6.09%
11/1/2009	216.33	1.8%	440.02	7.24%
12/1/2009	215.95	2.7%	442.75	9.39%
1/1/2010	216.69	2.6%	446.44	10.19%
2/1/2010	216.74	2.1%	448.83	10.16%
3/1/2010	217.63	2.3%	451.34	9.63%
4/1/2010	218.01	2.2%	455.62	9.80%
5/1/2010	218.18	2.0%	459.46	9.38%
6/1/2010	217.97	1.1%	462.28	9.45%

Lastly as far as economics being hard - that's true, if and only if one believes the stats coming out of most governments or vested interest enabled businesses like multi-national banks. Its also hard if one doesn't put in at least as much time in real and honest study/research - as any other job/career in which one is a significant success.




















edit/add - just to make a point about both PPI and other "special" moments, the PPI commodity index does not track the CRB/CCI commodity index terribly well (it understates, much like the CPI-U) and was also changed in 2005 after GS changed its GSCI. General commodity prices are significantly higher than what it appears from the current CRB index.

[rdrees]

Re: Economics is not hard - Part I: Don’t let professional economists tell you otherwise

Honestly, I think it's astonishing, MarkL, that you reference a graph that shows prices lower than they were two years ago and lower than they were three months ago and call me a fool for calling it deflation.

Take a look at Metalman's second graph, the one from the depression. I look at that and see deflation. You, apparently, would look at that and say that because U.S. Wholesale prices trended higher from the beginning of the graph to the end--that the line goes up across the whole graph for U.S. Wholesale prices--it's just disinflation. Ohhhh kayyy.

And let me repeat--it was EJ HIMSELF who called it "brief deflation" in THIS VERY ARTICLE. MarkL, you're so evangelical about defending the man that you're actually arguing that he was wrong in this very post!

But as I said before, one thing you can't dispute is the data, and WHO CARES what you call it. It's obviously not "significant inflation." That's the point because that was the call. I'm not necessarily saying that I don't think Ka-Poom is an accurate model. Maybe it is. But I sure think it needs some tweaking given the past two years of data. We can't deny that Poom isn't here yet. But we can ask ourselves why, we can question the theory, and hopefully we can improve it.

And I hate to repeat myself, but I just don't find interviews and anecdotal evidence at all convincing. I've got a ton of anecdotal evidence of deflation, to be honest. I like to play video games and there are so many deals on them these days I pay significantly less for them than I did two years ago. I've been shopping at the same grocery store for two years. Produce is cheaper now than it was two years ago. Blah blah blah you don't care because you'll have your own anecdotal evidence and we'll never ever convince each other of anything telling stories. Only the data is something we can agree on, even if we can't even agree on how we want to label the data.

Anyway, call me a heretic, but this data makes me question Ka-Poom. Makes me seriously wonder whether Japan in the 90s isn't the better analogue after all.

Let me offer one more heresy. There's one aspect of EJ's model that I just have never found convincing. In the posted interview, he talks about "All the manufacturers, wholesalers, and retailers that survived the consolidations and bankruptcies of 2008 and 2009 would see their pricing power quickly rapidly return and we’d start to experience consumer price inflation as in the 1970s but mostly in the form of reduced quality and quantity of goods per dollar, rather than higher nominal prices." This is a strange statement because it flies in the face of basic economic theory as I understand it, which says that when demand falls, so do prices. Remember the old supply and demand curves? I don't think economic theory says that less competition equals pricing power. To my recollection, pricing power can only be wielded by monopolies under traditional economics. When demand falls, so do prices, no matter how many suppliers there are, unless there's only a single supplier who doesn't have to compete anymore. The suppliers who went out of business were the ones that couldn't make the new, lower prices. I'm not evangelical for economics, but I thought that was pretty basic stuff that I learned in college that's not generally in question. Does EJ mean to challenge the basic supply and demand curves we learned, or am I misremembering them?

Anyway, I continue to hope that we can acknowledge that there are at least some tough questions we should ask of Ka-Poom even if we're committed to it as a general model.

[MarkL]

Re: Economics is not hard - Part I: Don’t let professional economists tell you otherwise

Honestly, I think it's astonishing, MarkL, that you reference a graph that shows prices lower than they were two years ago and lower than they were three months ago and call me a fool for calling it deflation.

Take a look at Metalman's second graph, the one from the depression. I look at that and see deflation. You, apparently, would look at that and say that because U.S. Wholesale prices trended higher from the beginning of the graph to the end--that the line goes up across the whole graph for U.S. Wholesale prices--it's just disinflation. Ohhhh kayyy.

And let me repeat--it was EJ HIMSELF who called it "brief deflation" in THIS VERY ARTICLE. MarkL, you're so evangelical about defending the man that you're actually arguing that he was wrong in this very post!

I'm getting tired of making the same points. Move your timeline back a quarter or forward a quarter and because you move off of the summer oil spike of 08 your argument vanishes. YES over the exact period you show deflation occurred. I have agreed with that literal statement twice now. However, during most other periods deflation did not occur as the graph clearly shows. There hasn't been an overall deflationary trend.

And let me repeat--it was EJ HIMSELF who called it "brief deflation" in THIS VERY ARTICLE. MarkL, you're so evangelical about defending the man that you're actually arguing that he was wrong in this very post!

I believe EJ has already made the point that brief deflation IS disinflation. Deflation when it does not result in a "persistent general decline in prices" is Disinflation. I am also, am not arguing against "brief deflation." It happened for a month. I happened for 3 months. It happened if you pick the spike over ONE single longer period. For NUMEROUS other quarters it did not. For MANY other 2 year start and end periods it did not. Overall, Disinflation.

But as I said before, one thing you can't dispute is the data, and WHO CARES what you call it. It's obviously not "significant inflation." That's the point because that was the call. I'm not necessarily saying that I don't think Ka-Poom is an accurate model. Maybe it is. But I sure think it needs some tweaking given the past two years of data. We can't deny that Poom isn't here yet. But we can ask ourselves why, we can question the theory, and hopefully we can improve it.

You're attempting to change the subject here to one I've agreed with repeatedly. I still agree with this paragraph! Need me to say it back to you? "It's not significant inflation." But it's not an overall deflationary trend either. It's disinflation. Give me more quarters of deflation than inflation, or sum the quarters up over a fair variety of time periods and average 'em... and THEN you can show me a trend if and when it occurs. It might happen! A year from now you could be right! But you're certainly not now.

Let me offer one more heresy. There's one aspect of EJ's model that I just have never found convincing. In the posted interview, he talks about "All the manufacturers, wholesalers, and retailers that survived the consolidations and bankruptcies of 2008 and 2009 would see their pricing power quickly rapidly return and we’d start to experience consumer price inflation as in the 1970s but mostly in the form of reduced quality and quantity of goods per dollar, rather than higher nominal prices." This is a strange statement because it flies in the face of basic economic theory as I understand it, which says that when demand falls, so do prices. Remember the old supply and demand curves?

I think he's saying that with the "bankruptcies of 2008 and 2009", supply would have fallen as well, maybe even more. It's not called "The Demand Curve." It's called "The Supply and Demand Curve."

I don't think economic theory says that less competition equals pricing power. To my recollection, pricing power can only be wielded by monopolies under traditional economics. When demand falls, so do prices, no matter how many suppliers there are...

I'm not sure I can quote "economic theory" or even that there is a single such thing. However, I do know from my personal experience that in my industry more suppliers means more pricing pressure. Fewer suppliers means less pricing pressure. Back when there were 30-40 players in the CRM software space, pricing was MUCH more aggressive than when the market coalesced down to 5 or so. In the Marketing Automation software market today there are about 5-8 players, but very little pricing pressure because most consumers don't bumble across most of the players. As more and more players are entering this space over the last year, pricing pressure is gradually increasing.

Of course this varies greatly across industries. But usually as more suppliers enter a market, each finds unique niches and ways to differentiate themselves. Some through geography, others through service, some through selection, and eventually some through shaving the margins razor thin and cutting both service and selection (think Costco vs Safeway).

Thus... a reduction in suppliers increases the power of the remaining ones to raise prices... or otherwise improve the value relationship to increase their profits. I do believe the internet reduces this effect on items that are not geographically dependent. But even on the internet the relationship exists. Amazon could certainly raise prices if a couple of it's main competitors went out of business... without requiring that ALL of them go under. And even Ebay, which one could argue is almost a monopoly has had to keep it's prices reasonably low because of the threat of smaller companies. With that said...they certainly have MORE pricing power because they are closer to a monopoly.

Bottom line, it's not shelf where only a monopoly can increase prices. It's a gradient scale, albeit certainly not a linear one.

[Brooks Gracie]

Re: Economics is not hard - Part I: Don’t let professional economists tell you otherwise

SOMEONE HELP ME WITH SOME DATA:

Slightly off topic, but I cannot get answers anywhere else, so I am appealing to fellow itulip members for some data:

Here is my semi-simple question: Much of the Great Depression (the first one, not this one), was blamed on a trade war generated by Smoot-Hawley tarriffs. But we were a net creditor then, from both a treasury/fiscal and trade surplus perspective. Is there any data on the effects of the First Great Depression for a treasury/fiscal and trade deficit country? Did they suffer? Did they just get by? Did they profit afterward? I don't know why I cannot find this, despite numerous google searches. Has any economist written a dissertation on this?

My thinking is that we should withhold payroll taxes on outsourced labor (we do it to our own people), and invoke a surcharge on offshore investment. China does this by regulating capital flows and making their currency non-convertible. I think having the dollar as the de facto reserve currency has hurt American workers, while benefitting the FIRE economy.

I am getting to the point where I WANT a trade war. I don't see the downside--we basically export food, which everyone needs, or technology/entertainment which everyone wants or needs. We don't export kid's toys or other discretionary items. Bring on the tarriffs, we can only win from that deal.

Can someone give me evidence otherwise?

[MarkL]

Re: Economics is not hard - Part I: Don’t let professional economists tell you otherwise

Go to this page and run the chart. You can get a broader view of exports by industry. Ag is number 5 on the USA export list. Entertainment is quite a ways down.
http://tse.export.gov/TSE/TSEOptions...DataSource=NTD

Your implication that they need us more than we need them may be true, nevertheless the economies of all countries involved in a trade war typically suffer during the event. Tariffs are effectively taxes. And taxes in whatever form they take on, diminish commerce.

It's kind of like a real war. We might be able to win a real war. But this doesn't mean that "bring it on" is the best thing to do. At the end a war a country usually has terrific economic costs, regardless of final victory... not to mention human costs.

In addition, the fact that the USA imports more than it exports is an argument for the USA being hurt more by a trade war than an opponent. But win or lose... it's best to keep war as a last resort.

While some of our trading partners take advantage of us through currency manipulation, on the whole having the dollar as the world currency has given the USA the ability to run up ridiculous debts and this ability to generate capital has given us a huge advantage in the global markets. The time is coming to pay the piper. But as far as fair trade goes... we've gotten and are still getting the best end of the deal. Most of the world's currency manipulations have a trivial impact on us compared to what we do on a global scale.

As one small example, who do you think owns the debt that Greece, Portugal, Italy and Spain are having so much trouble with? The answer is lots of folks of course... but Goldman Sachs and other US companies and individuals have more than many.

[rdrees]

Re: Economics is not hard - Part I: Don’t let professional economists tell you otherwise

Yes, I recall you pointing out Shadowstats to me last year. I'm more than happy to explain to you why I reject those numbers.

First, as a personal background matter, I'm not much of a conspiracy theorist. I'm much more into Occam's razor and the belief that most people are too lazy/busy to come up with master plans, implement them, and successfully deceive the public about it. Maybe I'm naive, but that's me. I checked the BLS retort to many of the charges against the CPI I've seen here (http://www.bls.gov/cpi/cpiqa.htm) and frankly, these explanations seem reasonable to me.

Second, I've always thought it was way ironic that EJ and everyone else on this site has no trouble relying on all kinds of government produced data about the economy to make predictions, explain points, rebut contrarian posters such as myself, etc. etc. etc. I can't think of a webite with more graphs and Fed data and all kinds of government statistics. But no one complains that those are doctored. Just the inflation stats. Which seems kind of convenient if they don't support the generally high on inflation views of this website. I'm confortable using all the government stats to analyze these issues, not just all-the-government-stats-but-the-inflation-ones. Are there likely to be some intentional "massaging" of various numbers? It wouldn't surprise me. But it's probably systemic in my view, and hey--it's what we've got straight from the source. As much as the shadowstat man may know and have studied, he's one step removed from the source of the data since he doesn't work for the government, and thus in my opinion that's a signficant handicap right there. Plus, if the government has an agenda, surely shadowstats does, too. Everyone has an agenda, all data is subject to abuse and massage. Me? I'm sticking with the official numbers because they're widely used, they're readily accessible, and hey--they're official. I do recognize that CPI is much more widely used in economic things that matter, like wage increases etc., and thus more likely to be used for political purposes as EJ has pointed out in the past. Respecting those concerns, I've generally been looking at PPI.

Third, those shadowstat numbers just do not comport with my personal experience at all. 10% inflation this year? That's surely significant inflation. The kind you would see all around you in major and obvious ways. But I just haven't see anything even close to that in my daily life--those numbers fail the gut check test pretty badly. I know I've railed against using anecdotal evidence as an argument, but if I'm going to ignore official statistics in favor of some other person's "shadow" method of caluclation, the numbers have to at least have some consistency with the world I see around me. And these just don't. I go to Costco every couple weeks and buy pretty much the same kind of stuff. Been doing it for years. And I haven't seen anything even approaching 10% across the board price increases this year. Not even close. And if I understand those numbers correctly, they're telling us that we had somewhere north of a 10% increase in prices in 2008, another 5% plus in 2009, and now another 10% increase this year? These shadowstats are telling us that we've experienced more than 25% increase in prices between 2007 and now? All in the midst of this Great Recession? I'm sorry, but I call BS on that. Maybe the BLS numbers underestimate inflation, but my personal experience tells me these shadowstats strongly overstate inflation.

Now I will admit that my personal experience is not consistent with meaningful price declines accross the board either. I've seen some price declines. I've seen a lot of constant prices. And I've seen some prices raised. But these personal experiences are generally more consistent for me with the government numbers than with the shadowstat ones. Maybe your personal experience differs.

Anyway, there is my response to your figures. If you do believe that we're already in the midst of "POOM" and that we're experiencing significant inflation now and have been for the past couple years, I guess we'll have to agree to disagree. But I didn't want you to think that I was ignoring you or not taking seriously your offer for me to consider the shadowstats.

[jk]

Re: Economics is not hard - Part I: Don’t let professional economists tell you otherwise

i suggest you first establish that you are familiar with various specific elements of the modern cpi calculation- incLuding oer, geometric averaging, hedonic adjustments, and substitution - and THEN tell us why you prefer to include these elements in your own thinking about inflation.

and i, at least, and MANY others here have observed that real gdp numbers reflect the deflator calculations made by the gov't and therefore may require further adjustment. further, you may have come across the real dow chart on occasion, and discussions of the validity of various adjustments made to calculate it, perhaps the most interesting being that if you deflate the dow by shadowstats' numbers instead of the bls', the dow is currently undervalued by that chart's methodology. there's a paradox for those of who don't like the bls calculation, but don't like equities either.

[LargoWinch]

Re: Economics is not hard - Part I: Don’t let professional economists tell you otherwise

What aspects od Austrian economics are you referring to that are impossibly flawed?

MTH, I for myself is very attracted to Austrian economics. So simple. So elegant. So right.

...but, I would say that this year's biggest revelation for me, was the comments by EJ pointing out to the Austrian E. flaws of "gold standard / Austerity on gov't" at this precise moment of the cycle.

More precisely, EJ - I think - argues that austerity imposed by Austrian E. in 2010 does not take into account the current mess we are in. Austerity and small gov't is good, but you see the patient is dying.

So, if we impose "austerity" there is a very high risk of economic contraction leading to an inability to service the massive gov't debt; that is bad. This leads to ruin.

...

The collapse and previous mistakes are unfortunate, but must be acknowledged and managed accordingly is what I believe EJ is saying.

[bart]

Re: Economics is not hard - Part I: Don’t let professional economists tell you otherwise

Yes, I recall you pointing out Shadowstats to me last year. I'm more than happy to explain to you why I reject those numbers.

First, as a personal background matter, I'm not much of a conspiracy theorist. I'm much more into Occam's razor and the belief that most people are too lazy/busy to come up with master plans, implement them, and successfully deceive the public about it. Maybe I'm naive, but that's me. I checked the BLS retort to many of the charges against the CPI I've seen here (http://www.bls.gov/cpi/cpiqa.htm) and frankly, these explanations seem reasonable to me.

You are of course welcome to use or not use anything you like, but to characterize John Williams work as "conspiracy" when his CPI-U work is completely fact based is, to say the least, a bit odd. Even bringing up the emotionally laden area of conspiracy when Williams work is 100% fact based with links, etc. is disturbing since it moves away from raw facts which you purport to be pursuing.

I also urge you to review this:
A very good short essay on "Unconscious Conspiracies".
"Conspiracies" frequently have nothing to do with tinfoil hats or smoke filled rooms.

Your experiences with various costs and prices are also almost exactly opposite to mine. Good or top quality food, medical, health insurance, auto insurance etc. are all up very substantially over last year for the exact same items (not "buy pretty much the same kind of stuff" per your statement).
A bit tongue in cheek perhaps, but factually even the U.S. Big Mac has gone up substantially in the last few years - last year it was up too.


Additionally, given the plethora of lies and mis-statements etc. by our and other governments over the decades (like the Pueblo incident or the bogus differences between CPI and the GDP deflator, and many others examples I could cite), I'm disappointed to see that you'd prefer to believe the BLS, in spite of all the contrary facts in Williams and others various articles and studies.

The BLS retort doesn't even cover the gigantic difference between the health/medical portion of CPI (about 6%) and the GDP portion (16-18%), plus their attempted reconstruction of CPI on an attempted apples to apples basis showed that inflation in 1980 peaked at 10%. I was there and that number is just plain outrageously wrong.
In my view, the BLS simply glossed over most of the real facts and issues and blew smoke.

Additionally, you imply by your partial agreement with the BLS that things like the OER (severely understates or overstates housing costs, depending on economic conditions), Boskin adjustments to help "save" on Social Security payments, geometrical weighting prices (if beef prices go up and chicken doesn't, they bias the result strongly towards chicken), hedonics, etc. etc. are at least somewhat correct and moral and ethical. I don't, and in no uncertain terms.

I won't quibble on shadowstats numbers either - the recent average 9% numbers could be 6% or 7% and it wouldn't change the basic point.

Second, I've always thought it was way ironic that EJ and everyone else on this site has no trouble relying on all kinds of government produced data about the economy to make predictions, explain points, rebut contrarian posters such as myself, etc. etc. etc. I can't think of a webite with more graphs and Fed data and all kinds of government statistics. But no one complains that those are doctored. Just the inflation stats. Which seems kind of convenient if they don't support the generally high on inflation views of this website. I'm confortable using all the government stats to analyze these issues, not just all-the-government-stats-but-the-inflation-ones. Are there likely to be some intentional "massaging" of various numbers? It wouldn't surprise me. But it's probably systemic in my view, and hey--it's what we've got straight from the source. As much as the shadowstat man may know and have studied, he's one step removed from the source of the data since he doesn't work for the government, and thus in my opinion that's a signficant handicap right there. Plus, if the government has an agenda, surely shadowstats does, too. Everyone has an agenda, all data is subject to abuse and massage. Me? I'm sticking with the official numbers because they're widely used, they're readily accessible, and hey--they're official. I do recognize that CPI is much more widely used in economic things that matter, like wage increases etc., and thus more likely to be used for political purposes as EJ has pointed out in the past. Respecting those concerns, I've generally been looking at PPI.

All I can say is that I believe that you haven't read a lot of posts here. The subject of inaccurate government etc. stats has been covered quite frequently - both by EJ on "Personal Income" stats and by many others... including myself on my own site.

You are also the one that alleges problems with deflation vs. inflation here on iTulip, and I find it odd that you reject much of the primary and factual evidence that inflation is indeed much higher than many/most think, especially those are part of (for lack of a better word/concept) the "ruling class".

You also criticize Williams in very broad terms and allege that he has no access to the raw data, most of which is right there on the BLS and other sites, while citing no actual facts of your own other than the BLS retort and don't even mention Williams' rejoinder.

As far as PPI and its accuracy, I addressed many of the raw facts and even added in some comments about the CRB & CCI, but I find no substantive response to it/them.

Third, those shadowstat numbers just do not comport with my personal experience at all. 10% inflation this year? That's surely significant inflation. The kind you would see all around you in major and obvious ways. But I just haven't see anything even close to that in my daily life--those numbers fail the gut check test pretty badly. I know I've railed against using anecdotal evidence as an argument, but if I'm going to ignore official statistics in favor of some other person's "shadow" method of caluclation, the numbers have to at least have some consistency with the world I see around me. And these just don't. I go to Costco every couple weeks and buy pretty much the same kind of stuff. Been doing it for years. And I haven't seen anything even approaching 10% across the board price increases this year. Not even close. And if I understand those numbers correctly, they're telling us that we had somewhere north of a 10% increase in prices in 2008, another 5% plus in 2009, and now another 10% increase this year? These shadowstats are telling us that we've experienced more than 25% increase in prices between 2007 and now? All in the midst of this Great Recession? I'm sorry, but I call BS on that. Maybe the BLS numbers underestimate inflation, but my personal experience tells me these shadowstats strongly overstate inflation.

Now I will admit that my personal experience is not consistent with meaningful price declines accross the board either. I've seen some price declines. I've seen a lot of constant prices. And I've seen some prices raised. But these personal experiences are generally more consistent for me with the government numbers than with the shadowstat ones. Maybe your personal experience differs.

Covered above

Anyway, there is my response to your figures. If you do believe that we're already in the midst of "POOM" and that we're experiencing significant inflation now and have been for the past couple years, I guess we'll have to agree to disagree. But I didn't want you to think that I was ignoring you or not taking seriously your offer for me to consider the shadowstats.

Overall in the POOM area, I was only addressing your comment above EJ's forecast for inflation in early 2010, and inflation rates as represented by the BLS BS in CPI-U being grossly low.
And yes, I suspect that we will have to agree to disagree on that and other things, much as others are disagreeing with you here - and did a year ago too.

You may wish to observe the CPI w/o lies trend the first 6 months of 2010 - it's down. You may also wish to look at my M3 post a few weeks ago ( M3 shrinking and recessions/depressions ), and also note that there's a possibility that it has bottomed. And then there's velocity which has almost certainly bottomed... and on top of that we have normal lags between money flows changing and it being reflected in inflation/disinflation/deflation. Continuing, there's also a far from non-zero probability of QE2.


In other words and hopefully more clearly, disinflation and stagflation in the near and intermediate term - yes.
True deflation where total money supply drops faster than GDP type measures (deflation being defined as per the dictionary as "less money than goods") and real CPI-U stays below zero for over a quarter in the near and intermediate term - I seriously doubt it.

Expressed in another way and excluding black swans like defaults or China selling huge quantities of Treasuries or similar, I agree with EJ (and vice versa :wink: )

...

[BuckarooBanzai]

Re: Economics is not hard - Part I: Don’t let professional economists tell you otherwise

Largo, the patient isn't dying, it's dead. Or more precisely, Undead. EJ worries that Austrian Economics will kill the patient; but that's what you do to zombies. You kill them.