Inflation: please explain

[Vnonymous]

I'm going to put an aside in here: I don't know about you americans, but prices you pay at the pump for gasoline were at about 50 cents per liter about 13 years ago or so. They're now hovering around the 1.40/1.50 dollar range.

[sabs]

actually the gas price in 1981 was around $0.55 a gallon. When I started driving in 1988 it was $0.75 a gallon, and went up to roughly $0.99 cents by the time I graduated highschool.

http://www.eia.doe.gov/emeu/aer/txt/ptb0524.html

Try $1.25/gallon.

I don't care what you're stupid chart says.
In New Jersey in 1988, I was paying anywhere from $0.70 to $0.80 a gallon for unleaded gasoline.

[tzor]

I don't care what you're stupid chart says.
In New Jersey in 1988, I was paying anywhere from $0.70 to $0.80 a gallon for unleaded gasoline.

Bad boy! Bad boy! NEVER USE NEW JERSEY! I mean really the gas is always cheaper in New Jersey ... BY A LOT! It still is today!

I believe it has to do with a general lack of state taxes on gas, unlike places like New York, which charges an arm, one leg, and the thumb on your remaining arm for gas taxes (and would have taxed more if they could get away with it).

[sabs]

Sorry it's my only anecdotal evidence at the time.

I could tell you how I was paying over $4.00 a gallon in California in 2006 But that's equally bad because California likes to taxe gas even more than New York.

[Username17]

Shadowstats does not say that CPI calculations have been manipulated through all time. The CPI numbers were 'correct' for quite some time. Note how Shadowstats' charts line up with government charts until around 1983. If you continue to insist that Shadowstats is wrong regarding pre-1983

Good point. Looking back through their crazy, they are only claiming that when the stagflation crisis ended in 83 that it was all a government plot to hide the fact that it was really continuing and that we've had late 70s inflation continuously since then with no one admitting the truth.

You're right. It would be a lot easier to hide a secret doubling of wages and prices every decade for 3 decades than it would be for five. It's still fucking crazy though. You haven't brought up any fucking data showing that prices have risen eight times what the government claims that they have since Morning in America.

Look, I am no fan of Ronald Reagan. I think his economic plans were a disaster. But you're going to have to better than "that's how I remember it!" to get me to believe that inflation didn't "really" drop below double digits before 1986.

The nature of compound interest problems is such that the longer you had to hide the "secret inflation" the harder it would be. I could hide secret inflation for a week or even a month by simply stating that it had not happened. Hiding it for a year is possible, hiding it for a decade is silly, and hiding it for three decades is absurd. The official stats say that the grinding disinflation began in November of 2008, with 2009 being the only year which actually had negative inflation. It is possible for that to have been an elaborate government conspiracy. But you still have to present actual evidence that secret inflation ever happened for any year ever. And ShadowStat's claim that very large amounts of secret inflation have happened every year for 28 years is laughably implausible and you gain no credibility at all by citing them.

Finally, it's worth noting that inflation is probably inevitable. Because markets are growing. There are more people now in the United States than there were in 1950. So the supply of physical goods and actual services is now higher than it was before.

This is not actually true. Markets could grow with a smooth increase in the money supply and zero inflation. The economy could even grow faster than inflation and simply have prices and wages fall continuously as greater and greater outputs competed for the same currency.

We don't do that because it is hard. Wages and prices are sticky. They are resistant to change. And they are resistant to falling more than they are resistant to rising. People are not perfectly rational and accepting a lower price for their labor or goods is insulting. When there are lowering pressures on prices, prices don't instantly drop - goods go unsold and people lose their jobs first. So running he economy with a yearly inflation rate of 3% is just plain easier than than running an economy at 3% deflation or even static monetary value.

Consider it this way: imagine for the moment that you're in a situation where labor demand is either rising or falling and you're out for a new job. In the first case, you can expect to have a new job which pays 2% more relative to what you had last year. In the second case, you can expect to have a new job which pays 2% less relative to what you made last year. Now imagine that inflation is at positive or negative 3%. In the positive inflation scenario, for the rising labor market you're looking at a 5% nominal pay raise, and for the falling labor market you're looking at a 1% nominal pay raise. But your instinct would be to take either one. Either way, it "pays more" than your last job. In the deflation scenario, you're looking at a 1% nominal pay cut even in the rising labor market, and a 5% nominal pay cut in the falling labor market. And while that's purchasing power parity with the inflation scenario, your instinct would be to look for a better offer in both cases, because even the relative pay raise is still a nominal pay cut.

So small amounts of inflation are basically necessary to keep every downward pressure on wages or prices from being played out as a genuine unemployment shock. But that's just because of human irrationality. If we were all the maximizing robots that Chicago School Economists model us as, the inflation rate could be anywhere from -50% to 100% and we'd all just build that reality into our contracts and expectations and move on with our lives. Unfortunately, people balk at paying large price increases and they balk at receiving even small pay cuts - regardless of what the inflation rate actually is. So very high or even slightly negative inflation causes real problems.

That is why the Fed is supposed to maintain inflation at around 3%.

-Username17

[Doom]

You're right. It would be a lot easier to hide a secret doubling of wages and prices every decade for 3 decades than it would be for five. It's still fucking crazy though. You haven't brought up any fucking data showing that prices have risen eight times what the government claims that they have since Morning in America.

Actually, it's a bit over three times what the government says. You know, there's a calculator like, right on the site. It really makes sense to just use it, rather than continuing to make up numbers and apply them incorrectly. Let me do this for you, again:

$100 in $1983 is $228 in 2011 according to the BLS, $730 according to Shadowstats. Yes, that's high in my opinion...the government number is very low, in my opinion, also.

The house I live in now is far smaller than the house my parents bought in 1982 and on a smaller lot, and yet appraises at double what they paid (and I'm in nowheresville, they were in a much nicer cosmopolitan area). That's really about it as far as things that have doubled in price, while most everything else has gone up by higher multiples.

Yes, I know that's an anecdote of no value. Can you please identify a significant part of my expenditures that has not increased by a factor of 2 in the last 28 years? I don't buy McDonald's hamburgers, I'm afraid.

Do you know of a dentist, doctor, car dealer, plumber, professor, car mechanic, gas station, or grocer whose prices are the same now as in 1983? With so many significant things so much more than doubled, there really needs to be a significant living expense that hasn't changed in price at all, to counterweight things so that the average is merely 'double'. More realistically, you'll need to identify someone who's charging less than half today what he was charging 28 years ago, AND it has to be someone I use alot, so that when things are weighted, it really will average out to only double.

Look, I am no fan of Ronald Reagan. I think his economic plans were a disaster. But you're going to have to better than "that's how I remember it!" to get me to believe that inflation didn't "really" drop below double digits before 1986.

Where are you getting this stuff from? Who said anything about double digits? It's almost like you think there's a conspiracy to defame the great and powerful (and always honest) US government. Let me again explain what the site is about.

I know, the name of the site is scary, but it's worth reading interviews with the guy who runs the site. It's not about a conspiracy theory to defame the government. People USE the 'old' calculations to make business decisions regarding 'inflation', as it's defined by the old CPI formulae. The new CPI formula change the definition of 'inflation'...and that doesn't help people that defined inflation the old way, and make their decisions in the proven method.

It's like if the government suddenly changed the definition of "red" in a traffic light to "go ahead, you have the right of way", and the definition of "green" in a traffic light to "stop". It's not a grand conspiracy if someone says "hey, the definitions are different now, a 'red light' doesn't mean what it used to mean." There's nothing to get defensive about. Maybe, 'green' is a better color for stopping...but the point still remains, the definitions have changed, and if you've already programmed your robotic driving systems to stop at red lights, it might be worth knowing for you.

The nature of compound interest problems is such

Compound interest is indeed a very tricky thing, which is why you should just go ahead and use the calculator (or a ruler if need be), rather than continuing to eyeball and skim over and get it wrong.

It is possible for that to have been an elaborate government conspiracy. But you still have to present actual evidence that secret inflation ever happened for any year ever.

Again, no assertion of 'secret inflation'. The government says dollars in 1983 are worth a bit less than half what they are now. Even gasoline is more than double what it was 28 years ago, and that's your poster boy of something lower than inflation.

Can you show me *one* commodity (note: commodity, so there's little 'hedonics' to worry about) from 1983 that's less than half the price today from 20 years ago? I again reiterate, inflation is a mean, if the government's numbers are correct, then *something* must be below the mean. Health care, housing, food, gas, electricity, water, education...all above the mean, many are WAY above the mean. What's the one thing below the mean that pulls the average down?

I'm not saying Shadowstats is perfectly correct, I think they're a little high myself. That said, he who controls the present controls the past, it's funny how few folks here seem to remember things the way the Memory Bureau says it was.

And ShadowStat's claim that very large amounts of secret inflation have happened every year for 28 years is laughably implausible and you gain no credibility at all by citing them.

Perhaps not...but I'm not sure you continuing to mis-cite and mis-understand and mis-calculate does a whole lot for you, either.

[mean_liar]

Well...

http://www.indexmundi.com/commodities/? ... months=360

On a two-year rolling average, this puts raw agricultural materials at 117.7 in 2010, and a 61.3 in 1982. That's... half. About what the US gov't says it would be. No bigger, no smaller.

If the US figures are wrong, shouldn't the difference be massive and obvious?

[Doom]

No, not at all. Inflation calculations are an average, and I have to acknowledge I guess *something* hasn't quite gone up 100%, instead only going up "only" 92%.

Trouble is, for some retarded reason, you've quoted 1982 prices. Again to emphasize: you can't quote pre-1983 numbers to show Shadowstats is wrong, because Shadowstats numbers are *identical* pre 1983, for reasons already explained.

The numbers off of Shadowstats' site that I quoted before are from 1983, to today, 2011. You quoting numbers from 1982 to 2010 is quite a level of confusion, especially since the appropriate numbers are right there on the link.

Even if the numbers you quoted were valid to apply to the inflation rates calculated for different years (and they're not) it probably wouldn't be enough to counter medical care going up 1000%, education going up 900%, and all the other things that have gone up way over double. You'd have to weight agriculture to be like 99% of consumer spending.

Since you do have the link there, let's use the numbers on the link. The numbers being 57.62 in Jan, 1983, and 170.78 for their most current data. That's pretty much triple. Even if you use the numbers in December of 1983, you're still well over the government assertion of what inflation is. Even using the absolute highest numbers of 1983, we don't get a number that makes any sense with respect to government assertion about inflation (well, I guess if agricultural spending was around 99.9999999999% percent of consumer spending, but that's just a guess).

Those numbers, being agricultural, are cyclical, of course, so the only sane thing would be to pick the same months in any event....measuring from March 1983 to March 2011, we're well over double.

In other words, government numbers still too low, and now we'll be even HARDER pressed to find something, anything, below the mean to counterbalance everything else we've seen to be above the mean, in many cases way above the mean.

Focus again: the government says prices on average have only doubled (well, a bit more) since 1983. Quite a number of things have dramatically more than doubled. The only way any sort of 'average' could end up being doubled over the last few decades (specifically, 1983 to 2011) is if something has dropped quite a bit in value. If the numbers you quoted were correct (and picking an arbitrary high at one point and a low elsewhere is rather unfair, if that's what you did, above and beyond picking the wrong years), if would be doable, although it would be a very strange weighting to offset everything else.

We need to see a MAJOR drop in price to be even remotely credible as balancing out all the increases that are way over...even a flat price from 1983 to 2011 wouldn't be convincing, but it would be a start.

Remember, Frank's already insisted that inflation this year is only 2%, and that's not so big a deal that we need to go back a year or two just to see the government numbers are accurate.

[mean_liar]

Shadowstats' numbers apparently diverge at 1983... so that a number starting in '81 and ending in '10 does directly hit that gap, and is a great measure of that divergence (that isn't there). That's my retarded reason.

Also, measuring commodity prices month-to-month is fucking dumb. They're too volatile to derive what you're looking for... which is why I bothered (for some stupid-ass reason that apparently fly by you with a tremendous wooshing sound) to use rolling averages.

So, rather than pulling volatility out of the aether (here's a stupid counter-example to prove why you need rolling averages: Mar '09 pricing was at 81.67! Inflation is a lie!), try and show "rampant price increases".

Inflation has to exist absent context: you need an apples-to-apples comparison. Pointing out that education subsidies are fucking with education pricing does not prove inflation, and medical cost increases which are traditionally married to aging demographics (hint: like ours) are signs of lots of old people, not inflation. Even in light of that, I think you'd have some trouble backing up the idea that medical procedures themselves have gone up 1000%, as opposed to net revenue generated from medical procedures (which, derived from per capita GDP figures, has not gone up anywhere fucking near 1000% over any time frame ever).

At least, not as an a priori point, anyhow, which is why you get into hedonic adjustments.

So when you wanted pricing that would fall in line with official inflation, I found it, and then you totally missed the boat as to how to actually use any of that data. You are not helping your case.

[Doom]

Um, no, you're confused.

I quoted an inflation rate between two years.

You quoted massaged data from two DIFFERENT years, got a different number (and one not low enough to show the case in any event), and somehow thought it would apply.

Yes, the years were close, but why try to engage in such deception, why not just use the numbers directly in front of you?

I do concede I pulled that rate of increase for medical costs out of nowhere...do you have something that shows medical costs have only doubled since 1983? That's an actual, credible, part of expenses, and if they've only doubled, then perhaps the inflation/average government asserts is indeed valid (again, it would mean medical procedures represent the vast majority of consumer spending, but with the prices today, that's at least arguable).

Again, try to show from 1983 to present date if possible. About all I can find is Tom's Inflation calculator...and that certainly won't give you what you want, since it uses BLS statistics. I can find site after site asserting health care costs (whatever you want to call those) increasing in multiples of the rate of inflation, however, so this will be rather tough for you to show.

But, feel free. Found another site claiming costs increased by a factor of 8 between 1980 and 2008, so I guess I was exaggerating about it being a factor of 10, My bad. It's still more than 2, in my opinion.

I did find a site that mentions simple childbirth costs were nearly $4000 in 1994, and nearly $8000 in 2004, but at least I'm aware those aren't the years specifically cited earlier. Still, it's gonna be tough to show much below doubling between 1983 and 2011 (and do note at least the years are INSIDE the range, instead of part in and part out), and it's hard to attribute those costs as not counting because newborn babies just being older than they used to be.

So when you wanted pricing that would fall in line with official inflation, I found it, and then you totally missed the boat as to how to actually use any of that data. You are not helping your case.

No, your massaged your data, changed the years, and went off the rails.

And the best you could do with all this is 'falling in line', which isn't even remotely good enough. Even if your numbers were actually applicable, they still don't show what you were hoping to show.

To emphasize once again: it's not 'falling in line'. Inflation is an average of many things. Many things have more than doubled in price, and yet the government numbers say the 'average' increase is only doubled over 1983 to 2011 (again, for these years...if you want different years, just use the calculator and we'll change years for you...but the original assertion was 'right now', so I'd like to continue talking about this year if at all possible).

See, for a data set, the average is sum of the numbers divided by the size of the data set. For a non-degenerate data set (i.e., not all the same number), the average is always bigger than the lowest value, and smaller than the largest value.

Consider this data set of multipliers: { x, 3, 3, 5, 7, 7}

If someone tells you the mean is 2, you gotta figure x has to be below 2. When you look at the data values, you gotta figure x must be WAY below 2, to counter the other numbers. This is extremely problematic for inflation, since x has to be a positive number.

Now, with weighted averages like in an inflation calculation, x doesn't have to be much below 2...but it still needs to be.

That's where we stand right now. Government says the average is 2 (well, a little above, but bear with me), and it's averaging over a great number of things, the bulk of which are easily demonstrated as above 2. Now, with weighting, there could be something just a bit below 2, but realistically (since we know inflation isn't mostly determined by a single commodity) it should be WAY below two.

Should be real easy to find. Get to it!

Actually, took just a few seconds on the very site you linked. Cocoa beans, hardly up even 90% over 30 years ago. And we're done, I guess. Most folks are buying lots of chocolate lately. Who knew?

Still, that's some pretty hefty weighting, and I acknowledge it's possible most people are eating a pound or so of chocolate a day and dumping another few pounds into the trash; beef is also only up 70+%, so I reckon these two things, if weighted properly, could easily cancel education costs increasing by a factor of 6 over the last 20 years (from a site claiming 8.7% yearly increase in tuition costs, 1988-2008...a factor of 11 if that rate held from 1983-2011).

I still think something must be even lower because there's just no way the government could be inaccurate.

[Username17]

Doom, what the fuck? Seriously, what the fuck are you talking about? Where is your evidence? Every time we bring up any actual fucking data, as opposed to some crack ass anecdote, you scream about how it doesn't apply. And yet: you don't have any data. Hamburgers don't count, cell phones don't count, and gasoline doesn't count. What the fuck counts? You keep demanding that people provide real products that people really buy that have risen in price at or below the government's predicted rate from 1983 to the 21st century. We did that several times, and you still won't eat your crow. Eat your fucking crow!

Anyway, for the people who actually want a mature discussion about Inflation here and elsewhere, how about a recent post by Nobel Laureate Paul Krugman.

TL;DR: Inflation is a big problem in places that are keeping an artificially poor exchange rate in order to boost exports. Like China. Their inflation problems are big. But inflation control is not a major issue for industrialized countries running huge unemployment rates.

-Username17

[mean_liar]

Doom, I have nothing to add that I haven't already said and I don't feel like continuing to repeat an analysis when you're so committed to protecting against cognitive dissonance that you think a measure of inflation from '81 to '10 is irrelevant but '83 to '11 is. It simply isn't worth my time.

Healthcare costs are available from the OECD databases, if you're interested. Their relationship to cost isn't like a commodity though - use of medical services is basically dependent on age and extremely inflexible in terms of supply and so there's a heavier demographic component that has to be accounted for in cost comparisons as opposed to commodity pricing's "everyone uses gas and until peak oil you get as much as OPEC says you need" mentality.

[name_here]

The other reason why inflation is somewhat good and deflation is bad is that inflation encourages investing and deflation encourages hiding your money under your mattress. In an inflation scenario, if you keep a static amount of nominal money, it becomes worth less, but investments that don't lose real money value remain the same value, while in a deflation scenario, the value of the static nominal money becomes worth more.

[Doom]

What the fuck, indeed. You know, your site where you cherry-picked McDonald's hamburgers has Oreo cookies more than doubling. EVEN THEN, your 1984 hamburger is 50 cents....it's a buck, now. That's double, too. So, yeah, nothing's been provided where the price is halved, or even stable, and you cannot get below a mean of two by producing data values 2 or greater.

You say I haven't provided data, but there I am using YOUR data...so if I haven't provided data, you haven't either, because your own data shows what I'm talkinga about. It goes both ways, I'm afraid.

Let's go back to gas. The link provided in this very thread had gas going up over 100%, so that actually works against you (i.e., gas counts, and works against the given numbers, despite multiple successful wars to keep gas cheap...you might recall, you thought gas should be much higher because you woefully misunderstood Shadowstats' numbers). So, once again, data provided.

And the agricultural data provided earlier I ALSO showed works against the claim prices have only doubled. So once again, data provided.

I'm guessing there's just too much confusion over how an average works, much less how a weighted average works. Let's have some fun with the numbers we have now. Here are the multipliers for spending between 1983-2011:

Agriculture: 1.92 (using a cherry-picked rolling average from the wrong years and a different length of time even though applicable data is available)
Medical care: 8 (probably higher...for example...I know the years aren't exactly right, but at least I'm using the actual numbers instead of massaging them to get a result. Feel free to adjust this number to 7.5 and redo the calculations below to see if there's a difference.)
Education: 4.5 (probably higher, but just using tuition. for example)
Gas: 2.8 (using the numbers from the link provided in this very thread)
Housing: 3.32 (median prices, Feb 83-Feb 2011, most recent data...good thing there's been a crash, this data will not be considered to exist, either).
Car: 3.67 (using Dodge Ram Truck as baseline as the model has been in production that long, cheapest possible truck used in 2011...since we're looking at a ratio, changing vehicle probably won't matter much, and this is a top selling model in any event...I fully acknowledge that there may be bias here, and, feel free to suggest another car model that's been in production in this period. I'm especially interested in any model that hasn't at least doubled in price.)

Again, some might say I'm just making up these numbers (which, except for agriculture, jive with how I remember things).

I had to concede, picking a particular model of car is a little unfair..after all, why not put McDonald's hamburgers and Oreo cookies on here, too. My defenses are that 1) food is already represented in the screwball agricultural number and 2) generally people spend alot more money on their car than on McDonald's hamburgers (yes, I know, exceptions exist).

Let's make our own little inflation calculator based on these, showing government numbers are correct. I'm going to assume that people eat, need medical care, an education, gas, transportation, and a place to live. I'm also going to assume that the government overall inflation rate is correct (and going to call that '2', to simplify the calculation below).

Let's check the average of {1.92, 8, 4.5, 2.8, 3.32, 3.67}. This will tell us the average multiplied cost of things people need, between 1983 and 2011.

Average multiplier assuming all things were weighted equally is 4--well below Shadowstats, but a bit higher than 2, the doubling of prices that the government numbers, which must be true, assert.

It's worth noting here that only the wiggy massaged agricultural data from the wrong years is actually lower than the claimed inflation; the next lowest is gas. Again, this is no small surprise as the US military has been very successful in securing oil reserves these last few decades.

Obviously, there must be a weighting going on, since the government multiplier must be right. Let's assume that non-agricultural things are weighted equally.

Under these assumptions, a natural question arises: what percentage of consumer spending must be on agricultural products so that the government numbers are correct? I know most eyes glaze over when looking at actual calculations, but feel free to correct the arithmetic, weighting over two categories. Let p = proportion spent on non-agriculture:

((1-p)* 1.92 + p(8 + 4.5 + 2.8 + 3.32 + 3.67)) / 2 = 2


(1-p)* 1.92 + p(8 + 4.5 + 2.8 + 3.32 + 3.67) = 4

1.92 - 1.92p + 22.29p = 4

20.37p = 2.08

p = .098

Nearly 10% of spending is on non-agriculture. So, 90% of spending on agriculture.

So, it looks like I was wrong about how heavy the weighting needs to be. Crow duly eaten, as I thought it'd be more like 99%. Using the numbers we have shown in this thread, the average consumer is clearly spending around 90% of his money on agricultural products (and, when he goes to the grocery store in 2011, the grocer is only too happy to charge him prices based on the rolling average of 2010...regrettably, when I go to the grocery store, I have to pay the prices on the products right there, but there's no way I can prove that others aren't paying rolling averages from a previous year).

I will, of course, provide no reason to disbelieve that consumers really do spend 90% of their money on food (2011 data not yet available). The government numbers are correct, the government numbers are correct, the government numbers are correct.

That's the advantage of doing actual math, instead of eyeballing things and getting it wrong repeatedly like some folks have done more than once in the thread.

[Doom]

Doom, I have nothing to add that I haven't already said and I don't feel like continuing to repeat an analysis when you're so committed to protecting against cognitive dissonance that you think a measure of inflation from '81 to '10 is irrelevant but '83 to '11 is. It simply isn't worth my time.

Not, no committment here, it's just hysterically laughable to use the wrong years and a different length of time when the actual numbers in question are directly in front of you. Sure, sometimes you have to use different years, but to not use the data provided when it's shown to you explicitly is dishonest, to say the least. I never said it was irrelevant...it's just goofy, is all.

You have a serious cognitive dissonance if you believe changing the years and length of time for an inflation calculation won't change the numbers.

You must be hysterical when you buy a car.

You: "Hi, I want to buy a 2011 car."

Salesman: "The 2011 model is $20,000, it says so on the sticker." (salesman points at sticker)

You: "I'm paying the 2010 price for your 2011 model, because I looked it up somewhere else. The year is close, after all."

Salesman: "..."

[Juton]

I tried to dig up some numbers, but the kicker is very few things today are the same as they where in the eighties. From what I've seen real estate has nearly tripled, but how much of that is inflation and how much of that is supply and demand? The average car seems to have tripled in price, but how much of that is extra safety engineering, worker pension or corporate mismanagement?

You can't even deduce the amount of inflation by looking at the price of an ounce of gold. Besides the massive Hunt brothers manipulation of the market circa 1982, gold is used in electronics and there is a lot more electronics being consumed and discarded today, so the increase in gold is partially caused by increased demand, not some nefarious government plot as Glen Beck would have you believe.

I'm not even sure we can exactly measure the affect of inflation on just one commodity, so getting a precise value is going to be impossible. Especially since some countries like Canada and Britain (not sure about the US) change what is in the basket of goods they use to track inflation each year, meaning we can't really use those numbers.

[Doom]

Oh, absolutely, it's a ridiculously hard thing to measure, and very hard to compare apples to apples, and as you can see in this thread, most folks really don't understand how the calculations work at all. But the claim of "overall prices have only doubled since 1983" is pretty hard to swallow if you're the one paying the bills.

The average car seems to have tripled in price, but how much of that is extra safety engineering, worker pension or corporate mismanagement?

Inflation isn't about 'why prices go up', it's simply an observation that prices have gone up. "Safety features" is a nice rationalization, but it only goes so far. The car you bought in 1983 had the latest safety features. The car you buy in 2011 also has the latest safety features....they're the same in this sense, which is why many people believe 'hedonic' adjustments are a joke.

You can argue that there are more features in 2011...but the counter argument is the older features, being older technology, are cheaper technology.

As long as you're making some effort to keep the cars the same (eg, same model, same number of doors, same type engine if possible, etc), it's not an unrealistic comparison, even if the newer cars have airbags and the older ones don't (you're only talking a few hundred bucks in that specific case anyway).

The Hunt Brothers' 'manipulation' of silver is nothing compared to the manipulation in silver done by a few large banks today, for what it's worth. Here's a recent article giving a much better backstory than just the headlines.

Gold is certainly used in electronics (still more for jewelry, and as a store of value), but it is generally NOT lost. There's a thriving industry that specializes in extracting gold from 'dead' computers.

Gold's increase in price has only a little to do with electronics, however. Demand by central banks, investors, and savers has shot up dramatically in recent years, and represent the vast bulk of current demand. Jewelry is still big, but in most countries, buying pure gold jewelery is a form of investment (and should realistically be viewed as such, as the jewelry is purchased and then stored, as opposed to worn). I won't provide this data either.

[Psychic Robot]

INFLATION is when your money is worth less because assholes keep handing out billions of dollars to corporations.

[Koumei]

and you still won't eat your crow. Eat your fucking crow!

That... is a new one.

[Zinegata]

Finally, it's worth noting that inflation is probably inevitable. Because markets are growing. There are more people now in the United States than there were in 1950. So the supply of physical goods and actual services is now higher than it was before.

This is not actually true. Markets could grow with a smooth increase in the money supply and zero inflation. The economy could even grow faster than inflation and simply have prices and wages fall continuously as greater and greater outputs competed for the same currency.

We don't do that because it is hard. Wages and prices are sticky. They are resistant to change. And they are resistant to falling more than they are resistant to rising. People are not perfectly rational and accepting a lower price for their labor or goods is insulting. When there are lowering pressures on prices, prices don't instantly drop - goods go unsold and people lose their jobs first. So running he economy with a yearly inflation rate of 3% is just plain easier than than running an economy at 3% deflation or even static monetary value.

Yep. Hence I mentioned it's probably inevitable, and me bringing up 1) Our lack of perfect information, and 2) The bad effect of speculators creating "bubbles" which artificially jack up prices.

Consider it this way: imagine for the moment that you're in a situation where labor demand is either rising or falling and you're out for a new job. In the first case, you can expect to have a new job which pays 2% more relative to what you had last year. In the second case, you can expect to have a new job which pays 2% less relative to what you made last year. Now imagine that inflation is at positive or negative 3%. In the positive inflation scenario, for the rising labor market you're looking at a 5% nominal pay raise, and for the falling labor market you're looking at a 1% nominal pay raise. But your instinct would be to take either one. Either way, it "pays more" than your last job. In the deflation scenario, you're looking at a 1% nominal pay cut even in the rising labor market, and a 5% nominal pay cut in the falling labor market. And while that's purchasing power parity with the inflation scenario, your instinct would be to look for a better offer in both cases, because even the relative pay raise is still a nominal pay cut.

So small amounts of inflation are basically necessary to keep every downward pressure on wages or prices from being played out as a genuine unemployment shock. But that's just because of human irrationality. If we were all the maximizing robots that Chicago School Economists model us as, the inflation rate could be anywhere from -50% to 100% and we'd all just build that reality into our contracts and expectations and move on with our lives. Unfortunately, people balk at paying large price increases and they balk at receiving even small pay cuts - regardless of what the inflation rate actually is. So very high or even slightly negative inflation causes real problems.

That is why the Fed is supposed to maintain inflation at around 3%.

-Username17

It's not just about wages. There's a very real industry out there whose only job is to convince people that everything should go up in value. "Property prices never fall!" and shit like that. A major problem of the housing bubble is that many real estate agents told their clients that the value of their property can never go down because of inflation... which is flatly untrue.

It's stuff like this that makes me feel inflation is all but inevitable.

[Doom]

During the 19th century, farmland in Nebraska was at high prices (for the era)...there was a real estate collapse, and prices for some acres of have literally never recovered to their 19th century highs.

It's not 'go up in value'...it's dollar going down in 'value', whatever that word means. A house is a house after all, but a dollar? Not as easy to be sure about.

[mean_liar]

Found this...

http://www.bls.gov/opub/mlr/2008/08/art1full.pdf

Enjoy. Of course its from the Man, so it's a pack of lies.

[Doom]

Yep, read that one myself at least twice, funny stuff. My favorite line in the pack:

"the fact that the introduction of all hedonic quality adjustments since 1999 has had only a very small impact on the overall CPI."

Demonstrably not true, of course, since Shadowstats, which merely uses the government formulas before these adjustments, gives a multiple of the government reported rate. Shadowstats is a bit high mind you...but the numbers are very different.

Think about it: if the adjustments really made such a tiny difference, why would they bother writing papers justifying how rational and reasonable they are? Just toss 'em and spare everyone decades of listening to such vacuous arguments.

"The new way changes nothing and nobody likes it but we're going to do it that way anyway instead of doing it the old way which we just said is just as good and people already like."...that's basically the argument.

I believe there've been at least 8 adjustments to how CPI calculations are made, and all 8 have reduced the reported rate of inflation. Assuming this is random chance and a two-tailed test, this is only a p-value of below 0.01, and it's absolutely a matter of opinion whether that is a low number or not.

A site with real calculations and stuff, and good for laughs:

http://www.marketoracle.co.uk/index.php ... e&sid=3135

One with several humorous explanations of how funny the adjustments are:

http://money.cnn.com/2008/03/31/magazin ... 2008040305

(my favorites, paraphrasing: "Just take out everything that's going up, and then there's no inflation" and "sustitute hamburger for filet mignon, then chicken for hamburger, then dog for chicken, then grass for dog, then starvation for eating."

Still, this is all in good fun, since I've already shown the government numbers are absolutely, totally correct, as assumed.

[Username17]

"the fact that the introduction of all hedonic quality adjustments since 1999 has had only a very small impact on the overall CPI."

Demonstrably not true, of course, since Shadowstats, which merely uses the government formulas before these adjustments, gives a multiple of the government reported rate. Shadowstats is a bit high mind you...but the numbers are very different.

This isn't demonstrably anything. Shadowstats diverges in 1983 when housing prices were replaced with rent. Since housing rose more than rent during the bubble, inflation measured without the difference would have been higher. But housing prices fell much more than rents when the bubble ended. At the end of the 80s, using housing prices instead of rents should get you a lower number, but Shadowstats still gets a higher number because they are lying liars who lie.

The 1999 changes to inflation calculation involve among other things, reweighting the basket more often and including hedonic inflators. But Those are in 1999. Not 1983 or 1991.

Every time you attempt to prove any point by pointing to Shadowstats, you get less credible. Shadowstats claims that inflation is always more than what the government claims, and that the amount it is more always increases. If they were actually tracking commodities like they claim to be, they'd dip below the official figures every time commodity or housing prices fell. You know, like how gas prices dropped this last year by nearly 25%. But of course, Shadowstats simply claims that inflation continued to be even more larger than official reports.

There is no way that Shadowstats could possibly be doing anything honest or rigorous with actual price information. All they are doing is making some crack-ass theoretical claim that inflation numbers should be higher and then adding their claimed difference to the real numbers. There is not even an attempt to relate these inflation claims to real prices of real things.

-Username17

[Doom]

Every time you attempt to prove any point by pointing to Shadowstats, you get less credible..... -Username17

Sigh. Let me correct you. Yet again. Please, for the love of God, take off your tinfoil hat and read carefully:

All Shadowstats is doing with respect to the CPI is going "Hey, here's what the CPI reported inflation would be if the government hadn't changed the formula". I've tried to explain this to you multiple times before, but let's go over it again more carefully:

The formula Shadowstats used for 1982 and every year before 1982 is IDENTICAL to the formula the US government used for 1982 and every year before 1982. The formula and CPI calculation technique did not change in that time. The government changed the formulas in 1983, and have changed their manner of calculation quite a number of times since then.

But Shadowstats still calculates "a" CPI using the same government formula that was used prior to 1983.

The formula Shadowstats uses for 1983 is identical to the formula used in all previous years by the US government. Shadowstats is simply using the same formulas the government used so that an 'apples to apples' comparison is possible. They're not doing it as a grand conspiracy theory...they're doing it because poeple are willing to PAY them to do that.

There is no way that Shadowstats could possibly be doing anything honest or rigorous with actual price information

Absolutely, the government formulas were probably not honest or rigorous in 1983 any more than they are now. But that's irrelevant to your strange hatred of Shadowstats.

The formulas may very well not be honest or rigorous...but they're the same formulas the government used for decades. Shadowstats doesn't care if the formulas are not honest or rigorous, nor do the people that pay them care: all they are doing is using the SAME FORMULA (as horribly dishonest and nonrigorous as any government formula is, I'm sure). Do you understand?

You ever seen a guy dress up in a clown suit and perform at a children's birthday party? Well, the guy in the clown suit is NOT doing so because he's part of a conspiracy theory to defraud the government. He's doing so because he's being paid to do so.

For the same reason, Shadowstats is using the dishonest and nonrigorous government formulas, the same formulas the government used, year after year.

I've tried to explain this before, so let's go case by case:

The formula Shadowstats uses for 1984 are identical to the formulas used in all previous years, 1982 and earlier, by the US government.

The formula Shadowstats uses for 1985 are identical to the formulas used in all previous years, 1982 and earlier, by the US government.

The formula Shadowstats uses for 1986 are identical to the formulas used in all previous years, 1982 and earlier, by the US government.

The formula Shadowstats uses for 1987 are identical to the formulas used in all previous years, 1982 and earlier, by the US government.

The formula Shadowstats uses for 1988 are identical to the formulas used in all previous years, 1982 and earlier, by the US government.

The formula Shadowstats uses for 1989 are identical to the formulas used in all previous years, 1982 and earlier, by the US government.

The formula Shadowstats uses for 1990 are identical to the formulas used in all previous years, 1982 and earlier, by the US government.

The formula Shadowstats uses for 1991 are identical to the formulas used in all previous years, 1982 and earlier, by the US government.

The formula Shadowstats uses for 1992 are identical to the formulas used in all previous years, 1982 and earlier, by the US government.

The formula Shadowstats uses for 1993 are identical to the formulas used in all previous years, 1982 and earlier, by the US government.

The formula Shadowstats uses for 1994 are identical to the formulas used in all previous years, 1982 and earlier, by the US government.

The formula Shadowstats uses for 1995 are identical to the formulas used in all previous years, 1982 and earlier, by the US government.

The formula Shadowstats uses for 1996 are identical to the formulas used in all previous years, 1982 and earlier, by the US government.

The formula Shadowstats uses for 1997 are identical to the formulas used in all previous years, 1982 and earlier, by the US government.

The formula Shadowstats uses for 1998 are identical to the formulas used in all previous years, 1982 and earlier, by the US government.

The formula Shadowstats uses for 1999 are identical to the formulas used in all previous years, 1982 and earlier, by the US government.

The formula Shadowstats uses for 2000 are identical to the formulas used in all previous years, 1982 and earlier, by the US government.

The formula Shadowstats uses for 2001 are identical to the formulas used in all previous years, 1982 and earlier, by the US government.

The formula Shadowstats uses for 2002 are identical to the formulas used in all previous years, 1982 and earlier, by the US government.

The formula Shadowstats uses for 2003 are identical to the formulas used in all previous years, 1982 and earlier, by the US government.

The formula Shadowstats uses for 2004 are identical to the formulas used in all previous years, 1982 and earlier, by the US government.

The formula Shadowstats uses for 2005 are identical to the formulas used in all previous years, 1982 and earlier, by the US government.

The formula Shadowstats uses for 2006 are identical to the formulas used in all previous years, 1982 and earlier, by the US government.

The formula Shadowstats uses for 2007 are identical to the formulas used in all previous years, 1982 and earlier, by the US government.

The formula Shadowstats uses for 2008 are identical to the formulas used in all previous years, 1982 and earlier, by the US government.

The formula Shadowstats uses for 2009 are identical to the formulas used in all previous years, 1982 and earlier, by the US government.

The formula Shadowstats uses for 2010 are identical to the formulas used in all previous years, 1982 and earlier, by the US government.

The formula Shadowstats uses for 2011 are identical to the formulas used in all previous years, 1982 and earlier, by the US government.

Every time you assert that Shadowstats is 'nuts' or is in some way dishonest, you display a willful ignorance of what they're doing, at least with respect to their CPI calculation. To be fair, Shadowstats isn't necessarily recalculating so much as adjusting the government numbers without new manipulations.

Pay attention, because it's quite possible you missed it before: all they're doing is not changing the formula that the US government used to report inflation pre-1983.

That's it.

Now, it's quite possible that those formulas that applied for decades don't really apply now. Whatever. As long as folks are willing to pay Shadowstats to continue to make the calculation, they will do so. It's not a conspiracy against the US government, it's simply filling a market need, no different than "old fashioned" is often applied to other products sold.

Shadowstats diverges in 1983 when housing prices were replaced with rent. Since housing rose more than rent during the bubble, inflation measured without the difference would have been higher. But housing prices fell much more than rents when the bubble ended. At the end of the 80s, using housing prices instead of rents should get you a lower number, but Shadowstats still gets a higher number because they are lying liars who lie.

Many things are factored into the government inflation calculation, and it's very difficult to point at one possible thing (the late 80s bubble didn't affect the entire country, after all, among other issues).

That said, you've made this claim, back it up. Get all the numbers from 1983 (or 1984), use the exact formula that the government uses, and show Shadowstats is indeed committing fraud.

Keep in mind, if you do so, you will become quite famous, and probably will be able to start your own site. I congratulate you in advance, but I'd still love to see this proof that Shadowstats has been comitting fraud all these years.