why fighting deflation is a waste of money

[jjf]

Quote from Martinghoul:

OKI, I agree with you that, ideally, we'd like consistency.

However, if we take this consistency to the limit, eventually your basket gets woefully outdated. Let's take an extreme example. One of the earliest inflation-linked bonds, the Massachussetts Depreciation Note issued to Revolutionary soldiers in 1780 in lieu of wages, was linked to the following:
Five Bushels of Corn, Sixty-Eight Pounds and four-seventh Parts of a Pound of Beef, Ten Pounds of Sheeps Wool, and Sixteen Pounds of Sole Leather
Personally, I don't think I'd want any of my contracts today linked to that, 'cause I don't consume any of those things.

My point is that consistency eventually leads you into a dead end, where you potentially have to change the entire basket all in one go. Given that this is undesirable, the gradual substitution that's practiced, not just by the BLS, but worldwide, is actually a better alternative, IMHO. You can say the same about the hedonic adjustments, but things get a bit murkier there.

Yes you have taken this line of thinking to the limit and yes things must change, preferably gradually in order to reflect the current situation. I agree with you.
Companies come and go from DOW and S&P in the same manner.

That is the consistency of change and growth.

However, we must never lose sight of the fact that more and more people are being indexed to the CPI and so the gov. bias is naturally wavering on the low side.

Very crudely speaking when money supply expands to keep pace with an expanding economy, measured in real terms, then we have balance.
If the supply outstrips growth measured in real terms we have the sort of imbalance that has been in play for decades.
Eventually the piper must be paid and what I suspect is that the pain is being shared between the current living population and the yet to be borne.

Placing morality to one side for the moment, this is a very fine line that must be maintained for years as the population raises it's act and therefore it's income. But debt comes before income and inflation may not be able to wash away the sins of the past, because new sins are being created too rapidly ... that is the current debate.

In a population as diverse as US these changing conditions will only gather up only so many people, maybe 30/40% of the overall population, leaving the balance as a majority underclass in a so called democracy.
Robots and AI will perform many of the lower class jobs instead.

Quit frankly, it does not warm your heart to even contemplate this and it is more than possible that the country will eventually fractionate as a result.

 

[Martinghoul]

Quote from jjf:
Yes you have taken this line of thinking to the limit and yes things must change, preferably gradually in order to reflect the current situation. I agree with you.
Companies come and go from DOW and S&P in the same manner.
...

Agreed... It's a very fine line to toe and either side of the middle ground all sorts of dangers lurk. I think it's a point that Taleb, incidentally, made a while ago, in some discussions about what the Fed and other Central Banks are likely to face in the future.

Personally, at the moment, based on what I have seen, I have yet to see the Fed and Bernanke straying into dangerous extremes, so I am willing to give them the benefit of doubt. After all, as I keep repeating, the Fed is an institution that not only produced Greenspan, but Volcker before that.

 

[FerdinandAlx]

I'm really annoyed by all these worthless articles that push austerity measures and give people false fears on sovereign default.

Japan's economic policy has been a disaster. While deflation means falling prices it also means falling wages. Wages in Japan have fallen faster than prices which means the net purchasing power of the average Japanese has gone down. Meanwhile the portion of their wage that they spent on interest and loans has increased.

Periodic austerity measures are what maintained the deflation. Pushing austerity measures in the US will create prolonged deflation there too. And for what? Fears of a sovereign default? Neither the Japanese government nor the US government can default, ever. They can simply declare yen or dollars into existence to pay off debts. In fact, they don't even need debt as a source of revenue. Debts are a service rendered to the private sector: it provides a risk free rate of return. Pushing fears of sovereign default is the pinnacle of ignorance.

 

[denner]

Quote from Martinghoul:

I actually have all sorts of issues with Williams and ShadowStats.

However, the main question is why should he be trusted more than the BLS? It's not like he's totally impartial and has nothing to gain from spreading his version of the number(s).

Well, the fact of the matter is that we all gain perspective by seeing the economic statistics from an alternative source that uses metrics once practiced by our government statisticians. Even diehard BLS supporters admit that there are flaws to the current system, most notably the long term unemployed and underemployed falling off the headcount and skewing unemployment numbers in the government's favor.

With regards to inflation, we've had this conversation before, and I've suggested a few items for inclusion. Of course, this is like jumping into the rabbit hole as a diverse group of individuals around the country would have any number of different expenses, nonetheless it doesn't change my mind about the need for a more real life, real expenses calculation of inflation.

Higher inflation numbers would take quite a bite out of those GDP numbers, which is the thing that gets alot of these true believers around here jumping up and down so they can continue their partisan bickering.

I'll go out on a limb and state that with non-massaged numbers, the real stats would paint an entirely different picture, one in line with almost every "man on the street's" perspective...i.e. that we are going thru a period of stagflation..minimal to no growth and stealth inflation of all sorts.

 

[denner]

Quote from FerdinandAlx:

I'm really annoyed by all these worthless articles that push austerity measures and give people false fears on sovereign default.

Japan's economic policy has been a disaster. While deflation means falling prices it also means falling wages. Wages in Japan have fallen faster than prices which means the net purchasing power of the average Japanese has gone down. Meanwhile the portion of their wage that they spent on interest and loans has increased.

Periodic austerity measures are what maintained the deflation. Pushing austerity measures in the US will create prolonged deflation there too. And for what? Fears of a sovereign default? Neither the Japanese government nor the US government can default, ever. They can simply declare yen or dollars into existence to pay off debts. In fact, they don't even need debt as a source of revenue. Debts are a service rendered to the private sector: it provides a risk free rate of return. Pushing fears of sovereign default is the pinnacle of ignorance.

Well, quite frankly, would you rather having rising prices combined with falling wages? Is this your idea of economic ingenuity? So, we simply ignore the fact that we have structural unemployment problems combined with a lack of wage pressure, but we have multi-year highs across the commodity spectrum. We have insolvent states that are passing thru tax hikes to stave off default and continue to borrow and spend.

In this country, we pay lip service to deflation as an excuse for Ben and his cohorts to keep rates at zero percent, rip off the savers and then turn around and cheerlead inflation and hope that enough fools mistake that for growth.

 

[sosueme]

Since figures are presented in dollar terms rather than real units, for every set of numbers we are presented with, there lies a contradictory set.

Why ... well for a start the percentages and their movements are rather small but they represent huge chunks of money.

We are told the economy is growing largely because consumer spending is growing at 4.4%.
However we are not told at the same time that incomes rose 1.7% and so you quite naturally wonder how the difference is funded.

Savings are up, credit is down so we are left with a black hole.
In many countries this sort of black hole is explained away by the black economy and nobody can prove otherwise.

But I see a sufficient number of unexplained black holes in the numbers to lead me to believe that the economy is most probably hardly growing at all.

If things do not add up in my head it is usually because they are not true.

 

[FerdinandAlx]

Quote from denner:

Well, quite frankly, would you rather having rising prices combined with falling wages? Is this your idea of economic ingenuity? So, we simply ignore the fact that we have structural unemployment problems combined with a lack of wage pressure, but we have multi-year highs across the commodity spectrum. We have insolvent states that are passing thru tax hikes to stave off default and continue to borrow and spend.

In this country, we pay lip service to deflation as an excuse for Ben and his cohorts to keep rates at zero percent, rip off the savers and then turn around and cheerlead inflation and hope that enough fools mistake that for growth.

I get it, you've invested alot in a certain economic paradigm. You've invested enough to stick with it even when the facts and numbers don't add up with your believes.

Japan has had 0% interest rates for years, along with government borrowing and spending. The result: deflation. Your paradigm is broken.

 

[Martinghoul]

Quote from denner:
Well, the fact of the matter is that we all gain perspective by seeing the economic statistics from an alternative source that uses metrics once practiced by our government statisticians. Even diehard BLS supporters admit that there are flaws to the current system, most notably the long term unemployed and underemployed falling off the headcount and skewing unemployment numbers in the government's favor.

With regards to inflation, we've had this conversation before, and I've suggested a few items for inclusion. Of course, this is like jumping into the rabbit hole as a diverse group of individuals around the country would have any number of different expenses, nonetheless it doesn't change my mind about the need for a more real life, real expenses calculation of inflation.

Higher inflation numbers would take quite a bite out of those GDP numbers, which is the thing that gets alot of these true believers around here jumping up and down so they can continue their partisan bickering.

I'll go out on a limb and state that with non-massaged numbers, the real stats would paint an entirely different picture, one in line with almost every "man on the street's" perspective...i.e. that we are going thru a period of stagflation..minimal to no growth and stealth inflation of all sorts.

Fine, we can argue the specific technical merits of using one methodology or another ad nauseam. Neither do I have anything against alternative methodologies as long as they are peer-reviewed and rigorous.

My issues are non-partisan. My problem is that I just don't see why there should be a bias. What objective reasons do I have to believe that John Williams's numbers are more reliable/worthwhile than the ones coming out of the BLS? Why are BLS numbers necessarily "intentionally massaged" and SGS ones aren't? What basis is there for conspiracy theories? It's not like you can make a case that Williams is impartial and therefore his calculations shouldn't be biased. The guy makes a living out of selling this stuff to people, which means he's massively long the SGS - BLS spread. The more shocking the number he publishes, relative to the official one, the more fame and fortune accrues to him (same issue with other pundits).

 

[denner]

Quote from FerdinandAlx:

I get it, you've invested alot in a certain economic paradigm. You've invested enough to stick with it even when the facts and numbers don't add up with your believes.

Japan has had 0% interest rates for years, along with government borrowing and spending. The result: deflation. Your paradigm is broken.

Which facts and numbers? As this thread has clearly demonstrated, the government keeps two sets of books. The first set is cleansed for public inspection, the second set is locked away in a vault and only released in times of financial turmoil.

The Japan thingamajig has been debated for years, but there are structural differences between the two countries.

Not invested in an economic paradigm, FWIW. I call it as I see it and do not belong to either political party, nor do I care to.

 

[denner]

Quote from Martinghoul:

Fine, we can argue the specific technical merits of using one methodology or another ad nauseam. Neither do I have anything against alternative methodologies as long as they are peer-reviewed and rigorous.

My issues are non-partisan. My problem is that I just don't see why there should be a bias. What objective reasons do I have to believe that John Williams's numbers are more reliable/worthwhile than the ones coming out of the BLS? Why are BLS numbers necessarily "intentionally massaged" and SGS ones aren't? What basis is there for conspiracy theories? It's not like you can make a case that Williams is impartial and therefore his calculations shouldn't be biased. The guy makes a living out of selling this stuff to people, which means he's massively long the SGS - BLS spread. The more shocking the number he publishes, relative to the official one, the more fame and fortune accrues to him (same issue with other pundits).

I understand your point. It's not entirely unlike the planted articles I've seen in recent years that will predict all sorts of hyperinflation in food costs and at the end of the article there is a site link to buy gold and silver coins.

So, I can see how Williams would have a financial interest in making grandiose or exagerated claims. At the same time, I can evaluate from the bottom up, I talk to friends and family who also pass on information. I can talk to a restaurant owner about his/her costs, their property taxes, insurance, etc, etc...Why should I dismiss this personal anecdotal evidence, especially if I can also confirm this with national anecdotal evidence in support of it. Am I supposed to dismiss these "on the ground" reports in favor of some gigantic bureaucracy that has a vested interest in downplaying inflation, while squeezing out every decimal point of growth instead?

It reminds me quite a bit of our last episode of "non inflation" between 2003-07? Ask any small business about the non inflation during that period and they would laugh in your face.