16 Sep 2009

My Apologies to the BLS

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In this post, I ranted against the shady tactics of the BLS in suppressing price inflation. In my sleep deprived rage (my son woke me up far too early), I wrote:

For example, both on NPR and in the CNBC story linked above, they talked about how prices for retail automobiles fell sharply, but they expect them to rise in September. The reason? Oh, cash-for-clunkers, of course! But wait a second. If the government hands out up to a $4,500 subsidy to buy a new car, shouldn’t that increase sticker prices? E.g. do we explain plummeting college and health care prices by reference to government support? Of course not–that’s how we explain skyrocketing tuition and medical expenses.

After last month’s CPI release, people on CNBC were talking about this, so I called the BLS. And the guy I talked to assured me that they were measuring the actual sticker price, before the government rebate. That makes sense economically, but it wouldn’t surprise me in the slightest if the people at the BLS decided to buy themselves an extra two months of suppressed CPI by counting the post-rebate price for new cars.

Oops, my bad. The cash-for-clunkers program was a rebate to the dealers, not to the car buyers. (That’s why the dealers are freaking out about the government being late in sending the actual checks.)

So the BLS guy wasn’t lying, and it would make sense for the CPI numbers to show a sharp drop in sticker prices for cars. Because the dealer is getting (up to) a $4,500 check for each of the qualified new cars he sells, he would be willing to sell at a much lower price, splitting the rebate with the consumer as it were. (If you and I were locked in a room with nothing but a dry erase board and marker, I would torture you for a good hour showing how the elasticities of the supply and demand curves determine how much of the rebate goes to seller and how much to the buyer.)

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