08 Oct 2009

Deflation Propaganda Campaign Claims Bryan Caplan

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Bryan Caplan defends Scott Sumner (already we should suspect trouble) and remarks:

Looking at the numbers makes it hard to believe in a quick return to full employment. During the 1980-2 recession, there was high inflation. All employers had to do to get real wages down to full employment levels was (a) avoid nominal wage increases, and (b) wait. Now that we’ve actually got deflation, waiting doesn’t help. Even with a pay freeze, workers are getting more overpaid by the day. [Emphasis added.]

Bryan Bryan Bryan! The CPI started falling sharply in August 2008. But then it bottomed out in December 2008. Since then, the (non-seasonally adjusted) CPI is up 2.7% (through August 2009), which is an annualized price inflation rate of more than 4 percent.

I am really baffled by Bryan’s statement. Even the seasonally adjusted CPI is up 1.8% year-to-date (through August), which translates to an annualized rate of 2.7%. So why does Bryan imply prices are falling “by the day”? Is he looking at year/year figures and assuming past performance is indicative of the future?

(BTW if you are getting lost in all the numbers, just look at the picture of the price level. You can see how misleading the year/year figures are.)

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