Same Old, Same Old: BLS Adjusts Away Two-Thirds of May’s Inflation
The trend continues. The actual CPI rose 0.3% in May–an annualized price inflation rate of 3.7%–but the BLS “seasonally adjusted” it down to 0.1%, which is a much more reasonable annualized inflation rate of 1.2%.
For those of you who are newcomers, let me bring you up to speed: The BLS has “seasonally adjusted” the CPI downward every month this year. And it’s not little tinkerings on the edges, these are significant differences. All told, from Dec 2008 through May 2009, the raw CPI rose at an annualized rate of about 4.2%.
In contrast, the seasonally adjusted CPI–the figure that the media reports, before they throw out energy and food prices and talk about “core [seasonally adjusted] CPI”–rose at an annualized rate of only 1.5%.
I should point out that this is not a smoking gun proof of conspiracy; I checked earlier years, and in both 2007 and 2006, from January through June the seasonal adjustments always dampened the official inflation, while the adjustments went the other way from July to December. For a different point, if you do the seasonally adjusted vs. non-seasonally adjusted CPI changes from Dec 05 through May 06, you get annualized inflation rates of 3.7% vs. 7.1%.
So, maybe what the BLS has been doing the last few months isn’t as shady as I originally thought. We won’t really know until January 2010, when we can finally compare the yearly increase in S.A. vs. N.S.A. prices over the whole year of 2009.
If nothing else, though, it is interesting that while everyone is still warning of us falling off a deflationary cliff, actual prices have risen at an annualized rate of 4.2% since December.
Another Testimonial
George Smith adds his voice to the growing chorus:
There are several excellent books on the Great Depression, but Robert P. Murphy’s guide is the most accessible and rebuts all the politically correct falsehoods about that era — the Fed, Hoover, Roosevelt, and World War II. With Obama on track to repeat FDR on a grand scale, Murphy’s book becomes a must-read intellectual survival manual.
Scott Sumner Reluctantly Agrees With Krugman on Inflation
This is a long but “neat” post by Scott Sumner. I still think he is basically wrong, but it’s always refreshing to see someone who admits when his “enemies” are right (in his mind). He also points out an odd inconsistency in Krugman’s writings:
In my view Krugman is mixing science and advocacy in a very misleading and inappropriate way. When he evaluates central banks, he seems to take a deterministic, scientific, and clinical attitude, as if studying a colony of ants….Central banks are assumed to be impervious to public pressure. On the other hand his stance toward fiscal policy is much more normative. Now he is an advocate, he’s part of the game, passionately calling for more stimulus. But I don’t see how this makes any sense. If we are going to take a deterministic view of things, it seems likely that Congress is also far too conservative to implement the sort of spending that Krugman advocates. Indeed, hasn’t that already been shown? Couldn’t one just as reasonably say: “Since Congress clearly won’t do what it takes, we must fall back on the Fed as our only hope for the sort of stimulus that the economy needs.”
…
Krugman is 100 times more influential than I am. With his NYT column, and his ideological allies in the White House, he is arguably the most influential economic pundit in the world. And he is also known (for better or worse) for his moral outrage over perceived injustices. In many cases I think he goes a bit over the top. But here it is just the opposite. I am outraged over Krugman’s lack of outrage over current monetary policy.
Potpourri
* Von Pepe sends me this 2002 Krugman piece (via Arnold Kling). The money quote:
The basic point is that the recession of 2001 wasn’t a typical postwar slump, brought on when an inflation-fighting Fed raises interest rates and easily ended by a snapback in housing and consumer spending when the Fed brings rates back down again. This was a prewar-style recession, a morning after brought on by irrational exuberance. To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.
I realize there’s a danger of playing “gotcha!” with the Nobel (Memorial) laureate. Fortunately only Silas Barta combs through my past writings with the same effort and cynicism, and I’m not sure I like it.
But come ON. A bunch of us have been saying for more than a year that Krugman’s prescription for fixing the current mess, is exactly what caused the housing bubble and would only cause another crisis down the road. Doesn’t the quotation above seal the deal? What more do we need? Oh wait, here’s more evidence that, despite all the formal models with their bells and whistles, Krugman has the crudest of business cycle theories. At the end of his 2002 article he says: “But wishful thinking aside, I just don’t understand the grounds for optimism. Who, exactly, is about to start spending a lot more?”
Incidentally, this is pretty weird, now that we have Krugman in 2002 predicting the housing bubble, but not really. The only thing like it is Tyler Cowen in early 2005 predicting the housing crash from an Austrian point of view, but not really.
* Here’s an odd article from Charles Hugh Smith (HT2 Tim Swanson) that says: “The idea that the super-wealthy and super-influential folks who own the politicos will benefit from inflation does not hold water.” Right, they don’t benefit from the price inflation per se, but they do benefit from the trillions in bailouts financed by the Fed and Treasury. Be careful: I think Smith just “proved” that Caesar would never have debased the coinage.
* Tyler Cowen responds to my charge the he flipped on carbon taxes. If you go read the post, maybe you can help me out: Is Tyler saying I need to lose weight?
Black Swan Hyperinflation Fund
Von Pepe passes along this story:
36 South Investment Managers Ltd., whose Black Swan Fund gained 234 percent in 2008, is raising money for a new hedge fund, betting that government efforts to pump money into economies could result in hyperinflation.
The Excelsior Fund targets returns that will be five times the average annual rate of inflation of the Group of Five economies — France, Germany, Japan, the U.K. and the U.S. — should the rate exceed 5 percent, Jerry Haworth, co-founder of the firm, said yesterday. Raising $100 million for the fund would be a “good” amount, he said.
…
Most investors are underestimating the risk of inflation, Haworth said. Consumer prices in the U.S., the world’s largest economy, are set to rise 1.7 percent next year, following a 0.6 percent decline this year, according to the median of 70 economists surveyed by Bloomberg.
…
“There is certainly talk about inflation but people might think of inflation at 5 percent or 6 percent,” Zimbabwean-born Haworth said. “We’re talking 5, 10, 15, 20 percent or more.”
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36 South’s Excelsior Fund will buy long-dated options it considers cheap and that “stand a good chance of outperforming in an inflationary environment,” Haworth said. Options are contracts to buy or sell a security by a certain date at a specific price.The fund will wager on an increase in commodity and equity prices, bond yields and increased currency volatility.
Krugman’s Record on Inflation Forecasts
Bob Roddis sent me this 2004 National Review piece in which Donald Luskin tears Krugman a new one, assuming the items are authentic. I don’t have the time right now, but at some point I may discuss the differing inflation forecasts of monetarists and supply-siders in the 1980s. Specifically, the ratio of M1/real GDP rose after the Reagan tax cuts, leading people like Milton Friedman to warn of impending price inflation. That didn’t happen, though, because (in the explanation of Arthur Laffer) the Reagan tax cuts and deregulations increased the demand for dollar-denominated assets.
Anyway, it’s not such a big deal if Krugman put his name on a document that misfired in predicting big inflation. (I better not be too harsh, since I could very well be in the same boat three years from now!) After all, I think Summers was his superior, and maybe Krugman just went along with it.
But then he certainly had no business later on, patting himself on the back:
These days [in 2004], however, Krugman flat out lies about his inflation-forecasting record. Instead of admitting he got it wrong, in his New York Times column last Friday, he bragged that the collapse of inflation in the 1980s “played out just as ‘left-wing Keynesian economics’ predicted.”
Do Non-Believers Burn in Hell?
At lunch at the Rothbard Graduate Seminar last week, Walter Block was explaining that he knew some atheists who were reluctant to visit the Mises Institute because the people in Auburn “are so religious.” Walter would always tell such people not to worry, that he for example was an atheist and none of the personnel or other faculty ever made him feel uncomfortable about it.
I pointed out, “Well you’re already going to hell,” and Jeff Herbener immediately followed with, “So we don’t want to pile it on.”
But this does raise a serious issue, of what I’m supposed to do with the fact that I really do think atheists are going to hell. I mean, if I truly believed there were a ticking time bomb in their house, I wouldn’t be cracking jokes about it, right?
Well, that’s true about the time bomb, but the problem with matters of faith is that my personal style of evangelism is not confrontational. And this isn’t a reflection of my timidity about Christianity–I don’t discuss politics either with people who don’t ask me about it first.
I remember when I was an atheist, I was extremely uncomfortable one time when a guy’s wife asked me if I knew Jesus. Now I realize, somebody who hands out leaflets in parking lots could say, “Well they’re gonna be extremely uncomfortable burning for eternity too!” Yes, but there’s a division of labor. I’ll let the guy handing out leaflets do his thing, and maybe he will grab a bunch of people that way.
In contrast, what I do is make my views known on this blog (or in public forums if it is appropriate), and I have even restricted the Jesus talk to Sundays. I absolutely love it when a bunch of you regular readers say things like, “Jeez Bob, you’re a good economist and very logical on a lot of things, but you went off the deep end with this God stuff.” So that’s part of my point in doing it, is to show that I think the doctrines of Christianity make sense and are logical. I utterly reject the idea–which many simple Christian folk have advanced–that you shouldn’t think too much about Biblical matters, or that you shouldn’t use your reason when contemplating God.
Final point: When I say that an atheist is “going to hell,” what I think that actually means is that the person will not enjoy communion with the Creator of the universe for all eternity. And why not? Because that person actively rejected the Creator’s offer of friendship.
So if a person has the option of accepting Jesus as personal savior and Lord, and chooses to tough it out alone, then yes it is entirely accurate to say that person has chosen to live a hell on earth, and to spend eternity in hell. The atheist can understandably say, “What are you talking about? I feel fine,” but he or she doesn’t really take me seriously when I say there is a really neat prize behind Door #1.
More Tinkering With Official Price Statistics
The WSJ reports (HT2EPJ):
The inflation gauge tracked most closely by central bank policymakers will no longer exclude restaurant prices starting next month. The government plans to add purchased meals and beverages into the “core” inflation calculation — the one that excludes other food and energy costs — when it releases comprehensive revisions to its data at the end of July.
Do we really need to read any further? Here is how I view the world, at least at this stage of my life: I don’t really need to read whatever the government economists say is the official reason for this. There might even be compelling reasons for making the definitional adjustment.
But what I refuse to believe is that this change in how the government measures price inflation just so happens to be rolled out soon after the Fed has doubled its balance sheet.
I am anxious to see the CPI report (for May prices) next week; as readers of Free Advice know, the non-seasonally adjusted CPI has shown 4.3% annualized growth from Dec 08 to April 09. This has happened when everyone is threatening “deflation” as the one thing that may plunge us back into the Great Depression II.
Other economists have pooh-poohed my cynicism, because they believe it would be hard for the government economists to completely change an index method. In other words, it would be too blatant.
OK that’s fine, the trick then is to simply come up with a new concept, and then have government officials start “targeting” that measure. Then the media eventually reports on just that (new) measure, and nobody ever remembers what “non-seasonally adjusted CPI” even means. Because now it’s “core inflation” that the Fed tells us is the real thing to worry about.
One last thing: Just to make sure the situation is as absurd as possible, does anyone in the class know what things they take out of overall inflation, in order to get “core inflation”–which is what more and more financial stories now report?
(That’s right kids, food and energy. I mean, that makes sense, right? If you want to know what the “core” prices are doing, you probably wouldn’t worry about how much food and energy cost. You could safely drop those from the measurement.)
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