I know its from the devil, but here are some details.
Interesting graphs, but aren't corporate profits an accounting statistic that is so screwed up with manipulation and accounting rules that I wouldn't use it in your graphs? Anyway, commodities aren't the only component of what we purchase. The fact that we have low inflation with rapidly increasing commodity prices means something else is getting much cheaper.
2. Hedonics is a flawed trick to reduce the cost of a good, because it assumes that people would still buy an old version of a good. Nobody buys a 486 PC anylonger. This "let them eat ipads" argument which was famously coined by NY FED chairman Dudley is just a trick to have "deflationary" components in the basket of goods. Quality improvements can only be taken into account if consumers still demand the lower quality. The whole consumer electronics market is specifically funtctioning contrary to that idea. So e.g. claiming that the new iphone is 50% "cheaper" because it's performance is double of the previous version is bogus.
3. Reducing the food component when people are consuming more at the same time (result: increased obesity numbers) has nothing to do with "new products". It's just another trick to limit the impact of rising food prices. So is the usage of a core CPI.
4. You don't understand all the functions of money: standard medium of exchange (1), unit of account (2) and STORE OF VALUE (3). You're probably to young to having experienced the times of the gold standard (so am I), but money should actually be able to store value. If it doesn't, it is partially disfunctional. Naming bonds as the better store of value means essentially you're thinking money is debt. That's true for fiat money only, it's money with a counterparty. And that's the most fundamental problem we have in economics. If you can only store value in debt or equity and not in money, your freedom to decide the timing you're investments is taken away. Your money has no "time value" as Boehm-Bawerk called it with regards to interest rates: http://mises.org/pdf/asc/2002/asc8-reisman.pdf. The current ZIRP environment is the icing on the cake. Now money doesn't even have a price at all. Bond rates are negative in real terms.
Monetary inflation has many channels (select favored supply spigots), foreign and domestic, and there is always a delay between monetary inflation and the price inflation it causes, as it takes time for newly counterfeited currency to dilute the wider pool of currency, as it propagates and is "felt" as a upward pressure on general price levels throughout an economy. It never spreads or propagates evenly, and it never affects the same industries in the same way. Furthermore, stable price levels are NOT necessarily valid indicators of "no net price inflation". That is because we are not taking into account (nor have we that ability) all the prices THAT WOULD HAVE OTHERWISE FALLEN--NOT REMAINED "STABLE".
In other words, to put it in more academic terms, it's all a bunch of horse shit.
Funny that you're not so quick to jump on government accounting statistics that are "screwed up with manipulation and accounting rules" (that change from year to year, no less).Interesting graphs, but aren't corporate profits an accounting statistic that is so screwed up with manipulation and accounting rules that I wouldn't use it in your graphs?
Whatever the case, we're looking at raw reported numbers, and real market prices of commodities (adjusted for NOTHING). At the very least, even if you attribute it to fudged numbers, we can say definitively that Something Very Different has occurred in only the past two years.
Did you miss the part where all Finished Tangible Goods (things of real value--not vaporware--that we depend on for life) are rooted in commodities as factors and costs of production? Raw commodities aren't the only component of what we purchase, but they are all at the roots and foundation of life itself, and all that sustains life. Other things "getting much cheaper" becomes meaningless if the commodities required for life itself become so expensive relative to a thoroughly and intentionally debauched currency that those commodities eventually don't even make it to the shelves.Anyway, commodities aren't the only component of what we purchase. The fact that we have low inflation with rapidly increasing commodity prices means something else is getting much cheaper.
2. Quality adjustments are really important when you are trying to measure the cost of maintaining your standard of living. If the cost of the computer stays the same but it is better, then that is an improvement in your standard of living. That is what we should be concentrating on measuring here, the value of a dollar in terms of goods.
3. You reduce the food component if food is a smaller percentage of the goods consumed. People have greater incomes, so they buy more food. But its a much smaller percentage of the total quantity of goods they buy.
4. A highly inflationary currency would not be a good store of value, we agree. That doesn't mean a country with a high level of inflation involves everyone losing their purchasing power quickly. That was my point, there are other investment vehicles that are more closely indexed to inflation.
Now, this is kind of subtle. The corporate manipulation is things like hiding earnings for tax purposes. That can be something that everyone knows is going on, that everyone agrees is an accounting technique and yet still is part of reported earnings for the company.
The criticism of the economists is different. Its an accusation of scientific malpractice, rather than using the tax code to their advantage as in the case of companies. That's perfectly fine to make that accusation, but its reasonable of me to expect some evidence of your claims, which hasn't been provided.
Of course, the commodities might be more expensive, but the finished final goods might not be if there are cheaper more efficient production methods. The point about commodities, is that you like to focus on the things that increase most because it suits your political argument, and then ex post come up with some justification for it that looks good. If commodities were falling and computers were increasing in price, you would find an argument that says that is the true signal of price inflation. Forget all this individual price junk, that's why we average a bunch of prices in an index in the first place.
Commodities are the foundational building blocks of all finished goods. Right now, as commodity prices rise faster than anything else, this erodes EQUITY, which indeed does force firms to cut costs and attempt to become more efficient, in an attempt just to stay in the black. STAPLES' recent move is an example of just that, as they try to get rid of brick-and-mortar overhead (including employees). Meanwhile, the least efficient firms are forced to close their doors as commodity prices continue to rise, as they cannot pass along the increased costs, and find that they can no longer supply the finished goods at a profit. Eventually it gets to the point where even the commodity suppliers can no longer cut costs, because most of their costs are RAW, TANGIBLE AND REAL. Labor, fuel, raw materials, raw machinery. There's nothing more to cut, and no more blood that can squeezed from that turnip.Of course, the commodities might be more expensive, but the finished final goods might not be if there are cheaper more efficient production methods.
You must be aware of the historicity of fact that before a fiat currency eventually becomes worthless (as you and I both agree the USD will be), and long before the currency loses all its value, widespread closing of doors, along with COMMODITY SHORTAGES, are an inevitability.
You're overgeneralizing. Whether the charts I posted can be used as justification for a political argument, the weren't created ex post. It's something I stumbled onto, as I wondered if there was any historical correlation with corporate profits and commodity prices.The point about commodities, is that you like to focus on the things that increase most because it suits your political argument, and then ex post come up with some justification for it that looks good.
I'm not looking for a "true signal of price inflation", any more than I'm trying to find out which epicycles and equants can be used to support a Ptolemaic model of an Earth-centric universe. I am all about the long term, and only interested in inevitabilities and mathematical certainties in the long term. As a FUNDAMENTAL, even most of the most addle-brained Keynesians will not argue but that monetary inflation is the PRIMARY CAUSE of price inflation, albeit in the long term. You're trying to look at gauges to find monetary inflation's propagation rates and "true signals" (oops, did you feel that? I think I just felt something)--for something that nobody argues is an inevitability. Otherwise, what would be the point of "targeting" price inflation, and deliberately increasing the money supply as a means of deliberately doing just that, in the first place?!If commodities were falling and computers were increasing in price, you would find an argument that says that is the true signal of price inflation.
If you remember the point of this thread is that the OP wanted to say inflation is understated and going to destroy purchasing power of individuals. If you disagree with even the idea of calculating it, then you can't then turn around and say well I think its understated. If you think its understated, then you implicitly agree that there are ways of approximating it or getting a good sense of what it is.