Sunday, June 1, 2014

A pretty significant change

I'm not one to worry about inflation. You know that. But but I want you to look at this graph with an open mind:

From SUMPRICE.PDF by Robert C. Sahr (2003)
You can click the graph for a bigger, readable version. But you don't need to read the text. Just read the plotted line. That's the U.S. price level since 1665. Looks to me like there's been a pretty significant change, there on the right, the last sixty years or so. Pretty significant. I don't think anybody in their right mind can say inflation is not a big deal.

Inflation is a result, of course. You can't focus on inflation and do good economics. But I would say the same of unemployment and GDP -- and inequality, for that matter. Results. Let's not think about the results. Let's think about what might have caused those results.

It has to be something we fail to understand -- something policymakers fail to understand. Perhaps it's something that they ignore, something they dismiss out-of-hand when you bring it up. Something like private sector debt.

But who can say.


Gene Hayward said...

Maybe some more supporting evidence for your thesis on private debt/embedded interest at the link below as a source of inflation. Many/most of the core inputs that go into making many/most outputs (especially durables) have not increased in price over a LONG period of time. Those that have increased seem like reasonable increases, given the time span. If major inputs in production have not changed drastically over time, then what has????

Clonal said...

The US went off the Gold Standard in FDR's time, followed by Nixon closing the gold window. Divide the series by the price of gold, and you will see the real picture.

Going off the Gold standard was a good thing, as it allowed for more policy space.

The Arthurian said...

Hi Clonal. I don't know what "policy space" is... Maybe flexibility in the quantity of money?

I don't understand either why I would want to divide the Consumer Price Index by the price of gold, and how that would be "real".

Clonal said...

Art, One of the Professors I worked with Roy Jastram many many years ago wrote a book The golden constant He found a remarkable consistency in price levels when looked at in terms of gold. But most of his data comes from the time of the gold standard. I often wondered if the trend continued after the closing of the gold window. That is why I suggested dividing by the price of gold.