The general consensus among most mainstream economists is that inflation is the rise in prices. The only school of economics that disagrees with that definition is those pesky Austrian economists who define inflation as the increase in the money supply. These upstarts challenge what has become the conventional thinking and I believe that they are correct in their assessment. This is largely because they predicted the housing collapse a decade before it happened and are generally non-partisan when it comes to the economic policies.
But let’s say that for an instance that the conventional theory is true. Understand that I am not an economists nor have I read a whole lot on economics, just one book and various blog entries and articles on the topic. When I discuss something like this, I’d be the first to admit I am wrong, if it is proven. Now that the disclaimer is out of the way, I can move on to the truth as I see it.
So let’s say that inflation is the rise in prices of consumer goods and services. The Consumer Price Index, which is used to measure the average inflation rate, is calculated by sending out government temps to various shops and businesses where they collect basic data on their prices. This data is entered into a computer at the Bureau of Labor Statistics and that machine spits out the resulting inflation rate.
I view this methodology in the same manner that I view polling data. The sample size cannot possibly be large enough to gather an accurate reading of the data. There are millions of interactions each day in the United States where money changes hands, goods are sold, and services are rendered. How can a group of government temps possibly gather enough data to cover all this?
Besides the sample size, I doubt they are hitting every kind of industry out there as well. I mean, there are probably a limited number of categories, but within every industry, there are always variations. For example, for every Wal-Mart, there is Target, J.C. Penny, Macy’s, and Sears. Each of these has their own flair and some tend to be more upscale than others. Wal-Mart sells pots on the cheap while Macy’s has more expensive cookware.
I could go into this in more detail, but as someone who has studied statistics in college, along with just about every other kind of mathematics, I know that statistics is probably one of the most flexible forms of mathematics. As such, unless the sample size is a significant fraction of the whole, I usually discount the results. That goes for polling as well as the CPI, which I have just decided is utter crap. No I haven’t disproven it, that would take a whole dissertation and I’m not in the mood right now.
So while the inflation rate as measured by the CPI is probably a joke, let’s assume that it is real or that the Federal Reserve mouthpieces in the mainstream media do know what they are talking about. The inflation rate has average over the past 80 years or so at about 3%.
At about 3% per year, that doesn’t seem like a whole lot. Sure, it’s a little frustrating to have to save in riskier investments because the government can’t seem to stop printing money, but hey it’s only 3% a year, right?
But you forget that the inflation rate is really just compound interest on your purchasing power. As a result, what cost 1 dollar 80 years ago now costs about $11.85. Do a simple percentage calculation, and you’d find that this is a 1185% increase in prices over an 80 year period!
This kind of increasing trend cannot continue at the current rate. If we accept all the false premises brought to us by your friendly neighborhood economists on some cable business channel, what they fail to mention is that, unlike numbers, this world is finite. As long as we keep on printing money and thus encouraging inflation, it doesn’t really matter what the origin is.
The Federal government is singlehandedly destroying our savings, causing us to seek out riskier investments, and all because they are trying to keep ahead of their debt. That is really the only benefit to inflation: preventing the debt taken on from overwhelming all of us.
I said in the past to some fellow conservatives a few years ago that there had to be an upper limit to the housing market because people aren’t going to pay $500,000 for a 1-bedroom condo in the poorer neighborhoods when they make only $45,000 a year. My naive premonitions that were versed in common sense seems to have come true, unfortunately.
Now I am seeing the same problem with inflation and the national debt. The dollar will not continuously de-value as it has because people will stop using it and find other means to pay for things. Value is not determined by some snobbish bureaucrat or some lying politician. It is determined by human interaction (another reason why the CPI is utter crap in my view). There has to be an upper limit to how much the government can reasonably print and borrow. I think we are just about there as the Chinese economy is probably on the verge of their own recession once everyone figures out that the Chinese government is lying about their supposed prosperity.
This madness will stop the hard way or the easy way. Unfortunately, the politicians in Washington seem more concerned with new forms of tyranny than actually saving our nation from the coming currency collapse.