Friday's Consumer Price Index Summary from the Bureau of Labor Statistics contained some news so arcanely bleak it drove even Paul Krugman, the doctor, to say two true things. The "core" CPI, which includes consumer prices except food and energy, has declined for the first time since 1982.
In a post quoted by Calculated Risk, Krugman sees facts not fitting his theories and suggests we change our way of measuring inflation. He also hits Federal Reserve Bank chairman Ben Bernanke with Japan's lost decade:
[C]ore CPI has been behaving erratically lately, making me doubt whether it's still a good guide to underlying inflation (by which I mean the trend in prices that, unlike commodity prices, have a lot of inertia).
What I find myself looking at these days are the Cleveland Fed "trimmed" inflation measures, which exclude outlying large price movements; the ultimate trim is the median, the rise in the price of the median category. And these indicators tell a story of dramatic disinflation in the face of a weak economy … We may have to start calling the Fed chairman Bernanke-san, after all.
Both of Krugman's points make sense. A year ago he cited a scenario in which the zombie banks would do nothing but consume government cash following the Japanese pattern, which is precisely what has happened. (For more on America's appropriation of the lost decade, check out Reason's July 2009 cover story.) Like all the core beliefs of the economic elite, of course, this one is worth a whore's wedding vow: When the TARP was still being debated, Krugman supported it, with rueful handwringing, in the belief that allowing rich pigs to suffer the consequences of their actions would have caused an apocalypse of a meltdown of an armageddon.
But the case against core CPI is more interesting. I have never understood what leaving out food and energy costs does to make core CPI a relevant representation of the economic well-being of Americans, and my recent experience at Safeway and the gas station indicates prices for both are flat anyway (though gas prices are said to be rising again).
The saddest thing about the economic hyperpocalypse is how little use anybody has made of it to throw out vast chunks of macroeconomic pettifoggery and monetarist voodoo. The contents of the consumer price index could probably use a more vigorous reshuffling if you want to get accurate numbers on what Mr. and Ms. Average are paying for stuff. Misleading concoctions like Owner's Equivalent Rent are still in use. Even GDP, that too-big-to-follow whale—and the only evidence, really, with which you can claim the recession is over—is as easily gamed as the tables at Rick's American Cafe. They can create more than a trillion additional dollars in the course of one year, and not cause the price of anything to go up. That's a pretty good reason not to believe anybody who claims to have things figured out.
The political way through the cognitive dissonance is to say, "The recovery is underway but people are still hurting." How about this instead: People are hurting because the recovery isn't underway. To recognize that we have to move the conversation beyond people like the Obama economic team, who say we need to keep pushing on a string; people like Krugman, who say we need to push harder; and people like Ben Bernanke, who say we need cheaper string. If you never travel outside the circle jerk of mutual congratulations, you might think all three of those claims are true.
As the masters of the economy wait for the little blue pill of inflation to kick in, kick back with Reason's coverage of what happened the last time it was 1982 and the era of runaway inflation was brought to a very painful end. Or see how inflation can give Old Kid Depression a sock on the button with this vintage propaganda from MGM:
And for more mind-boggling photos of soap bubbles being popped, check out Clementine's Posterous page.