Peter Schiff on Unacknowledged Inflation

Here's a video from investment guru and author Peter Schiff which argues that the federal government chronically undercounts inflation.

It's an interesting piece, whether you agree with Schiff that consumer prices are obviously rising faster than official inflation rates calculated by the Bureau of Labor Statistics (just going to the BLS' website is enough to convince you they have no idea of what they're doing). The rate for November 2012 came in under 2 percent and Ben Bernanke has pledged to keep money loose as a goose as long as the inflation rates stays below 2.5 percent or so.

Schiff starts out by granting that all the money that has been pumped into the system via fiscal and monetary stimulus should have resulted in inflation. Indeed, stimulatarians such as Paul Krugman argue that the lack of inflation in official numbers proves that the economy needs even more money pumped into it. Schiff says that the Consumer Price Index is created in such a way that it's missing rising prices.

Like I said, whether you agree with him about that main point, you'll find a lot of interesting stuff above.

Comments

[pmains]

Stimulatarians sounds a bit too much like libertarians. I prefer "stimulists."

[pmains]

Or "stimularians," "stimulants," etc.

[pmains]

"Stimulationists"

[Ryan60657]

Stimulators

[Ryan60657]

Uh oh. Now all the welfare -- err, "Entitlements" beneficiaries are going to be jabbering about how we need to shift to CPI Plus something, rather than Chained CPI. This will be great for the continued expansion of entitlement programs...

[Franklin Harris]

Lots of economists think the CPI actually overestimates inflation because it doesn't account for the increased quality of goods. That criticism certainly applies to Schiff's basket, which includes autos and drugs.

[VG Zaytsev]

The retarded economists do.

[Franklin Harris]

Your low opinion of libertarian economists like Bryan Caplan and Arnold Kling is noted. Now, are you just going to call people offensive names or do you have evidence?

[VG Zaytsev]

Inflation is a monetary phenomenon.

Compounding productivity gains and technological innovation are not.

Their argument is equivalent to saying that there has been no inflation since 1971 because computing power is 1,000s of times greater and cheaper than it was then (Moore's law).

It's stupid argument on the face of it and only retards fall for it.

[Franklin Harris]

It's an argument about what money actually buys, but obviously the real world is no match for your blackboard theorizing.

[Rasilio]

I can provide evidence.

This increased quality component of inflation is complete BS.

How can you tell,

Lets say you have a computer with performance x and price Y.The theory goes that if the performance goes to 1.2x but the price stays constant at Y that people are seeing deflation because of the better performance at the same price, basically that Y is now defacto .75 Y because you are getting more quality for the money.

The problem is that this assumes that if the consumers had the option of paying Y for 1.2x in performance or .75Y for x in performance that they would always (or at least almost always) choose to pay Y. Further it assumes that those who do choose to pay Y for the increased performance actually recieve some benefit from the increased performance.

The problem is neither assumption is well supported. In some cases they may be true, on others they will not be.

[waaminn]

Now thats wht I am talking about dude, Very cool indeed. Wow.
http://www.DotAnon.tk

[Scarecrow Repair]

He lost me when he brought in the trade deficit. I've never understood even the definition of it. If dollars go out of the country to bring goods in, the foreigners accepting those dollars must think they have value, and they must at some point use those dollars to buy something from the US. They have to balance. What goes out must come back in.

And if they don't, say because foreigners are crazy and burn them for heating or lighting cigars, and the foreigners are still willing after all these years to keep taking dollars in return for sending us goods, then we've been pulling the wool over their eyes for a long long time, and they are too stupid to see it, so we ought to keep doing it.

So what am I missing there? Why do so many people think the trade deficit even exists, let alone matters?

[An0nB0t]

"Legalized counterfeiting" needs to fit in somewhere, Peter. Let's not play the QE game.

SR: you're not missing anything. Your post echoes what Rothbard, Friedman, and every sane economist has ever said about trade deficits. It's indicative of how screwed up economics has become and how strong the labor/protectionist racket is when Mitt Romney asks us to be upset when a foreign nation subsidizes our consumption of their goods.

When Schiff brings up the trade deficit, he's saying that we're being propped up--a good thing for the U.S.--by other nations that continue to trade for dollars and bonds like they're actually backed by something other than mutual agreement that the king is, in fact, wearing a splendid suit of clothes.

My only hope is that Obama is still in office when the first avalanche hits. The Krugman apologia will be a thing of legend.

[VG Zaytsev]

He lost me when he brought in the trade deficit. I've never understood even the definition of it. If dollars go out of the country to bring goods in, the foreigners accepting those dollars must think they have value, and they must at some point use those dollars to buy something from the US. They have to balance. What goes out must come back in.

And if they don't, say because foreigners are crazy and burn them for heating or lighting cigars, and the foreigners are still willing after all these years to keep taking dollars in return for sending us goods, then we've been pulling the wool over their eyes for a long long time, and they are too stupid to see it, so we ought to keep doing it.

So what am I missing there? Why do so many people think the trade deficit even exists, let alone matters?

You are missing the nuances of America's financial empire.

Specifically, that the dollar's role as world reserve currency creates an artificial demand for dollars, in effect producing a type of Dutch Disease

And that the demand for dollars is expressed through financial instruments that exclusively benefit government and its parasites, at the expense of the governed.

That effect is probably an inescapable feature of empires. Or more likely, the actual point of empire in the first place.

[Sam Grove]

Where else is inflation being revealed?
Housing prices have been rising; very low mortgage interest rates.

[Sam Grove]

Inflationary pressure is also being mitigated by dropping natural gas prices.

[Mo]

Plain text documents are atrocious to look at in a browser, but they're great for people looking to do analysis off them in Excel, SAS, SPSS or the like. The fact that it's on their ftp site rather than an http site indicates that the file is intended to be downloaded.

[16th amendment]

One of the ways the government comes out with lower inflation numbers is by using substitute products. If Banana Republic clothes are increasing too much, they assume you will switch to the lower end Gap (whose prices are also rising), thus paying about the same.

Perhaps one good thing about the government coming out with lower numbers is that social security increases are less. Otherwise we'd be paying the tax on the first 250k of income.