Lift Up Your Hearts!

Those of us who lived through what I think of as the "Carter Inflation" have a deep-seated fear of that economic disaster, and a greater fear that more recent generations don't take it seriously enough. (To be fair to President Carter, presidents get more blame and take more credit than they deserve for economic conditions. I think Carter, a good man, was a bad president with policies that made inflation worse, but it's far from exclusively his fault.)

Inflation under Carter was not a disaster for us, personally, since it was a time when salaries and investment income appeared to be increasing at a great rate. That felt good, though it only meant that we were barely keeping up with rising prices. It was not so merciful to people without good jobs and investments. We also knew enough history to fear the devastation inflation had caused in other times and places.

You might understand, then, why am frustrated when I hear reports of "inflation indices" that say we are experiencing little or no inflation—when I know darn well that prices in the grocery store have been rising steadily for a long time, most "half-gallon" ice cream packages now hold only three pints, and the price of automobiles has exploded through the roof.

I read with interest the article by John Mauldin called "Nose Blind to Inflation." It's long and gets complicated and I did start skimming as I neared the end, but it says a lot about the factors that go into determining a currency's inflation rate—and why it's so hard to come up with numbers that mean anything at all. As my economist husband says, it is important to understand that inflation is not a mathematically provable number, but rather a statistically, approximated number. Moreover, the numbers that are published are not immune to political pressure.

I'm not even going to try to guess what is going to happen to our currency now that the pandemic has encouraged us to hemorrhage money that we don't have and drive our national debt well beyond the stratosphere. Far more knowledgeable people than I haven't a clue.

But I can't resist one quote from the article, which begins the section on an inflation calculation factor called hedonic adjustment.

That’s where they modify the price change because the product you buy today is of higher quality than the one they measured in the past.

This is most evident in technology. The kind of computer I used back in the 1980s cost about $4,000. The one I have now, on which I do similar work (writing) was about $1,600. So, my computer costs dropped 40%. But no, today’s computer isn’t remotely comparable to my first one. It is easily a thousand times more powerful. So the price for that much computing power has dropped much more than 60%. It’s probably 99.9%.

The economists pull the same slight of hand with automobiles, and television sets, and any product in which it is claimed that you are getting more value for your money, and therefore it shouldn't count as a price increase. Which is utter nonsense. (I put the point a little more strongly when I first read about the concept.)

Sure, I often like the "improvements" that have supposedly added value to the item I am purchasing, but the real value of a car is that it gets me from A to B, and why must I pay for all the extra bells and whistles if that's all I want? It reminds me of a housing developer I know, who was chided for not providing more "affordable housing." "I could make housing affordable for everyone," he replied, "If people were willing to live in the kind of homes their grandparents did. But now that won't even begin to pass code."

So sure, go ahead and make things "new and improved." But if I can no longer buy the original version, don't try to sell me the bill of goods that when the price goes up it's really a price decrease.