And to display intellectual honesty, I will post opposing views, such as Ed Kohler, who, though we disagree on everything, has maintained a civil tone and made his disagreements not only with politeness, but more importantly, with logic and intellectual honesty.
You are more likely to get banned from posting on this forum, not if you disagree with me or even insult me, but if you make outright stupid or blatantly wrong statements. Especially if I think you yourself don't believe them and are just posting because you have an ulterior political agenda and have no moral qualms about you to push that agenda ahead of truth or honesty.
Regardless, just out of sheer "I told you so"- ness, I am posting this chart that utterly obliterates this latest troll's contention that the price of oil has NOT gone up because of the decreasing dollar, but because of big oil (be thankful I spared you his idiotic blathering posts).
As you can plainly see the price of commodities has gone up more in dollar terms than Euro terms. Commodities also include oil (for those of you in Rio Linda).
And if you were to do some interesting mathematics, this means that right now with gas at $3.15 a gallon down the road from me, it would (assuming equal taxation in Europe which is not the case, but for comparative purposes it is) be about $2.08 in Europe.
It's a sad day when the currency markets have less faith in America's productivity than Europe's. Yet, I'm sure if we churn out more communications majors that have work experience in Americorps this will tilt the currency markets into the dollar's favor.
C-R-I-P-E-S
Here's a better chart:
ReplyDeletehttp://futures.tradingcharts.com/chart/CO/M
Now no-one can complain you're using an index chart that's being skewed by, for example, gold...
http://futures.tradingcharts.com/chart/GD/M
Am I understanding CPI to be a measure of the cost of a basket of goods?
ReplyDeleteAnd am I further understanding correctly that the cost of said basket has risen by 150%, meaning a basket that cost $100 in 2003 now costs approximately $250?
I must be missing some exchange mechanism thingie because inflation statistics don't seem to record 150% worth of inflation in America over the past 5 years. And I know you and The Economist know your respective gigs, cold. What am I missing?
Disclosure: yeah, I'm a former Peace Corps volunteer :-) but I did minor in economics.
My fuzzy guess is that supercheap imports and illegal labour has masked some serious underlying inflation for many years. All things equal, prices for everything should have fallen substantially, given the above.
However, the feddle gub'mint has been pumping out dollars like crazy through increased public expenditures, driving down the value of the American dollar by making it less scarce.
So while the dollar buys much less stuff on the international market, from the POV of the American consumer a Big Mac or new car or home theatre system in Peoria has only increased moderately if at all in price, due to cheaper imports and labor costs.
Am I warm?
Hi Moderately Informed Guy,
ReplyDeleteYou are correct, your intuition serves you well. Immigration or in genera just cheap foreign labor does limit inflation as it lowers the cost of production for those goods. Those goods could be made here domestically by immigrant workers or overseas and imported (still by cheaper labor).
However, as for the inflation question, no inflation has no gone up 150%. That chart only shows commodities such as oil, metals and minerals. Inflation is measured by the CPI and that has only gone up by around 3% or so.
Sgt. Security,
Thanks for the link, makes my point even more so.
"Am I understanding CPI to be a measure of the cost of a basket of goods?
ReplyDeleteAnd am I further understanding correctly that the cost of said basket has risen by 150%, meaning a basket that cost $100 in 2003 now costs approximately $250?"
That depends on the makeup of the basket of goods. Commodities are more expensive, but consumer goods haven't gone up much.
Personally, I think the CPI is pretty much bullshit. It's an arbitrary mix of goods, and unless you only spend money on just those goods in the exact same proportions that the CPI weights them at, it's not going be accurate for you. It also ignores some pretty big items, like oil and housing. (But that's ok because nobody spends money on gas or housing, right?)
Using the CPI to track the prices of some goods and equating that with inflation hides the only cause of inflation that actually matters: changes in the money supply. If the Fed dumps a bajillion dollars into the economy and everyone just puts it all into a stock bubble or a housing bubble or tulip futures or oil or anything else that isn't in the CPI, the Fed is going to think everything's just fine right up until the moment that tulip-fever (or dotcom mania, or the housing bubble, or whatever) breaks and all that liquidity comes flooding back into the rest of the economy.
What the Fed should be looking at is maintaining a stable money supply instead of a stable price level for an arbitrarily chosen fraction of the economy. If they really feel the need to have a continually increasing money supply, they could make increases annually based on changes in Net National Product. (NNP is a far better measure than GDP, since it accounts for depreciation of capital and GDP doesn't)
Not only does going crazy with liquidity mess with overall price levels, it also changes prices relative to one another depending on where the new money is injected into the economy. If the proverbial helicopter drops its cash-load on commercial banks, the price of things that commercial banks invest in will increase, as well as amounting to a wealth transfer to the people who spend the money before prices adjust at the expense of the purchasing power of the rest of us.
It's a freaking scam.