No Car? No Food? No Problem!
If you don’t eat or drive, inflation’s no problem
I’m not sure you could say it any more plainly than this headline in today’s NY
Times – credibility deeply wounded by the Judith Miller/Plamegate morass, but kicking ass on a number of populist fronts in today’s issue (perhaps because they’re trying to staunch the blood?).
In case you didn't hear, the rate of inflation (as measured by the CPI-U) shot up in September to a rate of 1.2%, meaning that inflation over the past 12 months was a comparatively whopping 4.7%. Comparatively, meaning only in terms of the former boom (God I miss Clinton's econony!) in which money was cheap and the rule was Laissez les bon temps roulez!.This is a rate of increase for the CPI-U that is nearly 2.5 times that which was experienced in July and August, 2005 (0.5% both months.)
But we’re not supposed to look at the man behind that particular curtain. Instead, we are told that the only REAL concern is the “core CPI”. What is the “core CPI”? Why, that’s the one that increased only 0.1% - because it excludes the cost of energy and food. The reason we’re told this is really the “right” number to focus on is that the “core CPI” is less “volatile” than the CPI-U. Obviously, the people who are contending this are people whose “Do I eat this month or pay the phone bill?” radar isn’t growing increasingly shrill each time they fill up their car to go to work.
If nothing else, today’s Times article highlights a fundamental disconnect between the mindset of those most responsible for our nation’s economy and the people who actually have to live in that economy -- the citizenry. It’s notable that, when the “core CPI” was developed as a measure 30 years ago, economists were saying (according to the Times):
"When we were asked to strip out some of the most important things that people buy, my reaction was, 'You've got to be nuts,' " he said. "These are the vital necessities of life."
What good does it do to highlight that the price of everything other than the “vital necessities of life” remains stable (a claim that is highly dubious, as another article in the Times today about health care costs shows) when the “vital necessities of life” (which in the case of energy costs, went up 35% in a year) eliminate many families’ disposable income to spend on all that other stuff? What good does it to do play macro market games when the primary impetus for the economy, consumer spending, is continuing to shrivel out of necessity, as more and more folks – particularly at the bottom rungs of the working class -- confront the reality that eating and paying for gas to get to work may become a daily choice if things go on unabated? Indeed, as the money quote from the article says:
The dueling numbers seem to offer a classic case of how economists and consumers view the world differently. If only we lived in some futuristic biosphere where we didn't need energy or food, inflation wouldn't matter.
Futuristic biosphere aside, most of us living on Earth at the present still need to eat. And yet monetary policy continues to be set, and emphasized, by those who focus only on the long-term vision of macroeconomics. Things like “volatility” and “monetary supply” mean something to those who are looking at money as an investment, as something extra to play with. Yet “volatility” and “monetary supply” are terms that have meaning to most working women and men on the street only when they affect what it costs for them to pick up a gallon of milk this week.
Recognizing that Alan Greenspan is retiring (finally!) the next person in charge of monetary policy simply has to be more connected, thinking wise, to the real concerns of real day to day people and ensure that decisionmaking is forced to at least evaluate (and disclose) the bottom line impact of Fed monetary decisionmaking on day-to-day lives. It does no good to have millionaires celebrating in the streets about how the economy is growing gangbusters and making them a fortune if the workers that are responsible for the production of that fortune are increasingly teetering on the edge of volunteer slavery.
But in the meantime, the spin never ends, even as winter is coming.