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Thursday, August 27, 2009

Cash for Clunkers and the CPI

As I've said many times before, the CPI is biased. If you want a less biased inflation measure, you should look at money supply measures (M2 and the suppressed M3) or the price of silver/gold. M2 is increasing at a rate of 8%-9% per year. Reconstructed M3 is increasing at a rate of 15%-20% per year. The FRN-denominated price of gold is increasing at a rate of 20%-30% per year. All three of these inflation measures are much greater than the CPI.

Pro-State trolls make up all sorts of excuses for why M2/M3/gold/silver are invalid inflation measures. All of their arguments are incoherent gibberish.

This story made me think "ROFLMAO"!

In the latest CPI calculation, the "Cash for Clunkers" discount counts as a decrease in the price of a car! Suppose a car cost $15000 before, but now costs $10500 including the "Cash for Clunkers" credit. The "new car" component of CPI therefore decreases by 30%!

A lot of people are buying new cars due to the "Cash for Clunkers" program. Therefore, the weight of "new cars" in the CPI should increase! After the "Cash for Clunkers" program expires, the weight will be decreased again! Periodic reweighting causes the CPI to be less than true inflation.

It's amusing to read the jokes that these professional comedians come up with. Including the "Cash for Clunkers" credit as a discount against the CPI is really funny!


Anonymous said...

An interesting point that everyone overlooks:

Cash for Clunkers credit is TAXED AS INCOME!

That's right. You will pay taxes on the $4500 you receive from the State. In fact, it makes you a state employee!

There is a pretty good chance that $4500 will knock you into a higher tax bracket as well.

And for Government Statistics, a whole lot of people have higher salaries this year, which must mean that the recession is over :)

Master Doh-San said...

As anyone knows CPI != inflation.

Out of idle curiosity, though, where are you finding the numbers for M2 and M3?

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