This story was hilarious.
The NY Federal Reserve President William Dudley gave a speech in Queens. He said "Inflation is low! The new iPad is awesome!" Someone in the audience retorted "I can't eat an iPad!"
Twenty years ago, such an incident would not be news. The mainstream media would not report it, when insiders make an embarrassing gaffe. Now, with the Internet, such incidents are discussed. I saw this mistake by the NY Fed President discussed on several other blogs.
State comedians have a joke called "hedonics". When calculating inflation, an increase in quality counts as a negative adjustment. With Moore's Law, computer quality doubles ever 1.5-2 years. Computers and software are one of the least-regulated areas of the economy. Thisleads to exponential progress.
State comedians cite Moore's Law as an example of 25% deflation. When calculating the CPI, food and energy are excluded. Food and energy have high sensitivity to true inflation. Therefore, they're excluded.
For another example, new cars now come with mandatory airbags. This counts as a negative adjustment, according to hedonics. You get an airbag now and you couldn't before. New cars are better than old cars. That's a negative inflation adjustment. However, it's illegal to buy a new car without airbags.
Here's another example of hedonics. When housing prices are skyrocketing, that's "implied income" for homeowners, due to equity gains. The equity gains due to rising prices is a negative CPI adjustment. When housing prices crash, houses are cheaper now, leading to another negative CPI adjustment!
Hedonics means "Interpet price data however we want, to come up with a low 'official' inflation estimate." It's one big farce.
The CPI is calculated using the geometric mean instead of the arithmetic mean. If you know basic algebra, this leads to a negative CPI bias.
The CPI is continually reweighted. By cleverly choosing the weights, this leads to negative CPI bias.
It's amusing. State comedians can say with a straight face "Inflation is low. The CPI is an accurate measure of inflation." They are completely out of touch with reality.
Articles like this one are making their way into the mainstream. The Federal Reserve seems less "politically untouchable".
"Anonymous" declared war on the Federal Reserve and Primary Dealers. I wonder if any of them read my blog?
That was an embarrassing moment for the Federal Reserve. "Let them eat iPads" is an excellent summary of the economy. Computers are nice, but you still have to eat.
That gaffe shows how the Federal Reserve is using hedonics to calculate a low CPI, while ignoring food prices and other necessities.
Given that the economy is collapsing, I need useful skills besides writing software. In a SHTF scenario, my current skills are useless.
Tuesday, March 15, 2011
This story was hilarious.
Posted by FSK at 12:00 PM