So the explanation here seems to be that central bank creates and reports a measure, the core inflation rate, based on whether it can manipulate that rate through it's available monetary tools, then claims victory when that core inflation rate is manipulated in the way it expects. Where is the extrinsic value of this measure here? If this inflation rate does not actually impact food and fuel and rent, the things that literally everyone else cares about. This seems recursive - the bank is setting its own goalposts only on what it can actually achieve then patting itself on the back for achieving the goal.
Precisely. Not to mention similarly recursive idiocies like "credibility" and "expectations." Good grief, what a bankrupt system of monetary policy handwaving whilst the important work of fiscal policy goes begging ...
It has never made sense to me that they leave out food and fuel. That they left it out because those elements are volatile makes me think of the fact that scientists traditionally left women out of medical trials because it was too hard to calculate the variables. Garbage in, garbage out. Separately, what I find missing from such discussions is that businesses put less of that money toward worker salaries (corporate profits at all time highs, stock buybacks, etc., instead of wages). Maybe the higher price of eggs wouldn't pinch so much if the wages matched.
Ok, so we get into how prices for food are set. By the federal government? Yes and no: as Michael Pollan has pointed out, farm policies have encouraged production of cheap calories that have kept prices artificially low at the cost of human health, soil health and animal suffering. As someone who has been in the produce business on a retail and distribution level, I have seen the consolidation of the industry lead to monopolistic pricing as well as the overproduction of highly processed products. It’s the old story of socialize the costs, privatize the profits. In my opinion, it would be far better if the federal government backed off on propping up corn/soy/ factory meat production at the very least to slow the massive upsurge of metabolic disease like diabetes that these policies encourage. While it would save billions in health care costs while improving well being, it would cost more at the register and we can’t have that!
Are residential rents included in core inflation? If not, are they accounted for in "anti-core"? For many ordinary folks who rent, these rising costs have really hurt, adding not only insult, but insecurity.
Rent is one of the hardest things to measure in a timely way. Do you only look at new leases? Do you try to measure small YoY increases where renters stay in the same unit (for which there is no public transaction). I agree it’s a major cost and people acutely feel it. But we need to get better metrics before we have the Fed act on it.
As a labor organizer forgive me for saying, why did it take you so long? I use grocery and gas prices to help workers calculate how much more they should demand in collective bargaining. I don't think "felt inflation" is the right term here, in fact grocery and gas prices are more real to the workers than the official inflation numbers. And I can't wrap my head around why the "populist" narrative should in any way be more off than the policy wonk story - in fact bosses have a vested interest in excluding grocery and gas prices from the official reporting. There needs to be a political-economic analysis of the history you mention here. As someone who was a left-liberal economic historian before I went into organizing, it just continues to amaze me how even the most vulgar Marxist explanation of events usually explains things better than elite liberal discourse with all its alleged sophistication.
I hope you will forgive me what I am about to say . . . OMFG . . . Yes . . . This . . .
This is so bleeping important, and it has been such a head-scratcher as to why macroeconomists and policy wonks (bless us) keep saying, basically, "But we've done such a great job! Everything is going so well! If only people KNEW!" . . . While most of us are out here, meeting up friends or colleagues for coffee and a pastry, only to wonder how much peanut butter is left in the cupboard for dinner . . . I read that Bloomberg article too, and my one criticism would be the name "anti-core". I get it from a technocratic standpoint. But honestly could we please just call this measure "felt inflation", which so much better approximates what it captures? (And, also, not to be intellectually or emotionally greedy, but any chance we could add in monthly rental housing cost as well?)
"I could feel the tug. Was I morphing from a sophisticated social constructivist on inflation, to being something closer to a “fakenews” guy?"
As you point out, the "core inflation" numbers are not fake, but they do not take into account things that humans actually use, unless you are one of those kind of humans who consumes neither food nor toohpaste nor energy.
At the same time, what constitutes "core inflation" is chosen in a self-serving manner. Did not Goodhart's Law teach the masses of old, that once a measure becomes a target, it ceases to be a good measure?
In this case, however, the target is chosen so as to fit the preferred measure. Sort of like if corporate executives were to set the strike prices for the options that they grant themselves.
I count myself among the vast school of Goodhart friends! Yes, he said that. And a lot of the inflation reporting/commentary has been intensely politically self serving (cue any Krugman column). And here we are, three weeks to go.
That's funny. I mean, he's a brexiteer so fuck him, but my comeback to anyone pointing to GDP growth as an excuse/reason for America's brutal economic arrangement has always been "Oh, GDP's up, great! When should I expect my share in the mail, or are they gonna do direct deposit?"
Absolutely a spot-on exposition of the persistence of "vibe-flation" amongst the general US population, and how the pleas of Biden, Harris, et
al for the public to look at the "solid" economy as reflected in the "2.5% inflation rate", high employment rate, growth in wages, etc., are having minimal affects, especially reflected in the "what's right - what's wrong" direction of the country in polling surveys. "Wrong direction" leads by miles, 72-28% over "right direction", and that alone should tell the politicos SOMETHING about the voters' state of mind, surely.
Why isn't there a huge popular voting lead for Harris, running against a demented proto-fascist? Adam Tooze gave us the answer, full stop.
It's absolutely wild to me that gas and groceries are not counted in US core inflation. Gas, especially, affects the price of everything else because of logistics!
Finally someone takes seriously the yawning gap between topline macroeconomic indicators and the lived experience of working people. "Vibe-cession" my arse.
Now that you've revealed the importance of an "anti-core" inflation metric and the sort of honest communication that ought to accompany it, Adam, please move on to the the necessity to consider how all of the other topline aggregated macroeconomic indicators have very different impacts across the income and wealth distributions -- only then will the source of so many of the political ructions increasingly bedeviling Western nations be made legible.
As for the apologists for this neoliberal regime, well, let them get what's coming to them ...
Thanks for Chartbook 327. I think you’re speaking in this post of a ‘cognitive dissonance’ that is foundational in the mindf*^ckery of this entire election: Trump’s destructive outrages, fascist threats and freakshow rambllings aside, regardless of what he says and doesn’t say, he expresses the ‘felt’ experience of the anti-core rate … so he appears (it is ONLY an appearance) to ‘hear’, to be ‘listening to’ that reality, to people’s felt experience. Meanwhile the Democrats, per the core rate ‘reality’ (and it is, as you say, an economist’s professional metric, purposefully exclusive of that which policy can’t ‘control’ and of what doesn’t represent the central banks scope of concern) - the Dems talk up the country’s economic health, and appear to all intents and purposes NOT to be listening, not to hear or indeed much care about people’s felt and lived experience. Your personal cognitive dissonance is maybe not so personal after all - it might be the nation’s cognitive dissonance that you’re actually describing. Just a thought.
«the Dems talk up the country’s economic health, and appear to all intents and purposes NOT to be listening, not to hear or indeed much care about people’s felt and lived experience»
For the past 4 years estate prices have been rising and those of shares have been mostly booming and that is the “people’s felt and lived experience”; of the people who matter, middle and upper class "investors", whose profits and standards of living have been improving.
If the Fed had been listening to Claudia Sahm, they would have cut interest rates at least a year ago (I have indeed been listening to her). I wonder what the anti-core and core impact would have been if that had been the case.
Wonderful, thank you Adam. I would suggest that this crucial problem is caused in part by the pseudo-scientific underpinnings of economics. I choose that pejorative deliberately: as you note, the origins of CPI are in the '70s effort to put economics on a mathematical "foundation". As many (probably including you) have noted, that effort was dishonest: rather than **starting with what could be measured and proven, deriving a model of the world from evidence**, economists **started with mathematics that was tractable** and baldly asserted that their models were Right. Minor aside: Matt Yglesias has been consistently making this point for a year or so.
So the explanation here seems to be that central bank creates and reports a measure, the core inflation rate, based on whether it can manipulate that rate through it's available monetary tools, then claims victory when that core inflation rate is manipulated in the way it expects. Where is the extrinsic value of this measure here? If this inflation rate does not actually impact food and fuel and rent, the things that literally everyone else cares about. This seems recursive - the bank is setting its own goalposts only on what it can actually achieve then patting itself on the back for achieving the goal.
Precisely. Not to mention similarly recursive idiocies like "credibility" and "expectations." Good grief, what a bankrupt system of monetary policy handwaving whilst the important work of fiscal policy goes begging ...
It has never made sense to me that they leave out food and fuel. That they left it out because those elements are volatile makes me think of the fact that scientists traditionally left women out of medical trials because it was too hard to calculate the variables. Garbage in, garbage out. Separately, what I find missing from such discussions is that businesses put less of that money toward worker salaries (corporate profits at all time highs, stock buybacks, etc., instead of wages). Maybe the higher price of eggs wouldn't pinch so much if the wages matched.
Ok, so we get into how prices for food are set. By the federal government? Yes and no: as Michael Pollan has pointed out, farm policies have encouraged production of cheap calories that have kept prices artificially low at the cost of human health, soil health and animal suffering. As someone who has been in the produce business on a retail and distribution level, I have seen the consolidation of the industry lead to monopolistic pricing as well as the overproduction of highly processed products. It’s the old story of socialize the costs, privatize the profits. In my opinion, it would be far better if the federal government backed off on propping up corn/soy/ factory meat production at the very least to slow the massive upsurge of metabolic disease like diabetes that these policies encourage. While it would save billions in health care costs while improving well being, it would cost more at the register and we can’t have that!
Are residential rents included in core inflation? If not, are they accounted for in "anti-core"? For many ordinary folks who rent, these rising costs have really hurt, adding not only insult, but insecurity.
Rent is one of the hardest things to measure in a timely way. Do you only look at new leases? Do you try to measure small YoY increases where renters stay in the same unit (for which there is no public transaction). I agree it’s a major cost and people acutely feel it. But we need to get better metrics before we have the Fed act on it.
Ask literally anyone. The country is instrumented with 300 million real-time rent sensors distributed across the entire surface area.
As a labor organizer forgive me for saying, why did it take you so long? I use grocery and gas prices to help workers calculate how much more they should demand in collective bargaining. I don't think "felt inflation" is the right term here, in fact grocery and gas prices are more real to the workers than the official inflation numbers. And I can't wrap my head around why the "populist" narrative should in any way be more off than the policy wonk story - in fact bosses have a vested interest in excluding grocery and gas prices from the official reporting. There needs to be a political-economic analysis of the history you mention here. As someone who was a left-liberal economic historian before I went into organizing, it just continues to amaze me how even the most vulgar Marxist explanation of events usually explains things better than elite liberal discourse with all its alleged sophistication.
I hope you will forgive me what I am about to say . . . OMFG . . . Yes . . . This . . .
This is so bleeping important, and it has been such a head-scratcher as to why macroeconomists and policy wonks (bless us) keep saying, basically, "But we've done such a great job! Everything is going so well! If only people KNEW!" . . . While most of us are out here, meeting up friends or colleagues for coffee and a pastry, only to wonder how much peanut butter is left in the cupboard for dinner . . . I read that Bloomberg article too, and my one criticism would be the name "anti-core". I get it from a technocratic standpoint. But honestly could we please just call this measure "felt inflation", which so much better approximates what it captures? (And, also, not to be intellectually or emotionally greedy, but any chance we could add in monthly rental housing cost as well?)
Thank you - very helpful. I had no idea that the essential ingredients of life were missing from the stats...
"I could feel the tug. Was I morphing from a sophisticated social constructivist on inflation, to being something closer to a “fakenews” guy?"
As you point out, the "core inflation" numbers are not fake, but they do not take into account things that humans actually use, unless you are one of those kind of humans who consumes neither food nor toohpaste nor energy.
At the same time, what constitutes "core inflation" is chosen in a self-serving manner. Did not Goodhart's Law teach the masses of old, that once a measure becomes a target, it ceases to be a good measure?
In this case, however, the target is chosen so as to fit the preferred measure. Sort of like if corporate executives were to set the strike prices for the options that they grant themselves.
I count myself among the vast school of Goodhart friends! Yes, he said that. And a lot of the inflation reporting/commentary has been intensely politically self serving (cue any Krugman column). And here we are, three weeks to go.
As a member of the public remarked during the Brexit campaign, that's your GDP, not ours.
https://www.bbc.co.uk/news/uk-politics-36723220
That's funny. I mean, he's a brexiteer so fuck him, but my comeback to anyone pointing to GDP growth as an excuse/reason for America's brutal economic arrangement has always been "Oh, GDP's up, great! When should I expect my share in the mail, or are they gonna do direct deposit?"
Mark Blyth retells this incident with particular relish.
Absolutely a spot-on exposition of the persistence of "vibe-flation" amongst the general US population, and how the pleas of Biden, Harris, et
al for the public to look at the "solid" economy as reflected in the "2.5% inflation rate", high employment rate, growth in wages, etc., are having minimal affects, especially reflected in the "what's right - what's wrong" direction of the country in polling surveys. "Wrong direction" leads by miles, 72-28% over "right direction", and that alone should tell the politicos SOMETHING about the voters' state of mind, surely.
Why isn't there a huge popular voting lead for Harris, running against a demented proto-fascist? Adam Tooze gave us the answer, full stop.
It's absolutely wild to me that gas and groceries are not counted in US core inflation. Gas, especially, affects the price of everything else because of logistics!
Finally someone takes seriously the yawning gap between topline macroeconomic indicators and the lived experience of working people. "Vibe-cession" my arse.
Now that you've revealed the importance of an "anti-core" inflation metric and the sort of honest communication that ought to accompany it, Adam, please move on to the the necessity to consider how all of the other topline aggregated macroeconomic indicators have very different impacts across the income and wealth distributions -- only then will the source of so many of the political ructions increasingly bedeviling Western nations be made legible.
As for the apologists for this neoliberal regime, well, let them get what's coming to them ...
Thanks for Chartbook 327. I think you’re speaking in this post of a ‘cognitive dissonance’ that is foundational in the mindf*^ckery of this entire election: Trump’s destructive outrages, fascist threats and freakshow rambllings aside, regardless of what he says and doesn’t say, he expresses the ‘felt’ experience of the anti-core rate … so he appears (it is ONLY an appearance) to ‘hear’, to be ‘listening to’ that reality, to people’s felt experience. Meanwhile the Democrats, per the core rate ‘reality’ (and it is, as you say, an economist’s professional metric, purposefully exclusive of that which policy can’t ‘control’ and of what doesn’t represent the central banks scope of concern) - the Dems talk up the country’s economic health, and appear to all intents and purposes NOT to be listening, not to hear or indeed much care about people’s felt and lived experience. Your personal cognitive dissonance is maybe not so personal after all - it might be the nation’s cognitive dissonance that you’re actually describing. Just a thought.
«the Dems talk up the country’s economic health, and appear to all intents and purposes NOT to be listening, not to hear or indeed much care about people’s felt and lived experience»
For the past 4 years estate prices have been rising and those of shares have been mostly booming and that is the “people’s felt and lived experience”; of the people who matter, middle and upper class "investors", whose profits and standards of living have been improving.
And how do food prices in grocery stores get set?
If the Fed had been listening to Claudia Sahm, they would have cut interest rates at least a year ago (I have indeed been listening to her). I wonder what the anti-core and core impact would have been if that had been the case.
Not much substantial to add apart from to say thanks for blowing my mind...
Wonderful, thank you Adam. I would suggest that this crucial problem is caused in part by the pseudo-scientific underpinnings of economics. I choose that pejorative deliberately: as you note, the origins of CPI are in the '70s effort to put economics on a mathematical "foundation". As many (probably including you) have noted, that effort was dishonest: rather than **starting with what could be measured and proven, deriving a model of the world from evidence**, economists **started with mathematics that was tractable** and baldly asserted that their models were Right. Minor aside: Matt Yglesias has been consistently making this point for a year or so.
Devastating News: Dumbest Guy You Know Makes Same Point You Would.
I mean, I agree with your point, but if Matt Yglesias told me water was wet I'd have to assume the opposite was true