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For those that say the government fudges inflation numbers may I present....

JP Hochbaum

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The Billion Prices Index:

US Daily Index » The Billion Prices Project @ MIT

"The Billion Prices Project is an academic initiative that uses prices collected from hundreds of online retailers around the world on a daily basis to conduct economic research.

This page shows our most recent research leveraging high-frequency price data, as well as the US daily inflation index (updated monthly on this page)."
 

Oh look there are huge gaps in the official number and what's collected by MIT.. for example a gap of all most 2 on 6/29/2013. Love to see the 2002-2007 numbers.. that'll be a dozy.

But my contention with US Government bias of inflation comes from it's calculation, the weighting they use.
 
austrianecon said:
Oh look there are huge gaps in the official number and what's collected by MIT.. for example a gap of all most 2 on 6/29/2013.
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Well, yeah...completely different market baskets...there are going to be large differences.

Love to see the 2002-2007 numbers.. that'll be a dozy.
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The BPP didn't exist then.

But my contention with US Government bias of inflation comes from it's calculation, the weighting they use.
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What issue do you have with the weighting?
 

Just from glancing at the graphs, it appears to me that this third party inflation index is pretty much verifying the government numbers. the article doesn't indicate if the "basket" is the same at the guberment basket, maybe it is, maybe it's not, we don't know.

So I assume that you are suggesting that the guberment basket is heavily weighted in stuff that tends not to go up in price very much, and lower weighted in stuff that tends to go up. And I also assume that you are implying that the typical consumer spends most of his money on stuff that goes up a lot, and very little money purchasing stuff that doesn't go up much. Can you provide any specific examples?
 

It simple comes down to this.. Pingy will object and try and correct me but whatever.

Is under the current calculations done by BLS for CPI assumes all of us will accept a decreased living standard. Basically if steak goes up 5% and ground beef goes up 1% Government assume we'll eat more ground beef. While that maybe true or not that's accepting a lower living standard. The reality is that consumers have been priced out of steak due to price increases. Government should be calculating what it takes to increase living standard, not a decreased living standard.

This was written in 1997.
How To Rewrite Economic History - 97.04

This was written in 2010 when Boskin bitched about other countries doing the same thing.
Sheehan on Michael Boskin | The Big Picture


My other grip is 1983 CPI rules changed on housing. If you look at a chart of US income inequality you'll find that's the period in which wealth gap started to grow.

Two massive parts of someones budget.. house and food.
 
imagep said:
Can you provide any specific examples?
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In 1930 Hayek predicted “monetary theory will not only reject the explanation in terms of a direct relation between money and the price level, but will even throw overboard the concept of a general price level” (1967, p. 29).

Yet this general price level is still with us. The 5 March 2003 edition of USA Today reports that, in the past year, prices for gasoline were up 29.3%, fuel oil 21.0%, health care 9.2% and tuition 6.3%, which is bad news because these are all fixed costs that working class Americans are committed to paying. But prices for personal computers fell 20.7%, information processing 11.9%, men’s clothing 3.9% and autos 2.8%, which is also bad news because information processing and the manufacture, marketing and service of computers, clothing and autos are where most people’s jobs are. So what is the response of mainstream economists? They report the arithmetic average of these numbers, 3.3%, and announce that “inflation is under control and there is no sign of deflation.”

Considering his strong words against price indexes (1966, pp. 219-223), if Mises has kept up on the affairs of the living with a posthumous subscription to USA Today, he must be rolling in his grave. This author also writes about this excessive tendency towards aggregation: “The assertion of mainstream economists that the average level of prices in an economy is a meaningful statistic has done more damage to their credibility than any other assertion they have made.... Such an average is not just ludicrous but it is definitionally without meaning, for one need only ask in what units the result is expressed and one has found a contradiction” (1999, pp. 144,149).

Opposition to an average price level belongs to the legacy of Mises, though it was Hayek who put the question to the English:


Source: Critique of Austrian Economics
 
austrianecon said:
It simple comes down to this.. Pingy will object and try and correct me but whatever.

Is under the current calculations done by BLS for CPI assumes all of us will accept a decreased living standard.
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Untrue. The CPI is designed to measure a constant standard of living.


Basically if steak goes up 5% and ground beef goes up 1% Government assume we'll eat more ground beef.
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Untrue. The weights (including the chained CPI) are based on actual expenditures. So if people are eating more ground beef, then that will get more weight, eventually, but there's a linking process so that a constant standard of living is maintained.

Now, for the CPI-U and CPI-W, they do use a geometric means for item level..such as ground beef or steaks, but ground beef and steak are seperate categories. A geomeans average will be lower than an arithmetic average (but not by much) and is used to assume some substitution to an item with a lower price increase. For example, if ground beef goes up in price, but 95% lean ground goes up by less than 90% ground, then many people will switch to 95%. And the reverse is true.

While that maybe true or not that's accepting a lower living standard.
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But it's not. When the weights are updated, there's a linking process to prevent measuring a change in standard of living. For the chained CPI, it takes the average of the weights from the previous period and the current period.
 
Maybe I am overly simplistic, but I don't see that it makes a lot of difference in ones standard of living whether they eat steaks or ground beef. If steaks go up more than ground beef, and if people chose to eat more ground beef, then the price of steaks will tend to stablize or even go back down a tad, allowing people to be able to start eating more steaks again. The market is always moving towards equalibrium.

However, if I no longer need to purchase a stand alone GPS system because there is one built into my smart phone, and assuming that the cost of smart phones doesn't rise, haven't I actually had an increase in purchasing power due to no longer having the need for a stand alone GPS system? I would think that substitutions of this nature would have a more positive increase in my standard of living, than temporarily shifting a small percent of my food consumption from steaks to ground beef. Saving $300 by not needing to purchase a GPS system (or atlas or maps or spending hours being lost) will buy a heck of a lot of steaks. This is the type of change in our economy that probably isn't indicated in most measures of inflation, and is part of the reason that most measures of inflation may actually overstate inflation instead of understating it.
 

Yes, but pity the older folks who never buy a smartphone. They go to the grocery store and the drugstore. They pay for utilities that they need more of 'cause they ain't as tough as they used to be.

The only index that would matter would be a basic necessity list.
 

It's a matter of opinion as it's how you "read" it. You've admitted CPI-U and CPI-W already use substitution in it's process. http://www.debatepolitics.com/economics/168269-those-say-government-fudges-inflation-numbers-may-present.html#post1062168526


Response to BLS Article on CPI Misconceptions (your link)

So in two case, yourself admitting there is some substitution calculation and then using Williams response to the BLS propaganda machine.

My using Hamburger for Steak was for point and still holds true because while in separate categories it's still used to measure the overall inflation. If the weight given to steak vs hamburger is depended on assumption of usage due to price changes it skews the calculation of inflation. As Steak would be less of the weight then hamburger over a two year weighting period despite the fact Steak is widely bought by every household.
 

Thank you. I grow tired of hearing this from right-wing media personalities, e.g. a guy a actually like in Rick Santeli, on a daily basis.
 

Well then, it also depends on what cuts of the cow you are defining as steak? People who are price sensitive to prime tenderloin are not likely to switch to hamburger meat because the price increases 20% per lb. This is not Hollywood; nobody goes in a restaurant and tells a server, "I'll have your steak."
 

Of course, which is why I argue for complying information (prices) from sales receipts over 3 months period and measure for each individual item bought. You can make it a basket of goods or not, doesn't matter.. but the purpose is not to change the weighting.
 

That makes no sense! The basket composition is never static. Tablets are being substituted for PC's for reasons other than price, as are other consumed products and services.
 
Kushinator said:
That makes no sense! The basket composition is never static. Tablets are being substituted for PC's for reasons other than price, as are other consumed products and services.
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It is for basic items. Tablets and PCs are not needed to live rather they are luxuries.
 
austrianecon said:
It is for basic items. Tablets and PCs are not needed to live rather they are luxuries.
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Come on man. Meat consumption has been steadily declining over the past 9 years. A static consumption pattern assumption is as bad as the rational economic man assumption. Or efficient price discovery (even though there are several non-competitive markets).

It should be noted that consumer electronics is one of the fastest growing portions of the consumer budget. Apple did not become the second biggest company (formerly no.1) in terms of market cap for nothing.
 

You realize that the price of most goods are supposed to fall over time, right? A 1 TB HDD is cheap now compared to the boatload it would have cost 10 years ago. Maybe they figure this in their calculation, but it doesn't seem like it from what you presented.
 

Because it is getting more and more expensive.

Beef - Daily Price - Commodity Prices - Price Charts, Data, and News - IndexMundi
 
Kushinator said:
You will go to extreme lengths to push your agenda.

The vegetarian/vegan revolution is a byproduct of rising prices!!!!
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The vegetarian/vegan revolution isn't causing a widespread decrease in meat consumption. Rising prices are far more likely.
 
phattonez said:
The vegetarian/vegan revolution isn't causing a widespread decrease in meat consumption.
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Where is your support? Beef consumption has been in decline since 1976. Over the past 30 years, we have witnessed a dramatic increase in the consumption of chicken products (a beef substitute!) up until about 5 years ago.

Rising prices are far more likely.
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Rrrright. People are buying more Boca Burgers because they are cheaper.... err, wait, they are not.
 
Kushinator said:
Where is your support? Beef consumption has been in decline since 1976. Over the past 30 years, we have witnessed a dramatic increase in the consumption of chicken products (a beef substitute!) up until about 5 years ago.
Click to expand...

You realize that chicken is much cheaper than beef, right?

Rrrright. People are buying more Boca Burgers because they are cheaper.... err, wait, they are not.
Click to expand...

I never denied a rise in vegetarianism, but I doubted that it was the cause for the fall in beef consumption.
 
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