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The thing that people don't seem to understand when they talk about inflation is that price increases in

- homes

- healthcare

- education

- child care

are definitely real, they're just not due to *monetary* policy. They are due to other policies like not building any houses or reduced education subsidies/student loans. These are *relative* cost shifts in the economy over time, not general rises in the price level, but they have their own causes and must be addressed specifically. I think Noah has written about this

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"A third possibility is that tech folks are simply being optimistic about the future of their Bitcoin portfolios, since they view Bitcoin as an inflation hedge."

Chapwood invocations are increasingly common among hard money people; I wouldn't discount the connection between crypto enthusiasm and an inclination to seek out any purported evidence of actual or impending inflation. There's a powerful temptation to want to be in on things, especially dark, secret, even (gasp!) _conspiratorial_, money things. A lot of present and past inflation prognosticating is just that: gnostic.

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Mar 22, 2021Liked by Noah Smith

Old house in Palo Alto in 2008: $2M

Today $4M

2K sqft 1950's rancher on a quarter acre.

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Thanks, Noah, for putting it in simple words: Inflation is NOT a measure of the cost of living.

I really don´t know why people get such an attitude with inflation measurements.

Obviously, an individual´s experience isn´t going to match up with the national inflation level. However, it´s weird that so many people have become "truthers" of inflation.

I think that it might be because people´s attention tends to go to the bad things (in this case, price increases) and completely ignore everything that might indicate people that objectively the general price level has barely risen at all.

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"in reality a burst of unexpected inflation probably can increase the real cost of living, possibly because workers aren’t able to bargain effectively for raises to keep up with inflation when inflation levels are high and erratic."

Doesn't this suggest supply side issues? If inflation was lower in these cases, it might further lower demand for workers and bargaining power would be even lower. You might get a demand side problem on top of the supply side issues.

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Hi Noah, where can I learn more about how this process of destroying dollars works?

“One reason is that banks also have some control over the money supply; they can destroy dollars as fast as the Fed creates them”

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Wow you sound just like the government when it's time to figure out next year's Social Security COLA

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at best it's a proxy, at worst, it's almost entirely useless; tells us precisely nothing about what is really going on.

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Rather than "inflation," people should focus on "the real value of the dollar." And, the only operationally useful way to measure the real value of the dollar is in terms of a basket of unchanging, widely and deeply traded commodities. Bottom line: the Fed should bring the CRB Index up from its current level of 185 to its 10-year average (currently 228) and keep it there forever. Then the markets could sort out the rest without fear of bubbles, busts, or recessions.

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I get that inflation is about changes in the nominal unit of account, not about relative price 'real' changes. But I'm not sure why measuring only the price of current-period consumption goods captures this?

Suppose there is a temporary decline in productivity, so the price of current-period consumption goods increases relative to future consumption, wages (i.e. leisure), etc. This would show up as an increase in inflation, even though it is a 'real' relative price change, not a nominal phenomenom. Similarly, suppose there was some nominal inflation - a change in the unit of account - but productivity temporarily rose at the same time. Then the relative price of current-period consumption would fall. The nominal phenomenom might not show up in CPI at all.

If the aim is to measure nominal changes in the unit of account - and to abstract from all relative price changes - why doesn't the measure/index need to include all the prices that enter decision-making, i.e. current-period consumption, leisure, the expected price of future consumption, etc, rather than just current consumption?

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Much better perspective on what should be included in inflation: https://youtu.be/jwgOVPJ2FnU?t=1188

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