Thoughts on Inflation
Thursday January 1, 2009
From our discussions this week I sketched out some thoughts on inflation. I would like to get your take on the topic, so if you would be kind enough to leave feedback after reading Should We Adjust Prices For Inflation? I would be most appreciative.
I know my views on inflation are quite heterodox relative to the views of the rest of the profession. However, I believe that we underestimate how much the goods and services available for sale have changed during our lifetimes.
I know my views on inflation are quite heterodox relative to the views of the rest of the profession. However, I believe that we underestimate how much the goods and services available for sale have changed during our lifetimes.
Comments
Inflation is difficult to measure and living standards difficult to compare over long periods of time. Most of what we spend money on does not change that much. The basics are quite basic and the areas that change the most are often those that not much is spent on in the first place. Cell phones and the internet are great advances and allow us to do things we never could before, but they are not that expensive.
Over long periods, I like to look at real gdp per capita and consider the period to double the standard of living. Over the last 30 to 50 years it doubled in around 36 years. If you believe inflation has been overstated by 1% though, it doubled in around 24 years. The latter seems preposterous to me. I hardly even notice the difference other than on inconsequentials. Even 36 years seems short. How much has life really changed over that period? Records have gone and computers are here but day to day living has only moderately changed. A doubling should be noticeable. I am more willing to believe it has doubled in 50 years or so, but this is probably more due to less personal experience to compare with over that time.