Well, I am deep into summer and I, like a few others—maybe many others—have noticed that things aren’t what they used to be, just a few short years back in the “evil” Bush administration. In case you are curious I’m talking about the prices of goods and services. There is a nice article about it by Amity Schlaes, entitled “Inflation Vacation,” in National Review Online (July 16, 2014). I had already been thinking about this topic since I learned some time ago that the Bureau of Labor Statistics (BLS) does NOT do two things: (1) use the same list or “basket” of items every year as a measure of inflation and (2) include the prices of gasoline and food (What?!!). This strikes me as a little dishonest, at least a little illogical. The BLS says the basket of goods changes because we substitute some cheaper things for others when prices rise. That is good that we substitute—we have to sometimes, and at least there may be something else available. But it seems to me to be smarter to keep the same goods “in the basket” each year, all year, to get a better overall sense of what is happening. But then, as Shlaes says, and I agree, the Fed doesn’t seem too concerned with inflation, so why make a big deal of the way it is measured. Maybe that actually reassures Fed members and Janet Yellen that all is well.
As for the exclusion of gas and food, that is positively stupid. These are two items we want desperately (sometimes need) or need (food), respectively. And when the price goes up, we feel it. What’s more, people in government need to know we feel it. You know what they say: “Out of sight, out of mind”? That would apply well to both bureaucrats and most politicians in DC (though it is pretty evident in DC IF you actually do your own shopping and filling the tank, which, come to think of it, most of that political class probably doesn’t). So we are down here, paying higher prices and no one up there notices. Note: As of July 21, 2014, gas prices are down from what they have been, but still high compared to the big, bad Bush days.
It isn’t just food and gasoline either. There is college tuition, the cause of which has its own scandalous story. I remember in 1974 when I began my undergraduate studies, the tuition for that Fall was $128 at a state university of moderate intellectual reputation. But even the “big boys” wre not more that say $4,000 per year. Law school was all of $300 per semester at a pretty decent school. Now of course that was 40 years ago and I expect an increase, but even since around 2000, tuition prices have doubled. Many other items have increased in price since just a few years ago. The only exception I can think of is books—used books, not college textbooks, which seem impervious to competition. I am sure there are other exceptions, as innovation and competition have made many goods cheaper and better. But that doesn’t make me feel that much better when I think about traveling to and from work and feeding myself and my family. I can do without the cheaper calculator (to a point) but try eating a calculator for dinner.
So why aren’t our political masters paying attention to inflation? I don’t know. Perhaps they are fixated on unemployment and stimulating the economy, as it seems many economists (and politicians) have been off and on for a long time—since Keynes? I suppose it boils down to preferences based on some internal beliefs or external incentives, but I don’t have enough information to say what those are. No matter, they ought to take notice now. I know the current price changes are nothing compared to hyperinflation at other times and places. But in the long run, if no one cares, our own inflation can insidiously creep up—unlike hyperinflations, it just takes longer. And even lesser price changes can have a significant impact on our well-being.
So my parting exhortation to our economic and political decision-makers is to first change the way you measure inflation to make it more realistic and second is to begin to pay attention to it and take it seriously. I know many of us do—we are forced to.
Of course there is much more I can say about inflation, especially regarding technical economic issues about its causes, but I just wanted to bring the fact and its real-life consequences to our minds.