Inflation

If we believe the official inflation figures, supposedly living standards in the US are rising: Yet the proportion of people with cars is falling, the proportion of households with a car is falling faster, and the amount of meat people are eating is falling – consistent with a cpi rising at about the rate that shadowstats claims, about six to ten percent

The official rate of inflation for 2012 April was 2.3% annualized.

Inflation sounds like a well defined economic quantity, as does “quantity of money”, but neither one is well defined. Inflation is poorly defined because we are comparing apples and oranges. I think that 2012 cars are inferior to 1972 cars, while those who compile the official cpi think they are enormously better, hence, as I have often argued, we are better off explaining the business cycle in terms of evil and madness, the wisdom of crowds and the madness of crowds, than in terms of such nebulous and undefinable quantities as inflation, quantity of money, and real GDP. People put scare quotes around “evil” and even around “madness” because these are not well defined, but at moderate levels of inflation, they are a lot better defined and more readily definable than “inflation” and “real GDP”

Clearly, regardless of whether cars are getting better or worse, someone without a car has a substantially lower standard of living than someone with a car, and someone who is having meat for dinner has a substantially higher standard of living that someone who is having beans for dinner. So let us check these alleged figures against such common sense measures.

Nomnal GDP, unlike “real” GDP is reasonably well defined. Nominal GDP is growing at about 4.5%, so if official inflation is reasonable “real” GDP is growing at 2.2% per year. Population is growing at 0.91%.

But if real GDP was really growing, people would have more cars and more meat dinners. And they don’t.

Mysteriously, the government stopped making the figures for total number of registered cars available in 2008, when the number started falling (or at least I cannot find the numbers, though some well connected people seem to be able to see them).

The last available data was for 2009, which showed a one percent fall relative to 2008 – and then the 2009 number disappeared, and no new numbers have appeared.

However, the number of cars is closely proportional to the the number of miles supposedly traveled – since the number of miles supposedly traveled is calculated from the no longer easily found number registered – and this has been falling at about 1% per year. Registrations are stable and falling from levels considered catastrophically low in 2008.

Since population is growing at about one percent a year, cars per person is falling at about two percent a year, indicating a fall in “real” GDP of something like one percent a year, instead of growth at 2.2 percent.

Indicating that inflation is understated by three or four percent a year, indicating inflation of five or six percent a year – not hyperinflation by any means but headed in that direction. This falsifies the Keynesian account of the current crisis. The problem is not demand side.

Since people are consuming less of stuff that matters a lot to them, “real” GDP is falling one or two percent a year. Since nominal GDP is rising at 4.5%, “inflation” must be 4.5% plus one or two percent.

Meat consumption in the US has also been falling about 1% a year, and there has been a shift towards cheaper cuts of meat (parts of the cow that used to be ground up are now steaks), and there has been a shift towards small portions of meat (parts that used to be roasts are now steaks). Total egg consumption was unchanged from 2010 to 2011, despite population increase. Eggs are a somewhat cheaper substitute for meat, thus stable egg consumption is consistent with the trend in meat products towards cheaper cuts and smaller portions. If people are getting poorer, we would expect them to substitute eggs for meat.

I expect a long term trend of people in the west getting substantially poorer as regulation continues to explode, accompanied by official statistics supposedly proving the opposite. I also expect the discrepancy between official inflation and actual inflation, and between official statistics generally and reality, to continue growing, as is typical in dysfunctional regimes.

This is a supply side crisis. It is perfectly obvious what is causing the collapse in supply – any small business blog will tell you how the government persecutes them, and everything causing the crisis is getting worse, with no way to reverse trends through politics as normal. The Tea Party movement did what democratic politics say you are supposed to do, won, and got only more of the same.

Democracy must end, and will end, the only question being how bad things get before we do what must be done. There is a lot or ruin in a nation. I hope and expect we get collapse around 2026, but things could easily end with a whimper, rather than a bang.