A new right-wing claim: Obama must be lying about inflation!
Obama birth-truthers are so 2008. (When your movement’s leading intellectual is Donald Trump, you know your time has passed.) The new meme on the right appears to be inflation-truthing. This is the assertion that President Obama is deliberately low-balling inflation numbers to make his economic record look better.
The invaluable Barry Ritholtz labels them cranks, which seems pretty fair, even charitable. But even James Pethokoukis of the American Enterprise Institute is unnerved by the degree that “conspiracy theories that government is manipulating the data to hide skyrocketing prices” have moved into the mainstream of rightist thought.
Pethokoukis points his finger at Amity Shlaes of National Review, whose effort to revive the economic reputations of Calvin Coolidge and Herbert Hoover now encompasses two volumes. Earlier this month, Shlaes yoked some casual personal observations to the work of a discredited inflation truther to suggest that “inflation is higher than what the official data suggest.”
And so a meme is born.
The truth, as Ritholtz points out, is that inflation is always different from what the official data suggest. There are several reasons for this. One is that not everyone lives by the same market basket that makes up the consumer price index. And certain components experience sharper rises or declines than others during certain periods of time.
The housing market persistently skews the statistics, because people’s housing patterns change over time. During the home ownership bubble of 1996 to 2006, for instance, renters moved into home ownership and rents fell relative to other prices. But the CPI pegged its housing price component to rents. “Booming home prices led to an understatement of total inflation” in that period, he observes.
The opposite trend is taking place now. “Lack of credit has driven people into the rental market, driving up rents and overstating inflation"--that is, for homeowners, who are immune to rent inflation.
Similarly, send a kid to college, even a public university, and you’ll feel tuition inflation right in the gut. Kids out of college? You won’t feel it at all.
Ritholtz confesses to having been an inflation truther of a sort back in the 2000s. But that was a different critique.
“The 2000s truthers were critics of the inflation mathematical model used by the U.S. Bureau of Labor Statistics,” he writes. “The 2010s truthers are critics of President Barack Obama, and any economic gains under his watch therefore must be the result of inflation.” Secret inflation, that is.
Shlaes’ analysis shows the downside of using personal anecdotes to challenge official data, though some of her examples are bizarre. “You head over to the theater. The ticket is $10.00, not $5.00, like it was when you went to see Gladiator back in 2000.”
Well, yes. The change in the CPI for all goods says that $5 movie ticket should today be $7, not $10. But Shlaes isn’t watching the movie in a 2000-era theater, either. Today’s movie house may have digital projection, it certainly has a vastly better sound system, and the proprietor almost certainly has installed stadium seating to replace the creaky old stalls of just a few years ago. All these improvements cost money, and you’re paying for the owner’s investment, not for inflation. Watch a movie today in a 2000-vintage moviehouse, and you’d resent paying even $2.
Shlaes also invokes John Williams of Shadowstats, the king of the inflation truthers. As Pethokoukis remarks, Williams’ methodology has been so widely debunked that citing him is a red flag. His estimate of inflation is so high that if it were accurate, it would be obvious to almost every American, not the subject of ideological debate.
Tim Duy of the University of Oregon notes the implausibility of consumer inflation heating up significantly while wage growth remains stagnant. If prices rise under those conditions, he writes, “demand will soften and so too will any incipient price pressures.” That’s why Fed Chair Janet Yellen is worried more about a fall in consumer spending than about inflation.
What shouldn’t be overlooked is the political/ideological component to inflation hysteria. It’s almost always aimed at forcing wages down or increasing unemployment in order to preserve the value of investment returns, especially bond interest. That’s why conservatives in the ‘20s and ‘30s, the history of which Shlaes is trying to rewrite, were intent on preserving the gold standard above all else. The only way to save the gold standard was to liquidate workers and wages.
(Franklin Roosevelt’s very conservative budget director Lewis Douglas’ reaction to FDR’s announcement that the U.S. was abandoning the gold standard: “This is the end of Western civilization.” Douglas didn’t last long in the New Deal.)
As the chart above demonstrates, inflation has come down appreciably since before the 2008 financial crisis, and it’s still low, any way you cut it. Those who claim it’s significantly higher have an ulterior motive, and it’s not one that will put money in your pocket.
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