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You are here: MacNN Forums > Community > MacNN Lounge > Political/War Lounge > The Return of Stagflation?

View Poll Results: Are we seeing a return of Stagflation?
Poll Options:
Yes, that's exactly what we appear to be seeing. 6 votes (75.00%)
No, I don't think inflationary trends are serious. 0 votes (0%)
None of the above - my take is posted. 2 votes (25.00%)
Voters: 8. You may not vote on this poll
The Return of Stagflation?
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Big Mac
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Feb 10, 2011, 05:36 AM
 
Is the new economic buzzword soon to be a blast from the Carter Era - Stagflation? It seems like a strong possibility to me, given the fact that we have such anemic growth, weak job markets, currency manipulation (quantitative easing) and gigantic indebtedness in 1st World countries, coupled with soaring commodity prices. The government doesn't want to come to terms with the inflation we're seeing, but prices seem to be rising for many consumer goods across the board.

"The natural progress of things is for liberty to yield and government to gain ground." TJ
     
ebuddy
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Feb 10, 2011, 07:53 AM
 
In hindsight I should've opted for none of the above. I answered yes because our current money policy will assuredly return us to the printing press for more. There is very little to suggest the jobs outlook will improve below 9% and in fact we are seeing a steep incline in commodities as you mentioned. It should be noted however, that we are nowhere even in the ballpark of the inflationary rates during the Carter era. We're presently hovering around 2.6% and it peaked out over 11.8% under the Carter Admin.
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turtle777
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Feb 10, 2011, 09:29 AM
 
Originally Posted by ebuddy View Post
It should be noted however, that we are nowhere even in the ballpark of the inflationary rates during the Carter era. We're presently hovering around 2.6% and it peaked out over 11.8% under the Carter Admin.
No, we are very close to where we were during Carter.

If you back out all the changes to the CPI calculation in the last 30 years, our inflation today would be almost 9%. And we have just started printing all the money, it hasn't made it's way into the system completely.



Alternate Inflation Charts

-t
     
SpaceMonkey
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Feb 10, 2011, 11:38 AM
 
It hinges on whether you think the increase in inflation (which is certainly the government's goal) will be too much or just enough. I think it's too early to say. China is simultaneously trying to put on the brakes, for example, which will have ripple effects going the other way.

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Big Mac  (op)
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Feb 10, 2011, 11:56 AM
 
I personally think any non-zero inflation is too much. I don't really understand why the Fed believes ~3% inflation to be optimal and anything less to be anti-growth. That's still 30% loss in purchasing power in a decade. Why can't the aim be for 0% inflation or gradual deflation? If the government didn't have the perverse incentive of wanting to inflate the currency to pay old debt, would anyone have a reason to advocate for a positive rate of inflation?

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SpaceMonkey
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Feb 10, 2011, 12:15 PM
 
Originally Posted by Big Mac View Post
I personally think any non-zero inflation is too much. I don't really understand why the Fed believes ~3% inflation to be optimal and anything less to be anti-growth. That's still 30% loss in purchasing power in a decade. Why can't the aim be for 0% inflation or gradual deflation? If the government didn't have the perverse incentive of wanting to inflate the currency to pay old debt, would anyone have a reason to advocate for a positive rate of inflation?
Do you not understand the theory behind it or do you just not agree with it? In theory, moderate, stable inflation is beneficial for the economy because among other things it leaves room to maneuver in monetary policy, encourages lending and physical capital investment, and makes financial markets more efficient through price signaling by leaving room for nominal interest rates to go up and down in response to savers' and borrowers' preferences.

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SpaceMonkey
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Feb 10, 2011, 12:17 PM
 
This is not to say that inflation does not have negative effects. But virtually any economic policy will have positive and negative effects for someone. It's a matter of balance.

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turtle777
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Feb 10, 2011, 01:16 PM
 
Originally Posted by SpaceMonkey View Post
Do you not understand the theory behind it or do you just not agree with it? In theory, moderate, stable inflation is beneficial for the economy because among other things it leaves room to maneuver in monetary policy, encourages lending and physical capital investment, and makes financial markets more efficient through price signaling by leaving room for nominal interest rates to go up and down in response to savers' and borrowers' preferences.
In classic theory, inflation (= increase of money in the system) was supposed to match the growth of the economy.

-t
     
ebuddy
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Feb 10, 2011, 09:19 PM
 
Originally Posted by turtle777 View Post
No, we are very close to where we were during Carter.

If you back out all the changes to the CPI calculation in the last 30 years, our inflation today would be almost 9%.
Good point and of course no matter how you look at it, the picture is bleak.

And we have just started printing all the money, it hasn't made it's way into the system completely.
... and this is the unfortunate part. I hold out hope for the sake of all of us that something short of a drastic change in money policy will suffice.
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ghporter
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Feb 10, 2011, 11:10 PM
 
Current inflation is staggeringly low. The Fed has stated several times since fall that this lack of inflation is an impediment to economic recovery. The situation today is nothing like in the late '70s.

In the Carter administration, inflation was high. It ranged up to more than FOURTEEN percent by 1980. Inflation in the last half of 2008 was 0.1%. In 2009 it went UP TO 2.7% (per US Inflation Calculator .com There is no "inflation problem" in the sense of that in the 1970s. Today, inflation is only a problem in that we don't have enough economic growth to cause more of it.

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Big Mac  (op)
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Feb 11, 2011, 04:27 AM
 
Or that's what the government wants you to believe. Real inflation is much higher than what the government's headline figures indicate, if only because they focus on Core - eliminating inflation in food and energy. I don't know about you, but I need to eat on a regular basis and drive, so the singular focus on Core CPI seems like obfuscation.

And note that I didn't say we were at Carter Era Stagflation, just that I see the conditions preceding such an inflationary trend.

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turtle777
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Feb 11, 2011, 07:09 AM
 
Originally Posted by ghporter View Post
Current inflation is staggeringly low.
Only if you believe the BLS (Bureau of LIES and statistics).

Do you know what they have done to fudge the CPI to basically show only the desired inflation?

Hedonics: CPI Explained – Part 1 – Hedonics
and Substitutions: http://www.jeffnabers.com/2008/11/05...2-substitution

-t
     
ghporter
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Feb 11, 2011, 07:25 AM
 
Sorry folks. I'm all out of tinfoil...

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turtle777
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Feb 11, 2011, 07:51 AM
 
*sigh*

You really DO believe everything an elected official tells you ?
Hint: you're not in the military anymore, you can now use critical thinking and question what the "higher ups" tell you.

-t
     
ebuddy
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Feb 11, 2011, 08:00 AM
 
Originally Posted by ghporter View Post
Sorry folks. I'm all out of tinfoil...
I did the exact same thing you had done gh. I went to the same inflation calculator without regard for how those figures are compiled. The point is the CPI calculation method was retooled in '81; a point I had forgotten. If you were to apply today's calculation to the Carter Era, instead of the 14+% you cite, it would've been around 6%.

If a sharp incline in CRB Index (price of commodities) isn't an indicator, and the steep incline in the value of precious metals isn't an indicator, and real comparisons between today's inflationary rate vs the Carter Era inflationary rates aren't an indicator, and if the dollar's exchange rate isn't an indicator... perhaps you're out of tinfoil because it costs too much?
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turtle777
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Feb 11, 2011, 08:52 AM
 
Hedonics and Substitution are by no means conspiracy; these are official, acknowledged "statistical methods" for CPI calculation.

The only thing to discuss is whether those make the CPI *more* accurate than before, or if those were chosen because they enable to hid true inflation.

-t
     
SpaceMonkey
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Feb 11, 2011, 10:10 AM
 
Originally Posted by Big Mac View Post
I don't know about you, but I need to eat on a regular basis and drive, so the singular focus on Core CPI seems like obfuscation.
...or because everyone needs to eat and drive, it's a useful shortcut?

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nonhuman
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Feb 11, 2011, 10:28 AM
 
Originally Posted by SpaceMonkey View Post
...or because everyone needs to eat and drive, it's a useful shortcut?
Everyone needs to eat. Not everyone needs to drive.
     
SpaceMonkey
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Feb 11, 2011, 11:26 AM
 
Originally Posted by nonhuman View Post
Everyone needs to eat. Not everyone needs to drive.
Right but everyone needs to use energy, generally. I was just riffing off of Big Mac's specific wording.

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nonhuman
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Feb 11, 2011, 03:21 PM
 
Originally Posted by SpaceMonkey View Post
Right but everyone needs to use energy, generally. I was just riffing off of Big Mac's specific wording.
True, though not everyone needs to use energy equally. Not even close. Manhattanites are by far the most energy efficient people in the country, while people who live in rural areas are by far the least energy efficient people (on average, of course). Correspondingly, inflation will affect those two groups in very different ways.
     
ghporter
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Feb 11, 2011, 06:56 PM
 
Originally Posted by turtle777 View Post
*sigh*

You really DO believe everything an elected official tells you ?
Hint: you're not in the military anymore, you can now use critical thinking and question what the "higher ups" tell you.

-t
Why do you always NOT believe something simply because it comes from the government?

I used the "government figures" because these are the figures that all "adjusted for inflation" issues are adjusted for. As ebuddy points out, the standard inflation rate produced by the government was "retooled" in 1981, and using today's formula it wouldn't be over 14%, but closer to 6% - which is still 5 or more times HIGHER than today's numbers using the same formula.

Having lived through the Carter Administration, I can tell you that, from Nixon on, the economy just kept getting suckier and suckier. Ford took steps to help improve things, but he lost in '76 primarily because he didn't have a magic wand that could fix everything overnight. Carter's policies were actually worse, though for some reason people thought he was going to improve things. Things got better before the change in the formula, by the way. It wasn't changed until Reagan had been in office for several months, and major improvements were already obvious. (And for a while, Reagan's "trickle down" economic policies actually DID work - until businesses figured out how to game the system and stopped adding jobs and capacity while still sucking up the tax breaks.) But since Reagan Administration policies really couldn't even start to impact the economy for many months, how did Reagan being in office help? First, businesses behaved rationally, and expecting the administration to be pro-business, they started hiring and increasing production. And with more hiring, things looked much brighter. Which led to rosier predictions of "next year's numbers," which led to more optimism. So people stopped hearing that everything sucked and they started behaving as if it were true. Really.

The big power behind the Reagan presidency's economic improvement was basically stopping all the pundits and prognosticators telling everyone (from Joe Wage Earner to Mr. CEO) that they were all doomed. Which was pretty much all we ever heard during Nixon's second term, Ford's presidency and Carter's presidency. The formula changed, sure. But thinking changed first.

And I stand by my statements. In real, concrete terms, we have almost no inflation right now. Which indicates that businesses aren't pulling their weight in increasing jobs and production-and instead are focusing on short term bottom line numbers for lame-brained board members and loud mouthed stock holders.

Glenn -----OTR/L, MOT, Tx
     
turtle777
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Feb 12, 2011, 05:21 PM
 
Originally Posted by ghporter View Post
Why do you always NOT believe something simply because it comes from the government?

I used the "government figures" because these are the figures that all "adjusted for inflation" issues are adjusted for. As ebuddy points out, the standard inflation rate produced by the government was "retooled" in 1981, and using today's formula it wouldn't be over 14%, but closer to 6% - which is still 5 or more times HIGHER than today's numbers using the same , sure. But thinking changed first.
First of, I don't know where ebuddy's 6 % come from, he didn't provide any links.
Furthermore, I didn't claim today's inflation was running at 14% percent.
My sources are Shadowstats, which is quite reputable. They calculate today's inflation at close to 9%, using the pre 1981 methodology. Btw, the *biggest* changes in CPI calculation did not only take place in 1981, but also in the mid 1990s.

Now, to the real issue, your naive beliefs that the government is honest and truthful about the CPI.

I could just take the cheap route and say that the US governments in the last 20 years have shown plenty of examples where they are neither truthful, nor honest about what's going on in our economy.

But, let's take it to a different level: the US government has all reasons to lie about the CPI. Low CPI numbers are a matter of self-interest, heck, self-preservation.
Many government expenses are tied to the CPI number: social security, Medicare and Medicaid, government workers salaries, even military compensation.
Every 1% lower in CPI saves the US government tens of billions of $$$.

Even more, the interest level of Treasuries are influenced by CPI numbers, potentially costing the US billions in higher interest that buyers of Treasuries would demand in a higher inflation environment.

Now, exactly WHY do you believe they would be completely truthful about the CPI ?
From all how we know about politicians, we can be certain that we don't get the full truth, but some fudged, twisted reality. THAT'S what today's CPI numbers are.

-t
     
turtle777
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Feb 12, 2011, 05:45 PM
 
Here is an other example where the governement actively "manages" (i.e. fudges) key statistical data to paint a much rosier picture than it really is.

Albert Edwards (And Goldman Sachs) On "The Biggest Scandal Of The Last Decade": Plunging Labor Force Participation | zero hedge

Seriously, there is no point in giving the Government any credit. They do what they do best: obfuscate, twist, lie.

-t
     
ghporter
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Feb 12, 2011, 08:19 PM
 
I think that if I can independently verify the information that goes into a formula, and if I have access to the complete formula, then I can expect that the output, whoever calculates the result, will be valid. That's why I'm not worried about The Man "pulling one on me." Since the combination of lower adjustments to entitlement programs and poor job growth and production increases tends to balance AGAINST tax receipts (i.e. the government gets less money overall), I'm comfortable with the numbers reporting what they are supposed to. What purpose would it serve to make it look like things were worse than they are, if making things look better would get more tax money?

Remember, the people who calculate the CPI aren't politicians, they're employees-wage earners, work-a-day Joes, paycheck-to-paycheck types like you and me. I am always amazed that people behave as if "the government" is some X-files organization made up of all bad people (or for that matter all good people) who act as a single unit. It is not. The government is a system of offices and desks and daily 8-5 jobs with people trying to put food on the table doing the work. A whole lot of those people voted against the current administration, something that is actually very, very common. While in the military, I was required to follow orders. Nothing made me believe that all orders were good-quite the contrary. One reason I retired was seeing higher ups make the same mistakes I'd seen made by others in their positions two or three times before. I could not change that. But I vote so that I can help change or direct policy makers who say "we're going to do this..." And I know that every single government job has a tall stack of written "how to" and instructional guidance-almost all of it completely public. Joe "Calculate the CPI" uses information that is publicly available in a formula that is publicly available to produce a published result. No black hats, no guys with Ray-Bans behind the scenes, just low paid working stiffs crunching numbers.

I think it naive to believe in a monolithic "government" that always lies, obfuscates and prevaricates. Even politicians you disagree with are just people. You can disagree with them and still accept that they are people. Sometimes stupid people, sometimes jerks, sometimes people with agendas that are not as well hidden as they would like to think they are. But they are just people. No evil conspiracy of anonymous Iluminati runs anything. Just people. Really grasping that can help you find ways to make your own preferences and desires known and get action on them. Railing against nonexistent conspirators just runs your blood pressure up.

Glenn -----OTR/L, MOT, Tx
     
ebuddy
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Feb 12, 2011, 08:27 PM
 
Originally Posted by turtle777 View Post
First of, I don't know where ebuddy's 6 % come from, he didn't provide any links.
Your Hedonics CPI Explained link.

gh cited the 6% figure from my post without addressing my point. I've conceded that in fact my first answer to this poll was correct. You can forget the CPI measurement as far as I'm concerned, there are several signs showing the same problem and as you mentioned we've only begun. Let's say for example we're at 2.6% from last year, knowing we've only begun, and today's formula applied to the Carter era renders 6%; this is indeed one of several signs that we're returning to stagflation.
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turtle777
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Feb 13, 2011, 05:40 AM
 
Originally Posted by ebuddy View Post
Your Hedonics CPI Explained link.
Ah, I see. I only posted the link to explain the concepts.

Shadowstats is the most used calculation to "backtrack" government's changes to various statistical calculations.

-t
     
turtle777
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Feb 13, 2011, 06:36 AM
 
Originally Posted by ghporter View Post
I think that if I can independently verify the information that goes into a formula, and if I have access to the complete formula, then I can expect that the output, whoever calculates the result, will be valid. That's why I'm not worried about The Man "pulling one on me."
Again, it seems like you haven't read the info on Hedonics and Substitution.
Those are highly SUBJECTIVE adjustments, based on big "judgment" calls from some bureaucrats. Believing that the end result is "valid" is quite a leap of faith.

Originally Posted by ghporter View Post
Since the combination of lower adjustments to entitlement programs and poor job growth and production increases tends to balance AGAINST tax receipts (i.e. the government gets less money overall), I'm comfortable with the numbers reporting what they are supposed to. What purpose would it serve to make it look like things were worse than they are, if making things look better would get more tax money?
Huh ? Are you kidding me ?
So you believe that the ends justify the means. Thing *ARE* worse in unemployment and CPI than the government makes it to be.
They need fudged numbers to justify QE, TARP, HAMP and all the other government programs. Would the real picture be published, it would be obvious what a gigantic blunder all the government spending have been.

But what's worse, the Day of Reckoning can not be avoided by playing with statistics. It can be delayed, but that's it.
Meanwhile, the things that really needed to be done are not done because nobody feels the urgency. Until the shit hits the fan.

-t
( Last edited by turtle777; Feb 13, 2011 at 06:44 AM. )
     
Doofy
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Feb 13, 2011, 06:41 AM
 
The government I live under reckons inflation is 3.7%.
My car insurance just went up 60%. No change in circumstance at all.

Work that one out.
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ghporter
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Feb 13, 2011, 09:54 AM
 
Originally Posted by turtle777 View Post
Again, it seems like you haven't read the info on Hedonics and Substitution.
Those are highly SUBJECTIVE adjustments, based on big "judgment" calls from some bureaucrats. Believing that the end result is "valid" is quite a leap of faith.
Bureaucrats who are non-political and whose jobs depend on staying firmly on factual grounds...and while some of those "judgment calls" are based on opinion, the people who provide those opinions are selected for the job because they are qualified to offer such opinions. Economists are often kind of like philosophers, but when they look at past performance, they don't have a lot of room to spin data...
Originally Posted by turtle777 View Post
Huh ? Are you kidding me ?
So you believe that the ends justify the means. Thing *ARE* worse in unemployment and CPI than the government makes it to be.
Where did I say "the ends justify the means?" I said specifically that there was no monetary motivation for the government to suggest we were doing better than we are, because the government is losing money with the current situation.

And technically things aren't "worse in...the CPI," though they are obviously worse in actual consumer prices. See the difference? Food, fuel and transportation prices are obviously climbing while real wages are not. Few jobs are being created-we still have something like a 1.5 million job deficit from the end of 2007-so there are still plenty of people out of work. But the way these formalized reporting systems work is transparent enough for someone who reads the data to use it intelligently. "New jobs" created in the last reporting period (January) were at about 36,000-but if you factor in weather related issues, the real number was closer to 5 or 6 times that. They weren't an impact on the economy because they were under- or un-utilized jobs that were impacted by the extreme weather in January. Construction jobs, for example, were held back by widespread blizzards... BLS says that there were a lot more than 36,000 jobs created in January (more than 87,000 jobs, in fact), but construction jobs fell by 32,000. Many construction jobs are as subcontractors (take a look at the business structure of home building...), so technically a lot of people who didn't work building houses were "unemployed" when they were snowed in.

The formal unemployment report comes from what is called a "Household Data Survey." This is done by actually asking people what their work situation is-working, looking, no longer looking, etc. Contrast that to new job numbers coming from employers in what is called the "Establishment Survey."

Each month BLS checks the completeness of data for prior months and publishes adjustments to their earlier numbers to take into account updated information. That's pretty darn transparent. "We didn't know about X and Y, so the Factor 1 numbers for November were adjusted up by 23,000 while Factor 2 numbers were adjusted down by 4,500." Further, the BUREAU of Labor Statistics (full of bureaucrats, right?) is staffed by employees, not bureaucrats. Statisticians do the calculations, and they publish their data. "There are lies, damn lies, and statistics" was Mark Twain's rumination on how some people try to baffle their audience with unreferenced or incomplete data. Some of the most thoroughly referenced data published by the federal government are labor statistics.

There is no black and white compass needle that says "the economy overall is doing this." It's way too complex to have anything like that. Prices are going up-in certain areas. Wages aren't going up much in most job areas. The Consumer Price Index is certainly not perfect in indicating the health of he consumer-level economy. But it's still no "lie." If you take the time to put real data together for yourself and eschew dependence on ANY source for your OWN interpretation of that data, you find that, like the weather, sometimes you have to roll with what really happens in the economy.

Sitting by the fire and having the lore masters you "believe in" spin smoke and tales may be comfortable, but they're wrong about reasons and trends about as often as they're right. Reading the data and thinking about it yourself so you can draw your own conclusions may not give you that warm feeling of having the long bearded sage reassure you, but you won't feel like someone is hoodwinking you either. To find the real light, you must remove all your blinders.

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ebuddy
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Feb 13, 2011, 10:22 AM
 
Originally Posted by ghporter View Post
I think that if I can independently verify the information that goes into a formula, and if I have access to the complete formula, then I can expect that the output, whoever calculates the result, will be valid.
Yes, but if the formula has been repeatedly changed based on arbitrary criteria that can offer no baseline or control, you have garbage-in and should fully expect garbage-out. You don't have to accept some nefarious intent. Like I said, forget about CPI for a second and show me what signs there are indicating relative economic health or a move away from stagflation. For example, construction jobs have been on the decline since well before the US was mired in snowfall.
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Feb 13, 2011, 10:53 AM
 
More manufacturing and retail jobs are being created over the last several months, indicating preparation for higher levels of production and expected higher sales. The construction jobs were there, just not "workable" through much of January; building trades are no longer losing jobs faster than new ones are created, as indicated by (small) increases in housing starts and building permits overall.

Let's look at what stagflation was like in 1979. Manufacturing was hemorrhaging jobs. Sales was hemorrhaging jobs. Construction was at a long term low. Businesses were exporting jobs or failing. Basically it seemed like the sky was falling, even though REAL business failures, real unemployment and real job growth were all numerically better than they are today. On the other hand, the median cost of a house was nearly $60k, while median income was $17.5k and the Fed's prime interest rate was 15.25%. Gas cost 86¢ a gallon on average, and that was a whole lot at that point in time. (See here for all these numbers in one place.)

Stagflation was more a label for "everything is crap" sentiments about the US economy than a real analysis of the economy. But it also reflected a decade-long trend to fewer jobs (lots of people got out of the Army or weren't drafted so they needed jobs), poor economic performance influenced by high interest rates and declining manufacturing focus, and a reversal from what had become what the middle class expected: unlimited growth and jobs for pretty much all who wanted them. Today we have a 3-4 year trend toward less job creation and less manufacturing output caused, not by a variety of disparate factors, but by an economic train wreck. Things look crappy today because of what Greenspan called (a long time ago) "unwarranted exuberance" about pie-in-the-sky money manipulation schemes and "the sky's the limit" predictions about economic growth from unqualified wags and based on smoke and mirrors business practices. I see that as a VERY big difference.

Glenn -----OTR/L, MOT, Tx
     
   
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