December 13, 2013


The one word that will convince conservatives that inflation is actually low "COLA" (Josiah Neeley, 12/13/1`3, The Week)

Since 2009, inflation has remained below the 2 percent average of recent decades.

And while many have recognized this reality, others on the Right have concluded that if inflation hasn't shown up in the official numbers it's because it is being hidden. Some have sought refuge in the website ShadowStats, which purports to provide "unskewed" inflation numbers and has shown inflation at around 8 percent (in reality Shadowstats simply adds around 6 percent to the official inflation rate). In 2010, many pointed to a rapid rise in the price of commodities like oil as evidence of inflation (ignoring the fact that the prices of the same commodities had fallen even more during the early months of the crisis). For a while the price of gold was taken as the key indicator (the price of gold has fallen more than $400 an ounce this year). And lately some have started to see increases in stock prices as proof of inflation (even though the P/E ratio for the S&P 500 is not out of line with historical averages). Government manipulation of the consumer price index is also belied by the existence of privately run price indexes, such as the Billion Prices Project, which also show low inflation.

The big irony here is that in claiming that the CPI understates inflation, conservatives are effectively arguing for higher taxes and more government spending. That's because a version of the CPI is used to calculate cost-of-living adjustments (COLAs) for government programs like Social Security. If government numbers showed an inflation rate of 8 percent or more, this would result in billions more being spent on Social Security payments, as well as an increase in the amount of wages subject to the payroll tax.

Likewise, if inflation has been a lot higher than the government is admitting, then real spending hasn't risen by nearly as much as the official numbers indicate. All the talk about Obama's big spending ways, therefore, would have to be scaled back, if not abandoned.

Posted by at December 13, 2013 3:16 PM

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