Friday, May 6, 2011

Ramesh Ponnuru Schools Niall Ferguson

Ramesh Ponnuru schools Niall Ferguson on the basics:
In Newsweek the pundit claims that “double-digit inflation is back”: “The way inflation is calculated by the Bureau of Labor Statistics has been ‘improved’ 24 times since 1978. If the old methods were still used, the CPI would actually be 10 percent.” If Ferguson is right about inflation, it leaves two possibilities. Either our statistics on the size of the economy in current-dollar terms–which ought to be easier to compile than any numbers on inflation–are hopelessly flawed. Or the real (that is, inflation-adjusted) size of the economy is shrinking rapidly. Instead of 1.8 percent real growth, in the last few months we’ve been going through something more like 7 percent real shrinkage. (Nominal growth, remember, has to equal inflation plus real growth.) Is that even remotely plausible? Does Ferguson believe this rate of shrinkage is compatible with even the modest job increases we’ve seen? Or does he doubt the unemployment stats too?
With that lesson out of the way,  Ferguson's assignment is to now read Ponnuru's latest piece on monetary policy in the National Review.  Class dismissed.


  1. The right-wing (to which I might belong otherwise) has gone nuts. Birthers, and inflationistas, and who knows what.

    Here's one: Some righties say the CPI is deeply flawed, we have 10 percent inflation. If true, that means real income in the USA is wildly overstated, and the GDP is contracting.

    If true, that means socialist Europe has passed us in recent years, bringing to their people higher per capita GDPs, along with national health care.

    So socialism rules.

    I have posed this line of argument, but you guessed it: The rightie retort is that all of Europe is in on the inflation conspiracy, and they are also hiding big declines in GDP and per capita income.

    I urge the Sumner, Beckworths and other "right-wing" economists to keep posting hard, and trying to influence the debate.

    If I can figure out what is "right-wing" anymore.

  2. Inflation is low. Okay. Except that the measure is for things that most people don't buy every day (like iPads) and excludes what they do buy (like gas & food).

    Housing prices in CA continue to erode and wages here have been driven back at least ten years.

    Everyday prices are going up while home values and wages are going down.

    Printing money to exacerbate inflation without fixing the problem underlying property value/wage deflation will not improve our standard of living.

    - ease taxes and regulation,
    - cut federal spending to below 18% gdp,
    - increase domestic energy production
    - fix runaway entitlements.