an important post from Izabella Kaminska at FT Alphaville: On the new purpose of government debt – Frances Coppola has whipped up an absolutely fabulous commentary on the BIS paper on safe assets, which cuts straight to the point. As she neatly expresses, in our new looking glass world… “the purpose of government debt is not to fund government spending. It is to provide safe assets.”
Victor Matheson tackles the cpi question…lifted from comments…. Quote “I need to do a bit of work on my own. Not sure if Ken is a stand up guy or not, so I don’t know if a detailed response is worth my time, but here goes. The chained CPI (C-CPI-U) is designed to correct for flaws in the regular CPI-U (or CPI-W) measure that occur when consumers can switch to cheaper goods with no loss of utility. Estimates from the BLS in the late 90s (a bit dated, I realize) suggested that the regular CPI overstates the effect of inflation on consumer welfare by 0.4% per year. CPI-E is a measure designed to track changes in price for expenditures by persons over 62. Between 1982 and 2011, CPI-E grew roughly 0.2% faster per year than CPI-U or CPI-W. Thus, the elderly were undercompensated due to the use of CPI-W instead of CPI-E by about 0.2% per year but overcompensated by about 0.4% per year due to the CPI-W failing to account for substitution effects leaving them about 0.2% overcompensated.” from A move on Dr. Black Did It as a Shorter; Here’s the Data
Here is my issue with chained cpi: “suggested that the regular CPI overstates the effect of inflation on consumer welfare by 0.4% per year.”
The conflation of welfare with price. Inflation is about price of a given item. That a person can sub for a cheaper cost and feel they have the same utility should be a separate measure. That is, measure welfare if that is what you want.
Thus, the chained cpi seems to me to be measureing how much deflation is going on vs how much inflation because you are measuring how much less a person is spending as the cost of the given item has gone up.
Just another one of the economics profession bastardization of science.
Start setting policy on chained cpi, a measure that measures deflation and you are actually driving deflation…no?
“The chained CPI (C-CPI-U) is designed to correct for flaws in the regular CPI-U (or CPI-W) measure that occur when consumers can switch to cheaper goods with no loss of utility.” Sorry, not buying that claim–either in design or execution–even if I accept that some of the people who developed the measure were sincerely trying to do that.
an important post from Izabella Kaminska at FT Alphaville:
On the new purpose of government debt – Frances Coppola has whipped up an absolutely fabulous commentary on the BIS paper on safe assets, which cuts straight to the point. As she neatly expresses, in our new looking glass world… “the purpose of government debt is not to fund government spending. It is to provide safe assets.”
Victor Matheson tackles the cpi question…lifted from comments…. Quote “I need to do a bit of work on my own. Not sure if Ken is a stand up guy or not, so I don’t know if a detailed response is worth my time, but here goes. The chained CPI (C-CPI-U) is designed to correct for flaws in the regular CPI-U (or CPI-W) measure that occur when consumers can switch to cheaper goods with no loss of utility. Estimates from the BLS in the late 90s (a bit dated, I realize) suggested that the regular CPI overstates the effect of inflation on consumer welfare by 0.4% per year. CPI-E is a measure designed to track changes in price for expenditures by persons over 62. Between 1982 and 2011, CPI-E grew roughly 0.2% faster per year than CPI-U or CPI-W. Thus, the elderly were undercompensated due to the use of CPI-W instead of CPI-E by about 0.2% per year but overcompensated by about 0.4% per year due to the CPI-W failing to account for substitution effects leaving them about 0.2% overcompensated.” from A move on Dr. Black Did It as a Shorter; Here’s the Data
Great series from Scott Fullwiler at New Economic Perspectives titled:
“Functional Finance and the Debt Ratio”
It is a 5 part series, and really good.
http://neweconomicperspectives.org/2012/12/functional-finance-and-the-debt-ratio-part-i.html
Here is my issue with chained cpi:
“suggested that the regular CPI overstates the effect of inflation on consumer welfare by 0.4% per year.”
The conflation of welfare with price. Inflation is about price of a given item. That a person can sub for a cheaper cost and feel they have the same utility should be a separate measure. That is, measure welfare if that is what you want.
Thus, the chained cpi seems to me to be measureing how much deflation is going on vs how much inflation because you are measuring how much less a person is spending as the cost of the given item has gone up.
Just another one of the economics profession bastardization of science.
Start setting policy on chained cpi, a measure that measures deflation and you are actually driving deflation…no?
Dan–Exactly. Well said. NancyO
“The chained CPI (C-CPI-U) is designed to correct for flaws in the regular CPI-U (or CPI-W) measure that occur when consumers can switch to cheaper goods with no loss of utility.” Sorry, not buying that claim–either in design or execution–even if I accept that some of the people who developed the measure were sincerely trying to do that.
comic relief:
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A Challenge to Business Insider and Huff Post