On Real v. Nominal: Check Your Index Numbers More Carefully
John Tamny must not have liked this post emailing me to say:
Believe me, I understand per capita and real. And don’t think for a second that I don’t see the obvious flaw in the household wealth argument: the dollar has fallen pretty substantially in the past year (though you don’t believe in measuring commodities in terms of gold so you’d probably have some argument here too), so the growth in wealth in the past year is at best only in nominal terms.
He understands the need to express wealth over time in real terms – so what’s his excuse for doing his discussion in nominal terms? Assuming he did not wish to flat out lie to his NRO readers, let’s see if we can understand this bit about commodity price indices, which he must get from Lawrence Kudlow:
If you prefer a commodity-price-rule approach to monetary policy, the following will beg your attention. The Commodity Research Bureau’s spot commodity index (which excludes oil and gold) has been flat for about 19 months, stretching all the way back to early 2004. This commodity flattening follows the sharp commodity recovery of 2002-03, which itself followed a protracted period of commodity deflation that reached back to the 1997-2001 period.
Let’s say that I only consume only commodities (yes, bauxite tastes much better than a hamburger). This Commodity Research Bureau’s spot commodity index rose by 29.4% from December 1999 to June 2005, while the GDP deflator rose by only 13.4% over the period that Tamny and I focused upon. Does Tamny not know this? Does he not realize by his and Kudlow’s weird measure of the cost of living that real wealth would have declined even in absolute terms. Does anyone who attempts to write economic editorials at the National Review even bother to check their own data?