A lot of people, especially conservatives, complain about the so-called debasement of the U.S. dollar. For example, Craig R. Smith, who is apparently important enough to be interviewed by “FOX News, CNN, CNBC, ABC, NBC, CBS, PBS, CBN, TBN, Time, The Wall Street Journal, The New York Times, and Newsweek,” wrote a book last year that claims the value of the dollar has fallen by 98% in the 100 years since the income tax and Federal Reserve were established in 1913. He predicts terrible economic calamity will be the result of this debasement. Smith is not alone in this view; evidently Rep. Paul Ryan shares it, too (h/t Paul Krugman).
Mind you, this is a slight overstatement according to Bureau of Labor Statistics (BLS) inflation data (www.bls.gov, series CUUR0000SA0, set date range for 1913 to 2013). This shows that the Consumer Price Index has increased from 9.8 in January 2013 to 233.5 in June 2013, which implies a decline in the dollar’s purchasing power of only 96%. To put it another way, according to the BLS, today’s dollar is worth 4 1913 cents, while Smith says it only worth half as much, 2 1913 cents. Either way, sounds pretty awful, right?
Of course not. This is another example of something I wrote almost two years ago: “When someone tries to get you to focus on only one part of a complicated picture, it’s a safe assumption they are trying to mislead you.” The most obvious omission of the “debasement lobby” is the fact that pay levels have risen a lot since 1913. A single dollar does not buy as much as it did in 1913, but people get paid a whole lot more dollars per hour/week/year than they did, then, too!
What actually matters is not how much the dollar is worth, but the ratio of what people get paid to what the dollar is worth. If your dollars earned rise faster than the value of the dollar falls, that is the very definition of rising real wages! And the Lord knows I’m well aware of falling real wages for the majority of workers since 1972; a post I did on that subject is my second-most read of all time.
Ultimately, what the debasement lobby is mad about is inflation. Smith claims that “real everyday price inflation is running at 7 percent or more per year…” Krugman has been doing yeoman’s work on this issue. We should note that the BLS has been calculating the consumer price index since 1919 and probably knows a little bit about what it’s doing. If you want to doubt its validity anyway, Krugman points us to MIT’s Billion Prices Project, which comes up with results very similar to those of the BLS.
So high inflation is not the problem we face. Low inflation is. With inflation so low, people get no relief from their debts, and have to reduce their debt as much as possible. When that happens, they buy fewer goods and services, so unemployment gets worse, and it’s already bad enough at 7.4% in July. Government could offset weak private spending with jobs programs, but Republicans have made it clear that they aren’t going to pass any jobs bills, so that route is shut off for now.
Let’s debase the dollar!
Cross-posted from Middle Class Political Economist.