This index, the sum of the CPI and the unemployment rate, will likely be the focus of next year's elections. I expect that CPI will be in a modestly rising trend for the next year, and it's likely that the unemployment rate will decline modestly. If those predictions hold, the Misery Index will be at least as high as it is today, and that will be enough to fuel discontent with the economy.
While the index has risen significantly since Obama took office (from 7.8 in Jan. '09 to the current 12.7), most of the rise is due to inflation, which rose from 0 in Jan. '09 to the current 3.6%. To be fair, inflation is the purview of the Fed, not the president, as I argued yesterday. The unemployment rate has only risen from 7.8% to 9.1% on Obama's watch, whereas it rose from 4.2% to 7.8% on Bush's watch.
Now Scott...no President should be
ReplyDeletejudged by Day One...Start a year later would be more accurate...
but I think you want to make political statement...so OK....
Agree with brodero... you're also comparing bad policies after a panic eith a tech bubble going bust, 9/11, etc.
ReplyDeleteWell, core CPI is 1.5 percent over last 12 months, and even that probably overstates inflation. I don;t understand the grasping by some to find inflation in a non-inflationary environment.
ReplyDeleteI know Scott is as bald as I am; he must have lived through the inflations of the 1970s and 1980s. That was inflation, and Volcker was right to tighten up, however painful it was.
1.5 percent is inflation?
Consumers are ticked off about gasoline prices, or at least the media says so. But gasoline has peaked at worst, and may go down.
"Embodied in Mr. Williams speech is the assumption that an increase in GDP represents an increase in economic output. That is why the Fed is unconcerned about rising prices (which it calls "inflation") and very concerned about falling prices (which it calls "deflation"). If there really is some link between money and economic output via a money multiplier, then increasing money is the simplest way ever invented to bring on prosperity. (By this reasoning, Zimbabwe was tremendously prosperous.)
ReplyDeleteSo if prices rise by 5 percent and people are buying the same volume of goods and services, then according to the Fed the real economy improved by 5 percent. If it doesn't happen — that is, if measured GDP fails to increase by 5 percent — then the government must deficit spend and the Fed must provide the funds at 0 percent interest. As the Staples ad says, "That was easy!"
Of course, the Fed's fixation with nominal GDP is the problem. As Jesus Huerta de Soto masterfully explains in Money, Bank Credit, and Economic Cycles, nominal GDP measures only final sales, and the majority of sales are not final sales but rather intermediate sales between companies. In fact, a growing economy in which people extend their time preference, save more, and consume less may actually record a falling GDP! The structure of production would be widened and lengthened, meaning that there are more stages of production and each stage gets larger. But GDP does not measure these intermediate stages.
Mises Academy: Robert Murphy teaches Keynes, Krugman, and the Crisis
Furthermore, in a sound-money environment GDP would be flat to perhaps slightly rising, because real money — that is, commodity money such as gold — increases very slowly. Yet economies can boom with increased real production; prices fall, meaning that an unchanged volume of money simply does more work."