From the comments

John Thacker, on democracy:

Here’s a Hill poll on inflation, and here’s a Gallup poll, and here’s a Rasmussmen poll.

While all differ on the exact numbers, they agree in broad strokes. The median voter is highly worried about inflation. Democrats are worried less about inflation, but still quite a lot. Indpendents are virtually indistinguishable from Republicans in worrying a lot about inflation.

That means that the inflation/hard money bit from the GOP is not an appeal to the base. It’s actually a reach to the center.

Worrying about inflation may be wrong– and I think it is wrong, according to the data– but it’s an attempt to go after the median voter, not play to the base.

Scott Sumner and Arnold Kling have related comments, and most directly here is Scott Sumner again.


Why do you think worrying about inflation is wrong? The prices of the things I buy have been rising fairly rapidly: food (sometimes by package contents shrinking), fuel, clothes, entertainment... and this while the government has been spending pure fiat paper (the Federal Reserve has been monetizing the Treasury's debt instruments). If we can't call open monetary dilution accompanied by rising prices for everything except overbuilt housing (itself supplied by the government (GSE's) loaning money at subsidized rates) "inflation," then when can we use the word?

The only reason "interest rates are low" is that they are artificially suppressed by the US government and some mercantalist foreign governments. Private parties are not lending because they can't charge more than the Fed, which is determined to supply an infinite amount of nominal dollars at near zero-percent. Private parties are not borrowing because they can't figure out how to hold on to a profit when the government is rapidly destroying savings with inflation, and threatening high taxes to boot

Where is this clothing inflation? The only things that I see going up are petrol and food. Even natural gas has fallen.

And though petrol prices are up the cars are getting better mileage:

The 2.0L engine in the Kia Soul 2012 generates 160 horsepower – a 13 percent increase over the previous 2.0L engine. The 1,6L engine is 10 percent more fuel efficient than its predecessor and has a rating of 28/34 mpg city/highway, while the more potent 2.0L unit achieves 27/33 mpg city/highway.

Oh, I see! So, fuel isn't getting more expensive, because cars use it more efficiently now!

*smacks forehead contemptuously*

Hey, I guess prices (denominated in gold) weren't _really_ going up during the Spanish New World conquest because the new base 10 number system let them do their accounting cheaper!

Well, let's try this thought experiment (sorry, I'm going to use metric units - at some point, Americans are simply going to have to leave the 18th century behind) -

1990 diesel car uses 15 liters to drive 100 kilometers - 1 liter of diesel costs 1 dollar

2010 diesel car uses 5 liters to drive 100 kilometers - 1 liter of diesel costs 2 dollars

Price of fuel has doubled in 2 decades, cost to drive 100 kilometers for the owner of the 2010 car has fallen by a third. This isn't really hard to understand, actually - at least in a place like Germany.

You may want to ask someone who actually manages a vehicle fleet how this works, by the way - it could be quite enlightening. It might even explain why a country's auto industry that ignores such basic mathematics gets crushed in world markets over a couple of decades. Or does Detroit now offer 50mpg diesel cars like VW does?

I love this game: "Hey, $500 for a roll of toilet paper isn't *really* inflation, because -- for some reason -- you just learned how to use one square each time you go! Don't you feel so much better?"

You mean used to be going up this summer.

Clothing at the high end is way, way up. A decade ago, a top-of-the-line tie cost $100. Now, $250. A top ready-made suit was $1,500. Now, $5,000. Bespoke clothing has gone up similarly.

Is any of this throwing poor families out of their homes? Obviously not. But a level of luxury that was once available to the middle class as an occasional splurge is long gone. (The same holds true for top-flight meals and hotel rooms.)

Other than that, I haven't seen much clothing inflation.

I love these types of responses because they serve as evidence that libertarianism is a religion.

On the flip side, I'm on the market for a new bed and mattress. I was last year too, but put it off when I got busy with other stuff. I personally haven't noticed much change in terms of entertainment or clothing, but I admittedly don't buy either too often. Food and energy...well, those are volatile and subject to things like crappy weather, speculators, seasonal variations, etc. There is a reason they're left out of the measures used when deciding monetary policy.

But in your case and mine, we're both using personal anecdotes which are ultimately pretty meaningless. Luckily there is data on this stuff. So what does the data say is happening? (and yes, there are problems with how various forms of CPI are measured, I realize that).

here a poll of another kind:

US 10year breakeven is less than 2%

the loner term 5yr chart shows nothing's new, except volatility....and inflation looking lower than before.

The questiom at hand is whether the median VOTER worries about inflation, not the median bond trader. The median voter is not in the bond market as an active agent, so the median voters concerns are not the same as the bond market.'s a poll of another kind.

besides, the new problem is the same as the old problem: median wages not keeping up, especially to frequently purchased goods...been that way a long time now....same as it ever was.

You are correct it is a poll of those who are in the bond market and buying or selling bonds on that particular day. Just like the local receipts at the QuikTrip on the corner are a poll telling me how many people want to buy cigarettes and aren't willing or able to drive 40 miles to the nearest Indian Reservation.

so it is not inflation, it is just median wahes not keeping up? If that is not inflation how would you describe a scenario where wages are increasing at a rate of 25% and yet prices are climbing at say 13.5%? So that isn't inflation? So if I went to West Texas in 1980 and looked at the subset of field petroleum geologists in the oil fields, we could say that they experienced no inflation because they were in a very tight job market? That is an interesting new definition of inflation.

I wasn't even saying anything about whether inflationary expectations are real, just that the evidence suggests that the median voter cares about inflation.

To the median voter, wage inflation is a good thing, goods inflation is a bad thing, and staples inflation is a horrible thing.

There is no wage inflation, goods inflation is middling with a bit of searching, but staples inflation is high. The median voter only sees bad inflation. Even if the economists see no inflation, the median voter does, and that's all that matters.

This seems pretty darn obvious.

Exactly. Plasma TVs and coffee machines might continue to get cheaper every day, but plenty of people are seeing increased prices for food, energy, health care, education, and (in some places) housing. That has a real impact.

Only if they suffer from confirmation bias and/or think it's still June.

For the unemployed and lower class segments, staples inflation is disastrous.

Yes, people worry about inflation...rising prices are a bummer to anyone who wants to buy stuff. And yet, I agree that the "typical" household--who has some debt should welcome a bit of inflation. (Flip side for creditors who should totally dislike inflation.) Setting inflation aside, losing your job or being worried about losing your job (and all the negative ramifications that comes with job loss) also worries people a lot these days. Cherry picking data about inflation leads to confusion.

Why would they? Their wages aren't going up, so their debt service costs aren't being done with "cheaper dollars", at least from their perspective.

Debt loads shrink for the middle class only if there is wage inflation. Without wage inflation, there is no adjustment in the real value of the debt load.

If you accept the sticky wages story and if you think that moving to another job may be difficult in today's economy, you may be worried that your income won't rise to allow you to wipe out your debt on favorable terms.

I think Thacker's got it backwards. That is, GOP/anti-interventionist economists and the business press have made the median voter afraid of inflation rather than the other way around.

Yes, I am sure the Pakistani taxi driver in Canada I talked to yesterday was worried about inflation because of the Wall Street Journal and Michele Bachmann and not because shit is getting expensive.

Because you think your Pakistani driver doesn't consume news "opinion?" That's silly. (You know he/she drives a car and listens to the radio all day, right?)

Bingo. There is a feedback loop. I think a lot of people have been discounting the degree to which ideological rhetoric not only reflects public mood but influences public mood. Do the ideological opinions being vocalized by right wing politicians for the last 6 years help or hurt consumer confidence? Did the debt ceiling debacle help or hurt the economy? Does this rhetoric that now permeates every aspect of our national politics help or hurt hiring and business confidence? Is the fear of inflation that grips the business and consumer communities a rational fear based on empirical data, or a reaction to the rhetoric they've been hearing non-stop? Does the common fear of restoring income tax rates to the already-historically-low levels of 10 years ago reflect reality from a historical perspective and prevailing economic theory, or is it an irrational fear caused by extreme political rhetoric related to the issue?

I believe the answers to these questions are obvious and uncontroversial if one is willing to be intellectually honest.

Similar to when folks in the comment threads on this site were cheering the debt ceiling mistake, I think people are cheering for a big mistake when they trumpet inflationary fears during a time of severe deflationary danger according to empirical data (but of course not according to every little piece of anecdotal evidence that an ideologue might latch onto, like how much gas has gone up).

There seems to be an implicit assumption that higher inflation would lead to higher employment. I don't know if that is justified.

I don't think it's an assumption, I think it's a conclusion based on the macroeconomics.

Not assumption, not conclusion.
That's what "science" is supposed to do: IF X is done, then Y is result.
If higher inflation, then higher employment, IS the prediction of those arguing for more inflation.

If austerity in Ireland, then disaster for a long time, was the prediction of Krugman -- prediction is false. (See earlier post)

But macroeconomics is, unfortunately, NOT a science.

The "fear inflation" folk have been claiming: printing dollars, QE I, II, and huge deficits, will lead to inflation.
People see food and fuel going up in price. People define inflation to include food and fuel. -- prediction is true.

The Fed, for various technical reasons of volatility, excludes these two most obvious fluctuating items.
The Fed/ "macroeconomic" definition of "inflation" is NOT the same as the median poll answerer, or voter.

If the inflation is based on tax cut deficits, letting wealth creators keep more of the wealth they create, then more inflation would lead to higher employment. If the inflation is based on gov't crony capitalism unearned wealth spreading, so those who do NOT create wealth enjoy higher consumption, then the inflation will not lead to higher employment.
Not all inflations are equal.

There is a way to have inflation and eat it too, the money drop. If it creates inflation, it provides the money to pay for it, thus no real inflation.

If it creates inflation, it provides the money to pay for it, thus no real inflation.

Assumes homogeneity of responses. I am guessing you and I would do well with such drops, but we aren't typical.

Scott Sumner says it best when he says that the median voter thinks inflation is all about gas prices. Therefore these polls are moot since the the word "inflation" isn't even the correct word.

Challenge: Why is information being taken as evidence of stupidty (and therefore a critique "of democracy"), rather than as evidence of flaws in collecting the data.

"Objectively" low inflation is not supposed to coincide with a widespread impression of rising prices.

"...low inflation is not supposed to coincide with a widespread impression of rising prices."

True. But what about the following?

"...a constant drumbeat by virtually every single right wing politician, right wing radio host, right wing TV pundit, and business press editorial on the looming danger of inflation is not supposed to coincide with a widespread impression of rising prices."

I believe that statement would be false. And the beginning clause of that statement has been occurring in this country for quite some time. Correct?

Note: I myself am "right wing". I do not use the term "right wing" as a derogatory phrase.

This is a very interesting post because it misses something about consumer survey data, in this case, about inflation.

Consumers predict the future by looking at the past, and coming off of high gas prices last year, extrapolate. They do not predict the future.

"Consumer expectations regarding inflation are almost perfectly correlated (the correlation coefficient = 0.94) with actual inflation over the previous 12 months, but significantly less so with future inflation. And on the spending side, consumer sentiment is also much more correlated with the change in real spending that took place over the past 12 months (coef = 0.76) than over the coming 12 months (coef = 0.42). So for both inflation and spending, the consumer survey data tells us much more about the past than the future. Something that's important to keep in mind when trying to read the economic tea leaves." Here:

So, please go plan a campaign on a fear of inflation. If we have low inflation (or even housing and other deflation, including energy) next year before the election, you will have wasted your money on a poor campaign them.

How's gold doin' lately?

Up over $100/ounce since July 1.

From the AP:
"Gold prices sank Monday, sending the metal below $1,600 an ounce for the first time since July.

Gold slumped $45, or 2 percent, to close at $1,594.80. Silver dropped 0.4 percent to end at $29.976 an ounce.
Gold plunged 9.6 percent last week, following the stock market lower. Silver also lost 10.7 percent. The Dow Jones industrial average sank 6.4 percent that week, the biggest drop since October 2008 at the height of the financial crisis."

In other words, you had no point at all, did you, Bill?

My point is that inflationary expectations are measured by a market, not a survey.
What is the current interest rate on a 10 year bond?

Then, Bill, I pointed out to you that gold is up since July 1st, so inflationary expectations are up since then, by your own argument. Right?

Yancey, Gold dropped from 1900 on Sept 3 to 1620 (or there about) Sept 26 per my weak eyesight.

Here is the chart.

Hope you didn't buy at 1900. Think it will go to 1550?

I don't own any gold.

Your point is meaningless- what I was demonstrating with my first comment. Gold also went from 1600 to 1900 in almost a span of time almost as short just prior to the fall you are highlighting. What would you have said about it's meaning for inflationary expectations at that time? If gold goes up 50 dollars tomorrow, will you be back here worried about future inflation? I would think not, nor should you be. I find none of these markets particularly predictive of future inflation. If they were, we would not have had gold at 800 dollars in 1980, nor long term rates at 14% in 1982. Hell, we wouldn't have a 10Y under running rate of the CPI today. They are probably equally as useless as the surveys you don't want to pay attention to.

Yancey, We agree!. Using gold as a measure of inflationary expectations is just as valid as using a survey by consumers who look backward to salient prices to measure inflationary expectations.

I hope I didn't spoil your day by saying we agree.

And, for those who watch Glenn Beck, maybe you can get your money back.

My point is that inflationary expectations are measured by a market, not a survey. What is the current interest rate on a 10 year bond?

I doubt we agree completely, Bill. The sentence above doesn't really comport well with your last comment. Or to make it more explicit, I think you were actually using the bond rates and the gold price as an argument against coming inflation, but not having a reply to my point about gold's behavior this year, you are trying to bail out. I actually put as much faith in the surveys as I do these markets for predicting the future (not much at all), so if you agree with me, then you must be disagreeing with heavyweights like Krugman and DeLong, and certainly members of the FOMC who do pay attention to inflation expectations surveys.

Bill, who, exactly, are the dumb-f**ks buying these 10-year notes? People who want a hedge against inflation? No, insurance companies that have fixed dollar obligations (e.g. life insurance), and foreign CBs who want to conduct monetary policy. You have to be a complete idiot to think that 1.6% interest is going to make up for the inflation (let alone taxes) that will be imposed on it. Then again, you don't have much of an option, do you, unless you want to buy commodities?

ROFL! And as it turns out, gold DID gain more than $50/ounce the next day! (Sept 27)

My sentence re ten year notes absolutely comports with my CoMments on gold. Guess which one has an emotional component.

Silas, I am quite familiar with insurance company investments, and they shift to stock, real estate and other investments when yields flatten.

FYI: A team of researchers at the New York Fed and Carnegie Mellon has been investigating survey-based measures of inflation. Here's a summary of some of their interesting work: As with most research, they highlight much of what we don't know as opposed to what we know. If you are not a fan of surveys, then this work is unlikely to convert you. And yet, I would note that one of the "best" indicators of the business cycle--the unemployment rate--comes from a household survey.

I am not against surveys as to current spending, for example, but the issue in my mind would be much does this issue stand out in my mind at this moment. As the comment that I quoted pointed out, people tend to project based on recent prior experience. We are good extrapolators....just ask anyone who buys a stock because the stock is pointing upward. So, we have some cognitive biases. They could be relevant (if I am biased to believe inflation is coming, I might stock up), and therefore worth know, but they may not be predictive of what actually happens....gee, those tulips over there didn't do as well as I projected.

worth knowing, not worth know.

Claudi, That is a really good article and thanks for the link. I'm glad to see that they are examining the wording and the formation of expections from a behavioural perspective. Very interesting.

According to the US Dept of Labor Stats (, pretty much every kind of food is more expensive than it was a year ago.

White bread, 7% inflation in the last year.
Ground beef, 13% inflation in the last year.
Steak, 10%.
Bacon, 10%.
Eggs, 13%
Whole chickens, 3% (boneless chicken breasts are down: -2%)
Milk, 12%
Butter, 12%
Cheddar cheese, 21%
Apples, 17%
Bananas, 5%
Beer and wine, 4%
Coffee, 45%

Just sayin'


Just sayin'.

and yet that translates into increasing food proces which consumers see as rising prices. I understand why this is not counted as inflation, but try explaining that to my mother, who keeps seeing the price of a gallon of milk rise, believe me I have tried.

Just sayin'

If you are an economist, you probably have already broken your mother's heart, so she would probably grudgingly listen to your explanation, when all she is asking for is sympathy--and her SS check.

It's worse I am an economic geologist, so I get a farmer's tan and my hands dirty too...

The issue is purchasing power. Inflation wasn't that high over the last few years but wages sank, which reduced purchasing power. Inflation was higher in the 90s but wages kept pace, so purchasing power increased.

If "Inflation" means rising price levels, yes, the consumers are focused on those goods that are rising. Keynesians or, Keynsians who pretend to be contrarians, like Tyler, focus on b*llsh*t government data or manipulated bond markets to argue that inflation isn't the worry. But Austrians have always defined inflation differently, and, in my view, correctly...that is, as increases in the money supply. The inflation is pernicious and increases in the money supply affect people disproportionally..the people who get access to the marginal money (typically banks and governments) essentially get a windfall and those who get access the latest (typically, you and me) get wealth confiscated from us. The average voter knows a few things, two of which are that (1) economics is largely magic masquerading as science and the same genuises who failed to predict the collapse are now assuring us that there is no inflation to worry about and (2) that the money supply (fuled by debt) has increased ridiculously in the past few years.

Some prices have gone up, some have been stable and some have declined. But that is a signal, a symptom. The inflation HAS ALREADY HAPPENED and of course it is reasonable to prepare for its effects. Pull the wool out from under your eyes. Von Mises and Rothbard, and to a lesser extent, Peter Schiff have been shouting these lessons...Keynsian alchemists can brush off the warnings all they want, but were they to be honest, and not slaves to their own egos of econometric claptrap, they'd admit it.

You mean consumers are focused on the goods that used to be rising.

Inflation is a funny thing indeed, and perhaps more than any other subject to confirmation bias. People notice when the price of something goes up. They don't notice much when it stays the same, even if it's been the same for a very long time.

That's one reason you need stats to tell you what's going on with overall price levels. If you don't like government measures, or TIPS spreads (not sure how you think the two compared bond markets are being manipulated, but whatever), there are private numbers you can use too (for example And, of course, you can just look at the yield curve. None of them show much inflation or expectation of inflation.

But its a bit ironic that you call economics "magic" and then wholeheartedly endorse Austrian dogma (incantation?) that money = inflation when there is quite a bit of scholarship that shows that incantation to be suspect.

Yeah, but are the people answering the poll questions using the the wacky heterodox definition of inflation that you are?

But what's the need for resurrecting this old screwy definition of inflation? You can just say, "The monetary base has increased a lot." That's true, and it's a statement any economist will understand. It's much clearer than using a different definition of a word commonly construed to mean something else entirely. When I see people try to use that old definition, it's usually during an attempt to confuse and contort arguments. Just say the "expansion of the monetary base has had the following effects...." If the argument holds water, it'll hold water. If your argument relies on having to redefine terms in a confusing manner, it's probably not the greatest argument.

Heck, I can make a whole lot of arguments that are "true" if I have the freedom to redefine words and terms as I see fit. It doesn't make them good arguments though.

"HAS ALREADY HAPPENED" -- exactly right. Unless, my 40-60K education that Tyler, his cronies and the political class promulgate as a must to succeed is _really_ worth more than when my parents received theirs.

Whenever I see things like this, I wonder about endogeneity problems. Are politicians talking about these things because they show up as important in the polls or are they showing up as important in the polls because politicans talk about them? Or both? Is there a reinforcing feedback loop? You end up with a sort of chicken and the egg problem.

Someone needs to come up with a good instrumental variable and IVREG2 the crap out of this mofo.

Headline inflation has averaged 1% over the last three years. Forecast are that it will remain below 2%. If the lowest inflation in 50 years has produced a high level of concern about inflation, it's a good bet people mean something entirely different by inflation than what economists mean by the term. Economist believe the housing crash dramatically reduced the price of a bundle of goods. Do consumers worried about inflation view the 32% drop in house prices that way? Is it "good news" to them? I think we all know the answer, which makes the polls Thacker cites completely meaningless. Consumers are basically upset about gas prices, and some food items.

"Consumers are basically upset about gas prices, and some food items."

This exactly. Which are also some of the only things where exact, direct year--to-year comparisons can be easily made for most consumers. The new TV you buy might be more expensive than the one you bought five years ago, if you even remember exactly what you paid back then. But it sure is a helluva lot better of a TV than your old piece of junk CRT! On the other hand, the gas you buy today is no different than they gas you bought a month ago, a year ago, 10 years ago, or 20 years ago. But it sure costs a lot more. Ditto for a lb of ground beef, a dozen eggs, a bunch of bananas, a loaf of bread, or a gallon of milk.

Yep, salience of repeated purchases, even though those purchases are not a big portion of your total purchases for the year. Lamp prices, furniture, etc. are lower, as are computers, but because you do not purchase them regularly, each time you purchase is a new experience. But, you do watch that gas sign when it goes up, smile when it goes down, and still think about gas inflation even though it is lower now than it was 3 months ago. Who said we are rational economic creatures.

I would LOVE to see a 32% drop in house prices ... you know, when it actually happens, and people hogging up that real estate finally face reality. Until then, this supposed 32% drop is just fantasy, an extrapolation to what non-idiotic, non-jerk homeowners would sell at.

The most recent measure of year-over-year consumer price inflation (August 2011) was 3.8%. The increases were widely distributed: 4.6% for food, 3.8% for new autos, 5.4% for used autos, 4.2% for apparel, 3.3% for medical services. In a time of stagnant wages, it would be mysterious if people did *not* believe that these price increases are making them poorer. The pro-inflation crowd damages its credibility by spinning stories about core inflation, treasury bond rates, backwards-looking predictions, gas-price fixation, and all the other comments here that portray current inflation as imaginary.


From the same press release:

"The 12-month change in the all items index edged up to 3.8 percent
after holding at 3.6 percent for three months, while the 12-month
change for all items less food and energy reached 2.0 percent for the
first time since November 2008."

If you are not aware that inflation in the real world, including utilities, insurance, taxes, schooling, repairs, etc. is greater than 5% and has been for many years, you don't track your budget very carefully.

1. If salaries aren't going up, even very modest inflation strikes you as disastrous.

2. My totally unscientific theory is that economists way underestimate the danger of inflation because they never consider this harmful effect: it makes people totally unable to figure out what they should be paying for things. Even in low inflation, prices are doubling every 35 years, which means my mental set of the "just price" for a whole bunch of stuff is set where it was when I was 10, at half of today's levels. Now, if I make a conscious effort, I can mentally adjust, but only on some things. I would be a far more rational consumer — and thus markets would work better — if prices were generally level.

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