Guest Post by Karl Denninger
Two articles pertinent to this, both from The Washington Post.
Trump appears to blend economic conspiracy theories with magical-thinking accounting: Stocks are a bubble inflated by “easy money”; government regulators have taken control of banks and choked off lending to everyone but the rich; the “real” unemployment rate is closer to 20 percent than 5 percent, and his crowd sizes prove it; cutting taxes and renegotiating the terms of trade will reinvigorate the economy and the middle class and somehow pay off the federal debt within eight years.
Magical thinking accounting eh? You mean like the premise that deficits are free? Uh, no — they immediately increase the number of dollars in the economy and that is the definition, from a monetary perspective, of inflation.
Now you might think not, but gee, just because you can’t control what prices go up (without using guns) doesn’t mean they didn’t go up in aggregate. If CPI doesn’t show it, well, that’s because CPI only looks at some prices, and then weights them according to what is truly a magical formula for most people; it overstates housing, transportation and food, for example, for those that make well north of $100,000 a year while dramatically understating those same expenses (as a percentage of the whole) for those who make $20,000/year. Indeed, by using “owners equivalent rent” instead of actual house prices it also dramatically falsifies the actual impact for those who own houses — in both directions.
If stock prices go up that is a price increase but it doesn’t show up in CPI-U or CPI-anything else.
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