Intel's Ronler Acres Plant

Silicon Forest

Monday, April 15, 2013

Chained CPI

CPI from 1993 to 2010. Note the bump a couple of years ago when the housing market tanked.

I read something about "chained CPI" the other day, and while it sounded reasonable, I've decided I don't like it. CPI is the Consumer Price Index and it is used to compute inflation, and since it is included in all kinds of things like wages and welfare, it's kind of a self-fulfilling prophecy. Prices have gone up, so we need to give people more money so they can afford to buy the same stuff, but now they have more money, so they can pay higher prices, so the CPI goes up. So we're on a treadmill, and as long the treadmill doesn't start going really fast, things are okay. Well maybe not okay, but better than if we were suffering from deflation, which could be really bad. Ever try running backwards? Doesn't work nearly as well as running forwards.

    Chained CPI changes what goes into computing the CPI. The CPI works as well as it does (however well that is) because it has a list of things it checks the price on. Chained CPI modifies that list to reflect what people are actually buying, or not, like beef. The price of beef has gone up tremendously, so people don't buy as much of it, so it comes out of the CPI (or becomes a smaller part of it) and the CPI doesn't grow as much and it makes things better. For somebody. I'm not quite sure who.
    The problem with this is that you can push it to extremes. The price of food has gotten so high that no one buys food anymore, they can only afford to buy gruel. So nobody is starving (we've got plenty of gruel), and the CPI stays low, so things are good, right? Sounds like North Koreanese to me.

No comments: