How Central Banks Created "Trumpism"
By Tyler Durden
Submitted by Brendan Brown via The Mises Institute,
In our time, the greatest source of money chaos is now the global 2%-inflation standard. Deflation-phobic central bankers, led by the FOMC at the Fed, are defying the natural rhythm of prices in a capitalist economy. Under sound money, there would be periods of both falling and rising prices.
Since central bankers choose to steadfastly ignore this reality, the result has been the emergence of three serious global asset price inflation diseases in just three decades. Their undermining of economic prosperity has shown up as a situation marked by low investment, malinvestment, and correspondingly weak real income and productivity growth. This has been coupled with episodes of huge profits for “Wall Street,” and the resulting increased inequality has made fertile ground for populism both on the left and the right. Meanwhile, the intensified regulatory state, which populism has helped produce, has compounded the economic malaise.
The Role of “Official” Productivity and Inflation
A principal tenet relied upon by the architects and advocates of the global 2% inflation standard has been that productivity growth is greater than is reported, while inflation is less than reported — according to the official statistics. And so, 2% inflation on the official measure might be only 0-0.5% in reality.
Meanwhile, the central bankers claim, statisticians are not correctly measuring the improvements in our daily lives that new technology brings. Price measurements, we’re told, don’t tell us enough about how much value is added by innovative products, such as time saved, or safety gained. The effort to include these improvements within the price measures is known as hedonic price accounting. Hedonics is designed to measure the fact that automobiles technology, for example, makes cars safer and more comfortable than you think. Yes, cars are much more expensive today — the argument goes — but we have to factor increases in quality and efficiency into modern prices. If you take this into account, the central bankers claim, then inflation is actually lower than you think, because the products we buy are all of higher quality now, and we’re getting more for our money.
Thus, if a piece of medical software does more today than 20 years ago, then inflation in the price of that good is actually less than the statistics suggest.
This Is Nothing New
The same point concerning price statistics could have been raised in the gold standard years of say 1870–1914, or in the 1920s, or the 1950s and 60s.
During those periods, incidentally, there was no hedonic price accounting then at all — so stable prices as measured by the available statistics would have been equivalent to say 1–2% “deflation” under today’s measurement techniques.
The transition from canals to railroad transportation — or from ice cupboards and salting to refrigeration — evidently had benefits which transcended crude price gathering by statistical offices.
Technological Innovation Has Both Costs and Benefits
Broader economic reflection suggests that the statisticians in the pre-hedonic price adjustment age — which began in the 1980s and was …read more
Source: How Central Banks Created "Trumpism"
