"Today you can buy an iPad 2 that costs the same as an iPad 1 that is twice as powerful," Dudley said in Queens ... You have to look at the price of all things."
That statement may have gone over well with my neighbors on the Upper East Side of Manhattan where these well to do citizens do purchase all sorts of gadgets such as iPads and where food is not an overwhelming part of their consumption basket. But I would to venture to suggest that in some other New York neighborhoods, their consumption basket does not include gadgets such as iPads. Mr. Dudley should admit that we don’t all have the same consumption basket when he says we have to look at the price of all things.
Really. Those who favor our discretionary monetary policy do this all the time to discount the inflationary signals from gold and other commodities. They say yes, food prices are high, but house prices are low so there's no inflation. St. Krugman does this quite often.
ReplyDeleteIt depends on your assessment of the role of the Fed. IMHO the Fed is to control the value of the currency and to do what it can about unemployment that happens when the hoarding of money (and the sucking on "interest") destroys real entrepreneurship. When the zero bound is reached then the Fed must start buying T-Bills in order to drive the REAL interest rate LOWER. This then appears as _MODERATE_ "inflation" as opposed to DEFLATION.. What we are seeing is gold speculation (that will abate), oil prices driven by middle east unrest, and crop failures caused by climate change. To assign cause for this REAL LIFE shit to the Fed is ridiculous. Yet it seems that this is the song of the Bernanke bashers as they harmonize in stupidity.
ReplyDeleteIf you want a "stake in the ground" with which to measure the stability of the currency you can chose between REAL value (which is the amount of general purpose labor commanded by a dollar), or you can choose the average price of land in the sovereignty. Adam Smith was exactly correct about value being the "command of labor". So too was Malthus when he observed that population causes economic rent such that it is more difficult to wrest a living from the FIXED natural world.
ReplyDeleteThe measure of general purpose labor is most accurately reflected in gold. You just dig it up.
ReplyDeletewhile where i live the streets are paved with gold, i realize those who have made bad choices in life or are biolgogically disadvantaged dont have this comparative advantasge, so i think a dirt standard would be the true mkeasure of value---you just dig it up.
ReplyDeleteYou know, we don't have to rely on stereotypes for this stuff -- there are actually statistics on expenditures by income. And if you look at them, you'll see that the share of income spent on "audio and visual equipment" actually falls with income -- i.e. the price of iPad like-stuff makes a bigger difference in Queens than on the Upper East Side. Food expenditure shares do fall with income, but only moderately -- from 16% of income in the bottom quintile to 11% in the top quintile. There are no Americans for whom food is an "overwhelming" share of the consumption basket.
ReplyDeleteSo Bernanke is right, and you are wrong. Or rather, he would be right if the price of iPads were actually falling. But they aren't, it's just we've got this hedonic pricing scam that says that one of this year's iPad's represents the same quantity as two of last years. Which is indeed BS, but not for the reasons you give hear. Sorry.
JW - great information. But if the share of food in one's consumption basket is 8 times the share of audio and video equipment (16% v. 2%), unless the drop in the price of the latter is 8 times the rise in the price of the former, then real income falls. I didn't say the folks in Queens saw an overwhelming drop in real income. In fact by at least one measure (CPI for finished food goods), the last year has seen an increase less than 2%. But other measure of food prices show a larger percentage increase. I guess both food and audio and visual equipment are overly broad measures to settle the dispute between the Queens residents v. the NY FED President.
ReplyDeleteWhat % is food in the basket of the average Egyptian? Don't we have some responsibility to the countries which have pegged their currencies to the dollar?
ReplyDeleteWe have absolutely _NO_ responsibility to other nations that peg their currency to the US dollar. The currencies are to float as opposed to having trade barriers. The American middle class is taking it in the shorts from the pegging sovereignties. Here again, it was not and is not loose monetary policy that causes the escalation of food prices in Eqypt. If the American dollar falls in value then the Egyptians should get relief on food that is exported from the USA. And that _IS_ what the USA exports a lot of. The sovereignties that "peg" to the dollar are ripping off the American producer class.
ReplyDeleteCountries pegged to the dollar because it was the most stable currency. The expectation was that if they go it alone they would have even higher inflation.
ReplyDeleteStable currencies are better than unstable ones, don't you agree?
Floating exchange rates are a substitute for trade barriers. Any time the gummint wants to reinstate import duties then we can have fixed exchange rates. The fixed rates without the duties is a killer for American middle class prosperity. A dollar peg is a fixed exchange rate. I do not agree that currency stability is more important than middle class prosperity.
ReplyDeleteThe problem with QE2 is that it is too anemic, just as the stimulus was too anemic.
That's funny because the history of the middle class since the introduction of floating currencies has been a long slide downwards in every measure.
ReplyDeleteMy guess is you don't care about the middle class at all Mr. Trucker.