Wednesday, December 14, 2011

Krugman Attacks Back with an Absurd Chart

In my earlier post in response to the Paul Krugman's attack on Ron Paul and me, I ran a chart of climbing CRB, which has been in big time ascent since the 1970s. Krugman has now responded to this by running this laughable "smoothed" inflation chart. He averages the percentage inflation growth over a three and four years, which then shows that the CPI growth has been under 4% since the 1990s.

Who the hell is Krugman trying to fool with this chart? 

This is what he writes about his chart:
One way to try to get past the noise is to use one or another definition of core inflation, which I think is necessary if you want to catch underlying inflation trends early. But to get a historical picture, it’s good enough just to use longish averages.
Since he snidely also comments that
And remember, ever since the Fed began expanding the monetary base in 2008, the inflationistas have been screaming that hyperinflation was just around the corner.
It appears that he is trying to insinuate that inflation hasn't been that bad. Well, let's unsmooth  Krugman's chart. Here's what really went down for the period that Krugman has "smoothed":

Prices have pretty close to tripled! The CPI index has climbed from 80 to 220 plus. Yet, Krugman by creating three and four year "smoothed" charts attempts to give the impression that price inflation is flatlining over the period at a relatively benign rate.

Further, as part of the "smoothing" he is also attempting to imply that his smooth line inflation rate is going to continue. He has no basis for this at all other than econometric voodoo that says the future will be like the past. I have written before about econometric voodoo. Part of the subprime mortgage crisis was because an econometric assumption was made that mortgage default rates would be the same in the future as they had been in the past. This despite the fact that a key factor had changed once mortgage syndication started. The originators under syndicated subprime mortgages got paid only for originating mortgages and did not care about the quality of the mortgages, since they assumed none of the risk. This factor was one key factor that resulted in a soaring default rate among subprimes. The hedge fund, Long Term Capital Management, is another example of an econometric assumption. This time about bond rates. They assumed bonds  would act in the future the way they did in the past. Boom! LTCM lost billions, when bond rates didn't act like they had in the past.

In the world of price inflation, a huge factor has also changed. Since the financial crisis, on a stop and go basis, Fed chairman Ben Bernanke has pumped new money into the system, at times, at the annualized rate of 25% plus. When the price inflation at the consumer level hits because of this money printing, it will be so big that it will  blow up even Krugman's "smoothed" 3 and 4 year charts. What do I expect him to do at that point?  Bring out posts for his loyal band of Krugmanites of 10 and 20 year "smoothed" inflation rates to "prove" that inflation is nothing to worry about. Don't worry, if he can sell Krugmanites on 4 year "smoothed" nonsense, when  the CPI has tripled during the period, he'll be able to sell them on 20 year "smoothed" rates, even when they are paying $50 for a cup of coffee.


  1. Your graph is not Krugman's "unsmoothed". Your graph and Krugmans are showing totally different variables. You're comparing a graph of inflation rates to a graph of price levels. The two graphs say the same thing: the rate of inflation has been fairly steady. If inflation rates are fairly steady, then prices increase at a fairly constant rate. That's what having steady inflation rates is all about.

  2. @9:29

    RW was right. You Krugmanites will swallow anything. RW shows a chart of CRB tripling over a period when Krugman shows nothing but a flatline inflation rate. What is more instructive to the average consumer, Krugman's flatline or the tripling in prices that RW identifies?

  3. Product Shrinkage Inflation (Same Price, Less Product):

  4. Every single economist on the planet understood the deflationary forces after the crash of 2008.

    Krugman predicted deflation and has been dead wrong.

    Since March 2009, the price of oil has gone up 150%, the price of wholesale food by appr 100% and the price of metals by appr 100% or more.

    Clearly Mr Krugman has been wrong on all accounts, including his call for a crash/recession this fall or on the price of gold last 10 years.

  5. You are plotting the absolute increase in prices, not the rate of inflation. Are you suggesting that we need some deflation to somehow balance out the low inflation we've had over a long period of time? That would not be very beneficial to the economy.

  6. @9:29

    By showing the actual ascent of the CRB, Wenzel is not showing a graph of "price levels", he is showing the actual ascent of the price level, which in my book shows the unsmothing of Krugman's chart, right down to the raw data.

    It is the unclothing of Krugman's misleading chart.

  7. Paul Krugman used a three and four year inflation rate chart. You used a consumer price index chart.

    The key word here is rate. The CPI is a sort of rate (to the base year) but not the same sort of rate the Dr. Krugman is using. But you knew that didn't you?

  8. You don't understand math. His graph is of inflation rates. Yours is of actual prices.

  9. @9:29,

    Um, doesn't look like they say the same thing to me.....

  10. Pete, @9.47
    I really don't understand why the krugman chart and the wenzel chart are not the same.
    Wensel shows about 30-40% between 1980 adn 1990, that is, rougly, about 3% a year, which is just what PK shows
    Or, from 1986 to 2006, 20 years, PK shows roughly 2-4 % a year; say 3% as a back of the envelope
    3% a year, every year for 20 years is...60% (neglecting compounding)
    Wenzel shows prices go from 110 to 200 about 60%, with compounding
    sure, there are some second order differences, but by and large, aren't tehy in agreement ?

  11. What a idiotic post. If your belief is that recent Fed injections of money are supposed to cause massive inflation, then both your graph and Krugman's graph disprove that belief in no uncertain terms.

    Unless you think that recent Fed actions whipped back in time and caused all cumulative inflation of the last 30 years, then it is abundantly obvious that their actions have not led to abnormal levels of inflation.

    Just admit that you're wrong. It's less embarrassing than being both wrong and stupid.

  12. Krugman's point is simply that he was right and you were wrong regarding inflation. You said the 2nd half of 2011 would see inflation and you implied that it would be significant. You were right in that there has been a slight uptick in recent months but wrong in that the annual rate is still below 4%. Either the FRED data or the Billion Price Project shows this. Your claim above "Prices have pretty close to tripled! The CPI index has climbed from 80 to 220 plus." is completely disingenuous - prices have tripled ---in 32 years!! No matter how you slice it, there simply hasn't been a significant surge in inflation.

  13. That's your argument? Prices have tripled in 30 years? A period that includes the 80s, by the way, when there was genuinely high inflation.

    Tripling over 30 years works out to... 3.7% annualized. Wow. Sounds like the apocalypse is around the corner.

  14. @10:19

    The problem is not that the data is different, It is not (which by the way contradicts @9:29 who doesn't understand that the data are the same---along with some other commenters here) but that Krugman is attempting to give the impression that inflation over recent decades hasn't been a big deal, when in fact prices have tripled since 1980!

    That's obvious from Wenzel's chart and is completely hidden from Krugman's chart, unless you are an idiot savant and can figure 4% compounded over 20 years in your head. And since some of the Krugman trolls can't even get that Krugman and Wenzel are providing the same data (In other words, you can produce Krugman's charts from the data in Wenzel's chart), I find it hard to believe that these mathematically challenged at a 7th grade level, are suddenly going to recognize that 4% compounded over 20 years is a near tripling.

    Put simply, the Krugman trolls aren't that bright. Krugman knows this and that's why he is able to trot out the misleading charts that he does, which allows the Krugman trolls to stand on their lap tops and cheer.

  15. Umm... the inflation rate is defined as the percentage rate of change of a price index over time. So your chart of the Consumer Price Index should have a logarithmic scale on the Y axis. If it did, you would have to admit that we are in a long-term period of disinflation (a decrease in the rate of inflation over time). But since that wouldn't jibe with your already-formed opinion, better to ignore the facts and show a misleading chart.

    Per Stephen Colbert: "I'm not a fan of facts. You see, facts can change, but my opinion will never change, no matter what the facts are."

  16. Pete - thanks (@10.29)
    I just happen to disagree; I guess it depends on your perspective. To me, saying inflation is 4% a year, which seems modest, is a reasonable way to characterize things; after all, most of us, in our daily life, except for retirement and housing, don't deal with stuff that last more then a few years - say 15 at the outside for a car, on average.
    I think, if I may say so, that you are skipping past on of PKs main points, which is that many people predicted high inflation in the wake of hte bernanke/obama policies - and , as of yet there is no inflation, to date.

    I also don't undertand why you have to be so vituperative;

  17. The graph shows the same data differently (you're showing cumulative rise while Krugman is showing yearly differences), but indeed at least your y-axis needs to be on a logarithmic scale--20 points at the start is a huge amount of inflation, and at the end it's not much at all. If you did that, you'd see that inflation came way down over that period (in fact, I think you'll see it even better than you can in Krugman's graph).

  18. @10:26:

    The premise of your argument is that the Fed has just begun printing money in the past few years, which anyone could tell you is false. The Fed has improved its money-printing efforts the past few years and one of the things I am fortunate enough to have learned while reading EPJ is that the money that the Fed prints doesn't directly effect the economy until it is actually injected into the economy. Hence Bob Wenzel's "When the price inflation at the consumer level hits because of this money printing..."

    One thing I think Krugmanites could really benefit from is learning how money is created. I, for one, believe that one cannot offer an accurate analysis or state a worthwhile opinion on the economy without learning this fundamental concept.

  19. @10:40pm

    Yes, the data represent the underlying same phenomenon. Mathematically, Wenzel's chart is the integral of PK's. But, saying they are the 'same' is akin to saying the speedometer and the odometer on your car are the same.

    Also, yes, over ~30 years prices tripled (80->230). This is a compounded annual inflation rate of 3.36%. If instead, it had been the ~2% that is oft-quoted as near-ideal inflation rate, then prices would have doubled (80->160). Would this still be a "big deal"? How small of a price change does it have to be over 3 decades to be OK?

  20. Really... It's completely obvious what RW's point is, why are people trying to make it look like it's about CPI vs rate of inflation? Be serious!

  21. I see now why Krugman loves picking on you. It's like fishing with dynamite. Not only does your graph not disprove Krugman's argument, it actually disproves your own. The slope of the line remains largely constant (in other words, a constant rate of change, consistent with the 'flattening out' that Krugman's chart shows) even after the period in which you suggest we should see massive inflation. The chart that would be comparable to Krugman's data would be the first derivative of this graph over the same time period. It's shocking to think I have to ask this, but: do you understand the difference between a graph of absolute change and a graph of the rate of that change?

  22. The debate is over. We have won. Otherwise, Krugman would not ALWAYS engage in deceit and obfuscation but would spell out the best Austrian case followed by his critique.

    But no anti-Austrian will ever do that because they cannot. Just because we have won the debate does not mean our troubles are over.

    Speaking of deceit and obfuscation, Hannity and Bill Bennett have started beating the “racist” Ron Paul newsletter again. People only act like this when they have nothing substantive to offer in response. This is the essence of the problem we face and it truly is a problem.

  23. So you're saying there's no difference between consumer prices and monetary inflation? I don't know very much about economics, but aren't those two different (if somewhat related) factors?

  24. The CPI is a joke of an index anyway. They use every conceivable trick in determining the CPI to make inflation appear lower than it really is.

  25. So let's break this down.

    Krugman's chart shows the inflation rate, yours shows price levels. So the inflation rate in your graph is the slope of the line (first difference, derivative, call it what you will).

    So what does the slope of the line in your graph prove? Well, it actually confirms Krugman's assertion (that inflation has remained pretty steady and, if anthing, has eased somewhat since May) and shows your own assertion (to quote verbatim "[the Fed creating money] is just now starting to heat up consumer prices and will heat them up even more in the second half of this year") to be demonstrably false.

    And your conclusion? Victory is yours! Krugman is a moron!

    Wow, just wow.

    Either you don't understand any of this or you are trying to dupe your readers. I'm not sure which is more disturbing.

    I would like you please to acknowledge that your assertion was wrong. Also, I'd like a pony.

  26. wow. just wow. if inflation is 3.5% a year then prices will triple in 30 years, it's called exponential growth you morons! really, if you can't understand that, then you need to go back to high school.

    zero per cent inflation doesn't work people. that's what our problem is at the moment!

  27. @10:26 hits the nail on the head. If the Fed were having some hidden Pauline effect on inflation, wouldn't there be a non-linear aspect to the inflation rate? How do you explain its linearity -- despite the Fed's nefarious plans? If anything, you should be happy that government intervention seems to be so ineffective.

  28. Please pull out the chart. Its creating unnecessary embarrassment to you.

    "One can look intelligent by not speaking". - An old proverb

  29. Well, I'm a Krugmanite "troll". I, in fact, could approximate in my head that 3%-4% (not "4%") compounded over 30 (not "20") does indeed result in a tripling, but I did a spreadsheet to make sure.

    I have to say, so what? Weren't we talking about dangerous, irresponsible hyper-inflation? We're not about to print $1 trillion bills (as happened in 1920s-30s Germany) when inflation is STEADY at ~3.5%.

    And while I recognize that you see any inflation at all as bad, you hopefully also know that we Keynesians don't - we see 2-4% as a responsible way to compensate for the experimentally observed and confirmed facts of human nature that humans are extraordinarily resistant to giving up something they perceive as possessing (like a salary of $x as opposed to $x * 97%) (see Behavorial Economics). Mild inflation ensures that those who deserve pay raises can still obtain them as always, while those that do not deserve them will see their real income fall, as it should.

    Well, that's just one of the many benefits from a responsibly floating currency. You can say that inflation expectations will get priced-in to contracts and negate this benefit - but you'd be ignoring the obvious counters: most wages are not paid via inflation-compensated contracts, and anyone who would sign an inflation-compensated wage contract would sign one that said "wages cannot be lowered" in an economy on a gold standard, too. That's the same thing as "pricing-in" the inflation expectations. And that's just one of the many reasons why hard-money is no panacea - but rather carries significant liabilities.

    As always, what's really happening here is a clash between idealistic theory (Austrian) and real-world theory (Keynesian).

    So since I'm "not that bright" can someone explain to me how the FED can expand the money base by $7 trillion in 2008-2009 and yet the "Real Business Cycle" *still* hasn't seen that resulting in booming CPI *or* commodities prices. I mean, we're going on 3 years. How long are these cycles of production? Since you're saying the effects should be exponential, shouldn't we see SOME effects yet? I thought these things happen fast - like Ron Paul "moving his hands horizontally and vertically..."

  30. Have you ever studied maths?
    First: you need to learn to use FRED graphs and use "percent change from year ago"
    Second:if you like indexes,put 1990-07-01 as 100 and you'll se that now CPI is something like 170
    Third : try to do (1.7)^1/20 and you'll see that average inflation was 2.7%
    Fourth: I'm a little bit scared....2.7% is a Weimar-like inflation!!

  31. Looks like Krugman is taking some cues from his anthropogenic global warming alarmist buddies. Instead of "hide the decline" (in recent temperature proxy data), he's attempting to hide the incline (in prices).

  32. I swear I'm not here to troll, but it's baffling that you think Krugman was trying to mislead with his chart. He was simply demonstrating that the rate of inflation has been stable for the last 20 years, and that's shown no signs of abating. I fail to see how the absolute chart changes that.

    Most economists, liberal and conservative, acknowledge that some inflation is healthy. That's why the Fed has targeted 3-4%, and Krugman's chart clearly reflects that. I recognize that Austrians disagree with the benefits of inflation, but that argument really is at best tangential to Krugman's actual point (which was simply gloating that we haven't had hyperinflation at all over the last three years to match the Fed's expansion of the monetary base).

    EVERYBODY acknowledges that inflation was a big deal in the early 80s, and that's a big contributor to the tripling in prices you guys are up in arms about. To respond to the last poster, Krugman's point is not that inflation hasn't ever mattered in the last 30 years, but rather in comparison to years that were much worse, inflation is presently miniscule.

    One more point. I think the poster is confused by what Krugman meant by "smoothing". Using rate of inflation is not smoothing. Using 3-4 year averages is. He only used 3-4 year averages so that the underlying trend is more obvious and not cluttered with minor peaks and valleys. The major difference the poster did was use absolute price levels rather than the rate of inflation.

  33. Yeah, prices tripling since 1980 isn't a big deal; there should always be a gradual expansion of the money supply, which we see in Krugman's chart of 3/4-year inflation rates. That's not a bug, it's a feature.

    If you want to complain about reduced purchasing power as a result of inflation, then you should chart inflation-adjusted per capita purchasing power and find some sort of empirical causative link. But that's totally different from RW's post.

  34. Do you realize your graphic shows the opposite of a big inflation or dollar debasement? As Dr. Krugman says, it's steady inflation. If some spike in prices are showing in your graph, it would be in 2009, just before the big drop.

    To put a simil: if you drive a car at 50 mph for years, the average speed will be a flat graph (like Krugman's graph), and the total distance will be a steady grow (like yours). If hyperinflation is to come, that will show in both graphs as a big up spike: a spike for the new high-speed of, lets say, 100 mph in the Krugman's graph, and a spike where more distance is covered in less time in your graph.

    You inflationist are saying that "our car" is going to speed up to 100 mph soon, and to 200 mph after that, thus covering big distances in very short time and finally crashing... but this isn't happening in nowhere.

  35. Over a sufficiently long period of time, even a small inflation will lead to a huge increase of the price level.

    It is called exponential growth.

    According to what you say, an economy that has experienced inflation around 3% for 25 years has been in a situation of hyperinflation for 25 years...

    Have you ever step foot in an economics course? Even by mistake?

  36. @ Anonymous 10:26 PM

    You have been misled by people like Krugman, who would probably deny the world is round if Keynes said it is flat, in spite of all the proof to the contrary. The inflation of the past 30 years has been due to the "normal" policies of the privately owned Federal Reserve and the (privately owned) federal government. The U.S. has barely begun to experience the effects of the dramatically inflated money supply that has occurred during the past three years ($16 trillion and counting).

    Why is it "taking so long"? Because 1) the Federal Reserve has been paying banks not to loan the trillions of conjured dollars it has given them. If and when that policy changes, price inflation will increase dramatically; 2) the federal government, the Federal Reserve and their banker buddies (a redundancy, I know) export vast quantities of Fed inflation overseas. Our exported Fed inflation (along with other countries' homegrown inflation) will eventually come back to afflict us, possibly sooner than our homegrown inflation will afflict us.

    The increased inflation of the past three years is due in large part to 1) the trillions our evil leaders have spent on illegal wars; 2) very easy credit during the housing boom; 3) the "stimulus" money that was given to various federal, state and local governments / agencies; 4) increased gas prices (both legitimate and illegitimate).

    Here is proof that 1) the banks aren't loaning the money the Fed has given them, and 2) we export our inflation:

    Economic Collapse Blog: If The Money Supply Is Exploding Why Are We Not Seeing Rampant Inflation? (3/23/10)

    CNN Money: Can the Federal Reserve get banks lending? (9/22/11)

    Business Insider: Do You Realize That The Government Is Still Paying Banks Not To Lend? (8/17/11)

    Yahoo Finance: The Fed Is Paying Banks to Sit on Cash (8/25/11)

    (The socialists/statists at) Daily Kos: Outrageous: FED Paying Banks to NOT Lend Money (9/6/11) The $16 trillion bailout (9/7/11)

    Forbes: The Real Reason For Banks Not Lending (8/10/11)

    MSN Money Central: Why banks (still) aren't lending (4/23/09)

    CNN Money: Stingy megabanks swimming in cash (4/21/11)

    Fox Business: Banks Not Lending, So What? (5/6/11)

    MSN Money: Our biggest export: Inflation (10/5/07)

    Wall Street Journal: The Latest American Export: Inflation (1/18/11)

    CNBC: Catch 22 as Fed Exports Inflation (5/6/11)

  37. I'm sorry, but aren't you just arguing over what 'price stability' means at this point? Krugman thinks that inflation hasn't been bad because prices have been stable (year-to-year), and you think inflation has been bad because prices haven't been stable (over the long-term). Well, you're both right when you argue using different terms.... And not to mention, Krugman is talking about average annual inflation rates. You're talking about aggregate prices. In other words: @9:42 is right.

    Isn't Krugman's point, though, that if Fed policy were misguided, it would be revealed in short-term (say, year-to-year) price instability. We don't have that. But as Krugman admits, inflation data can be misleading because numbers jump and dip - so why not look at the numbers averaged? Which, of course, do show that annual rates have been stable, and that hyperinflation probably isn't around the corner. Uh, QED, right?

  38. Unbiased, thinking people should be able to see that the charts are showing the same data.

    So far I don't see any trolls here.

    What is or isn't appropriate inflation is not the point Krugman was trying to make. $50 cups of coffee and whatnot.

    He was trying to put recent inflation rates into historical perspective. Clearly recent inflation isn't any faster than it's been over the last 40 years, if anything it's slowed.

    Also he was saying that others have claimed that the inflation rate would increase in the second half of 2011. Which it didn't.

    Pretty simple stuff.

  39. @10:40 "that Krugman is attempting to give the impression that inflation over recent decades hasn't been a big deal, when in fact prices have tripled since 1980! "
    Gotta disagree with you there: nobody is questioning that inflation has been happening year on year. What's under examination is the change in the rate of inflation: the second order relationship.

    And that second order relationship is pretty constant as a general trend, as the graphs show. What the data for this year demonstrate is that the rate of inflation is now at levels that have been seen as 'normal' over the last few decades. You can't claim that this is 'runaway' or 'heated' inflation - especially not compared to the change in rate earlier in the year. It's roughly what you'd expect projecting historical trends forward.

    An analogy: Wenzel essentially predicted we would see 'increasing levels of rainfall' in Q3-4 2011. We haven't. But then he's claimed that 'rainfall has occurred, so I was correct.'

    His prediction was wrong, and would still be wrong without Krugman's recent posts. No shame in admitting a mistake. I'm wrong on a daily basis myself.

  40. The graphs are the same shit - prices raised relatively fast in 80-82.5, then the rate of that price increase kind of stabilized between 2 and 4 per cent until now. And looks to continue that way.

    What Krugman wanted to show is that the rate of inflation isn't increasing (which is different to say that there's no inflation at all and there's no increase in prices). And looking at both graphs, he's obviously right.

  41. Oh my you now have to be a savant to understand that a positive rate of increase means prices are increasing. The charts are the same data, this is the price level, Krugman's is the slope of the curve.

    Is the position now that tripling of prices over 30 years is hyper inflation? Words really have lost all meaning...

  42. Wow. What an incredibly stupid post. As others have already noted, there are two things massively wrong here, plus one more:

    1. A near-tripling of consumer prices over a 30 year period implies an annual inflation rate of about 3.6%. Sorry, folks, that's math, what we used to call precalc in high school. If you don't get it, you shouldn't be writing a blog.

    2. Krugman's post showed that there has been no bout of inflation after the Fed's money supply expansion. The CPI chart provided here shows exactly the same thing. Do you notice any spike upwards in the slope around 2009? There's a dip, and then a resumption of trend.

    3. The "smoothing" graph is nothing more than a moving average of inflation. Moving averages don't create or destroy data. If there's a price increase in there, it has to show up in a moving average.

    Remember, stock analysts of all stripes -- Austrians, Keynesians, monetarists, etc -- often consult moving averages to examine the movement of a stock price over time. It's not some phony concept. It's what real people do every single day.

    Any person that has ever managed money has to understand moving averages.

  43. @ Pete:
    The prices are shown on a LINEAR Y axis, and the result is a very linear plot. Hence, the raise in prices appears to be constant, but this is misleading.
    It is not the same if you start from 80 base points and raise them by 20 (1980-1983) or from 200 and go to 220 (2006-2011). The first one is a 25% raise (about 8% yearly), the second one a 10% raise (about 2% yearly).
    If anything, the Wenzel graph corroborates Krugman points, but Wenzel tries to mislead readers, by failing to use a log scale on the y axis of his chart. I am not sure if this is an honest mistake (bad enough - it shows lack of understanding), or an attempt to deliberately mislead (even worse - how can we trust a person with an agenda?).

  44. I'm baffled by this post here. Are you seriously trying to refute Krugmans claim of stable, low inflation the last decade by showing us a graph of stable, low inflation?

    Like many comments pointed out you either have not the understanding to write a blog that concerns itself even remotley with math let alone a blog that uses the word "economic" in the title.

    Or you are deliberatly (and poorly) trying to mislead your readers.

    A lot of times it boils down to people either being not that bright or being morally dubious. Here it's either being not that bright or being not that bright and morally dubious.

    Please leave the internet through the back door.

  45. Correct me if I'm wrong, but doesn't the second chart shows an almost linear CPI. That's the same thing that Krugman chart is showing, that there is inflation, but that it has been the same all this years except for that little spike in 2008.

    A stable and lowish inflation is a good inflation, you can plan your investments around it.

  46. Where is the deflation that Krugman predicted? Where was the increase in commodity prices only if QE2 stimulated demand like Krugman predicted? Why didn't the stimulus work as Krugman predicted?

    Why was Krugman begging for more interest rate cuts in 2001 while RP was stating a bubble had been created in the housing market?

  47. A stable and lowish inflation is a good inflation, you can plan your investments around it.

    You are wrong. You are so wrong. Inflation impairs economic calculation and thus distorts the investment, price and capital structure resulting in the boom/bust cycle. General price inflation is a secondary effect. You clearly have never heard this before.

    Anti-Austrians are compelled to perpetually fuss about CPI predictions because they apparently must maintain their meticulous obliviousness regarding even basic Austrian School concepts.

  48. This must be the most idiotic post anyone has made in the history of economics. May God have mercy on your soul.

  49. 3% of 80 is 2.4. 3% of 220 is 6.6.

    Just sayin'.

  50. Oil, food and metal prices are up 3-500% over the last 10 years, while Krugman have been screaming deflation all the way.

  51. You can't be serious. Of course your chart is the same as Krugman's. If inflation were increasing, you wouldn't have a more or less straight line from 1980 to 2012.

    More important: if inflation were holding steady, you wouldn't have a straight line. The straight line is possible only because inflation has diminished over time.

    Do you not know this? Time to take a basic calculus course then. Or are you lying?

  52. there is inflation, but that it has been the same all this years except for that little spike in 2008.

    No, it's even more opposite to the original post than that. The straight line is only possible if inflation goes down. Imagine that prices go up from 100 to 110. That's 10% inflation. Then thirty years later they go up form 400 to 410. That's 2.5% inflation. The chart shows that between 1980 and 1985 prices went up roughly from 80 to 105, or about 32%. Between 2005 and 2010 they went up roughly from 190 to a bit less than 220, which is about 16%.

    So inflation is half of what it was thirty years ago. It's gone down, not stayed the same.

  53. Wenzel: I do not think that chart means what you think it means.

  54. To the posters who are claiming inflation due to commodities...could this not be because of much easier vehicles for investors to buy into these things (metals, oil, food, other commodity ETFs)?

    Ever since these futures modernization acts were passed we see much more volatility in, for example, oil, and thus the trickle-down effect in everything it depends on (which is, almost everything). In my opinion, commodity prices are no longer strictly about "supply and demand", but they also have a component of "perceived supply and perceived demand", as added to by investors.

  55. Um...isn't there a slight difference between price levels and inflation rates? Sorry, but the fact that prices are so many times higher now than they were in 1980 does not show that inflation is getting worse. Inflation rates are falling, not rising. They rose because commodity prices spiked. Now that the spike is over, inflation is going down. Not exactly what you predicted, isn't it?

  56. @Dan S 12:44 AM,

    A pony? This is America; it's rainbows and unicorns for all!

  57. Uh, Krugman's analysis is equivalent to plotting the *slope* (the first derivative) of your plot. So Krugman shows essentially constant inflation, while your graph shows a straight line of constant slope, in perfect agreement with what Krugman showed. This is very basic math. If, on the other hand, the rate of inflation were highly sensitive to changes in the money supply, then the recent large jump in the money supply should have caused your line to curve upwards. Only as you yourself have shown, it hasn't. So I take it that you are still convinced that hyperinflation is just about to take off.

    I'm curious. Is there any point at which you would conclude that your idea (and Ron Paul's) notion of economics is mistaken? 3 months without a doubling of the inflation rate? 6 months? A year?

  58. Anon 10:20,

    The way this chart is indexed, yes. However, if you change the index it changes the entire chart. This is one of the reasons that I don't like indexed charts, because you lose sight of the fact that a 3% change in current prices represents quite a large change in absolute figures. It is these absolute figures that people notice when making purchases, when looking at their income and when they calculate their budget.

    Wenzel was merely showing the trend of the chart and noting that CPI has tripled. Krugman was attempting to show a leveling off. Well, if you only look at percentages, then it might appear that way. It absolute terms inflation is growing.

  59. So your "proof" that we are currently experiencing hyperinflation due to actions the fed has taken the last couple years is a chart showing a basically steady rate of inflation since the 80's...

    Maybe you think the inflation of the last few decades is too high, but that has nothing to do with what Krugman is saying. Or maybe you think the hyperinflation is still to come despite the evidence so far. It's possible, but you've been saying that for a while and your chart certainly doesn't help make that case.

    Why did you bother with this?. It's pathetic. I know I may have a liberal bias, but every time I try to get the other side's view point I just come away depressed by how stupid what passes for conservatism nowadays is.

  60. Oh my, as an intellectual exercise this is taking candy from a baby.

  61. The rate of change of inflation since 2008 does not look too far off from the previous three decades. However, the rate of change in the money supply increased significantly since 2011. Shouldn't there be a disproportionate affect on inflation? Maybe we are in a liquidty trap?

  62. Anon 11:48,

    Different charts show different things, the key is knowing what it is that you're looking at. Also, when discussing money supply and price inflation, there is no proportion, because prices don't change equally or to the same degree. There are many other factors, as well. Such as dollars outside of the US economy, interest on excess reserves, deposit growth, and a bunch of other things. Also, I don't know if you can really call it a liquidity trap when the banks were simply getting a better deal parking their money at the Fed-- I certainly wouldn't call this hoarding.

  63. How many of you people buy groceries? My grocery budget has not changed in the past three years but I buy less and less "food" every month. I haven't bought breakfast cereal for my kids in over a year (One pot of oatmeal shared by all instead). Last week, my daughter was complaining to her classmates that she really misses breakast cereal & to her surprise, almost every student agreed with her, and they all discussed fond memories of the different brands of breakfast cereal they used to enjoy before all their mothers stopped buying breakfast cereal "because it is too expensive". A few of the kids shyly admitted that they still have breakfast cereal in their house, but, as we all tend to explain away those still consuming luxuries, they were all "only childs". Even the teacher chimed in and agreed, "oh, yeah, cereal is no longer on my shopping list."

    So, where's the graph for that little phenomenon.

  64. "Will there be a recession? The truth is I don't know. No one does." - Economic expert Krugman in 2007

  65. Hi 1:42 Anonymous,

    Sorry your children can't enjoy breakfast cereal anymore but that has less to do with "massive inflation" and more to do with your family's income not rising at the same rate as inflation. As you've noticed, you aren't alone in experiencing this.

  66. @Pete (way back at the top)

    "What is more instructive to the average consumer, Krugman's flatline or the tripling in prices that RW identifies?"

    Was Krugman talking to the average consumer? Or was he talking to people like this blogger who make claims about recent Fed policy effects on inflation that are demonstrably false?

    Anyway, the "average consumer" knows that prices rise over time, and should be comforted to see that the rate of that increase has remained fairly steady for decades, which is what both graphs show.

  67. @Anonymous 3:20 PM,

    I don't believe the "average consumer" is going to be (or currently is) comforted by either graph.

    I'm not sure where you reside, but where I'm from there's trouble brewing beneath the surface.

  68. Economics is weird. A Nobel laureate in physics wouldn't engage in debate with someone who deliberately mixes up speed and acceleration.

  69. @Anonymous 4:28 PM,

    Excellent observation!

    Now, this would lead a rational person to ask why this is the case, correct?

    Is it possible that this whole affair of Paul Krugman's original post re: Wenzel and Paul does not find its origins in economics but politics?

    I believe it is a fair question.

    If one answers in the affirmative, then it becomes quite clear that what Paul Krugman has engaged in is what's known as in the political sphere as "punching down".

    Check it out....

  70. "Economics is weird. A Nobel laureate in physics wouldn't engage in debate with someone who deliberately mixes up speed and acceleration."

    @Anon 4:28 PM,

    Forget about Nobel laureate in Physics, anyone beyond high-school would like to avoid participating in any such discussion.

  71. Yes, that Nobel Prize came in handy in 2007 when Krugman admitted he was clueless and didn't know if a recession was coming or not, and claimed that no one did. Yet he is arguing with the group of people who did specifically know and call the recession.

    While I don't argue that Krugman plays politics with his writing -- he is about as credible when speaking about politics as o reilly is -- he is obviously bothered and concerned that more and more people are noticing he was clueless while an opposing group were not.

    All Krugman did in his failed attack is bring more traffic to this site so they can see videos like Krugman in 2007 being clueless about a pending economic collapse, but it was obviously bothering him enough to take the risk. I would probably be mad at the people who were right and documented it while I was wrong, too if I was pretending to be the big expert on econ.

  72. Anonymous 2:06 is right. Austrianist discussions of inflation are one-sided because they totally ignore people's incomes. So long as incomes increase, inflation doesn't matter.

    Behold, *Real Personal Income*

    Thus, you must look at the income side as well, and if *Real Personal Income Per Capita* isn't increasing, or the gains are maldistributed, and if people have trillions in household debt, then inflation isn't the problem at all.

    Too bad there isn't an anti-Austrianist school out there running bliss-ninny candidates celebrating, "Incomes keep increasing! Hooray! Hooray! We're all rich!!!"