Tuesday, July 2, 2013

A Whole Mess From Krugman About Whole Milk and Beyond

Neocon Jennifer Rubin observed in a tweet the other day:

OMG. When you lose an argument to Paul Krugman it's time to take a break

She then linked to a Dylan Byers post that said in part:
In response to Erick Erickson's latest us-versus-them screed against the Acela-corridor...
The rest of America is nervous about where their next meal and paycheck are coming from, how they are going to afford to bail their kids out of crumbling schools, and the price of a gallon of milk and loaf of bread that keep going up though Ben Bernanke tells them there is no inflation.
Paul Krugman drops some Bureau of Labor Statistics data to show that the price of milk and bread haven't actually gone up at all. And asks:
So, how does Erickson know that the prices of bread and milk are soaring? Has he been carefully keeping track? Or is it just fake populism, an attempt to sound like Everyman while actually just whining?
UPDATE (9:43 a.m.): Erickson emails POLITICO:
Paul uses a chart to try to disprove the reality that Americans with small kids actually experience at the grocery store. His problem is he thinks I'm attacking the Democrats and wants to defend them, when the criticism is broader and bipartisan. And if he hung around moms and dads with kids more often he'd hear a lot more real world complaining about bread, milk, and other grocery item prices going up while paychecks are staying the same. Not everything is academic or chartable and sometimes the accuracy of the chart isn't as real to people as the perception they have that their grocery store bills are getting more expensive though their shopping habits haven't changed.
And later adds...
Seriously, Paul's point is correct, but it is an issue of perception of people versus the reality of his chart.  He can certainly go tell people milk prices haven't gone up, but good luck getting them to believe him.
In other words, Erickson got totally mauled by Krugman, but the Rubin observation is what is important here. If you lose a debate to Krugman, it's time to take a break.

First, Erickson was in error focusing in on bread and milk. It allowed Krugman to use, in a post, this chart of milk prices over the last 10 years.

Erickson should have talked about consumer prices over all, which for the same period as  Krugman's milk chart look like this:

Big difference. Never give Krugman the opportunity to use shady data that will distort the overall picture, he will use it.

That said, let's take a second look at  milk prices, which Krugman is using to promote the idea that there is no price inflation. He writes in the post with the milk chart:
But of course the notion that we’re having runaway inflation isn’t based on evidence, and can’t be refuted with evidence.
But, are slowly climbing milk prices evidence that price inflation is not a threat? Far from it, it is another example of Krugman thinking only one or two steps deep, without getting the even deeper full picture.

The fact of the matter is that milk consumption is crashing in America. The US Department of Agriculture reports:
Between the 1970s and 2000s, people have become less apt to drink fluid milk at mealtimes, especially with midday and nighttime meals, reducing the total number of consumption occasions:

• Between surveys in 1977-78 and 2007-08, the share of preadolescent children who did not 
drink fluid milk on a given day rose from 12 percent to 24 percent, while the share that drank 
milk three or more times per day dropped from 31 to 18 percent. 

• Between 1977-78 and 2007-08, the share of adolescents and adults who did not drink fluid milk on a given day rose from 41 percent to 54 percent, while the share that drank milk three or more times per day dropped from 13 to 4 percent. 

Underlying these decreases in consumption frequency are differences in the habit to drink milk between newer and older generations. All else constant (e.g., race and income), succeeding generations of Americans born after the 1930s have consumed fluid milk less often than their preceding generations:

• Americans born in the early 1960s consume fluid milk on 1.1 fewer occasions per day than those born 
before 1930. 

• Americans born in the early 1980s consume fluid milk on 0.3 fewer occasions per day than those born in 
the early 1960s.
This change in milk consumption patterns is having the effect that one would expect, falling milk sales.

 In 2011, total U.S. beverage milk sales were 53 billion pounds - about 6 billion gallons - the lowest level since 1984, according to U.S. Department of Agriculture.

Whole milk beverage sales in 2011 were less than half their level from the early 1980s.

Got that? Milk sales are crashing, and it is across all age groups. Here is a chart from the USDA:

Is it any wonder milk prices are not keeping up with the overall price inflation? It's not that Fed chairman Ben Bernanke has steered us through and away from a great milk price inflation, it is that other factors in the milk supply demand equation must be considered. .

A recent WSJ article slams home the point about the change in consumer demand:
In an age of vitamin waters and energy drinks, the decades long decline in U.S. milk consumption has accelerated, worrying dairy farmers, milk processors and grocery chains.[...]So far this year, sales volume at U.S. food retailers for all types of liquid milk, including nondairy varieties, has fallen 2.9% from a year earlier, and total dollar sales have slipped 2.2%, according to Chicago-based market-research firm SymphonyIRI Group Inc. Sales volume for the biggest milk category—skim and low-fat milk—has dropped 4%.
But there is more that Krugman has not considered. From the Dairy Reporter:
 US milk prices continue to decline as cheese inventories remain high.
High cheese inventories mean less demand for milk from cheese makers, thus, putting additional supply on the liquid milk market. Thus, we have less demand for liquid milk and at the same time increasing supply.

It's all  about these supply and demand factors when it comes to milk prices. They have nothing to do with Bernanke.

In fact, the real surprise is how milk prices have not completely collapsed in the face of such supply and demand downward price pressures. That's what really needs to be explained by Krugman. Got  Ben Bernanke newly printed money, Paul?


  1. Damn nice job leveling the playing field! This is why I pay you real money for your Daily Alert. You're able to quantify the normative and weed out chaff to get to the causal relationships.

  2. Let's also not forget about all of the government intervention involved w/ the pricing of milk (see "dairy cliff" and the potential doubling of milk prices, initially talked about in Dec '12, and now even more recently w/ the farm bill defeated in the house


    It is pretty intellectually dishonest to hold up prices of a good that are heavily manipulated, and haven't changed much as proof that there is no inflation. In other words, typical Krugman.

  3. Perhaps he was laying a trap to catch the Princetonian Professor, luring him with a saucer of milk right into the snare of MIT's billion price(s) index!


  4. Nice work, Wenzel! I almost thought I was reading Murphy for a minute (seriously), but I don't know if he would have been a thorough. Seriously, it's a sweet little demolition job, you have here. And let's not forget, peter schiff has already demonstrated (very conclusively, IMO) the fallaciousness of the CPI.

  5. As an actual consumer of milk and not blood like Krugman my wife brought home a 96oz jug of milk that cost the same as a gallon of milk 128oz. The jug simulated the size of a full gallon but certainly was not. I'm glad my wife noticed and and purchased the milk because she didn't want to drive to another grocery store but is aware for next time.

  6. All that extra supply should put downward pressure on milk prices, the fact that they remain high only supports the high inflation.

  7. Except that milk prices ARE keeping up with CPI as shown in your charts. The milk price goes from about $2.70/gallon to about $3.45/gallon, and increase of a little over 27%. Over the same time period, CPI goes from about 183 to about 233, and increase of. . . a little over 27%. It doesn't matter that the lines look different on two charts with non-comparable axes, the actually increase is almost exactly the same.

  8. We endure the shifting and stealing of purchasing power via funny money dilution all to solve a problem that does not exist. "Market failure" does not cause unemployment or depressions.