Proponents of the Austrian School of Economics have been predicting that Obama’s lavish spending and Fed Chairman Ben Bernanke’s money printing through his various quantitative easing schemes would cause price inflation in our economy. For their part, Keynesians have been highly critical of Austrians for this prediction, claiming that current government fiscal and monetary policy will not lead to price inflation. They claim we have had four years of stimulus spending (however, not enough for their liking) and quantitative easing, yet if you look at the government numbers on price inflation prices are not rising.
Well, I suppose if you trust in government, as Keynesians do, you will follow its rigged statistics without asking questions. Over time the Bureau of Labor Statistics (BLS) has changed how its price inflation number is calculated. For a full review of how it has changed consult statistician John Williams’ site Shadow Government Statistics. Consistently, the BLS’s current calculating method has yielded a price inflation number averaging between two and three percent. However, if price inflation were still calculated the way it was before 1980, the price inflation average would be closer to ten percent. If it were calculated the way it was between 1980 and 1990, the number would be closer to six percent.
Comparing price inflation numbers of the 1970s with today is like comparing apples and oranges. Washington has changed the parameters of the measure; making a comparison useless unless, like John Williams, you calculate the number using the old formulas.
The same is true about the current euphoria over the Dow’s breaking of its all-time high. In nominal dollars the Dow is at an all-time high. But, what good is it if the value of the Dow has lost its purchasing power?
Let’s look at USDA retail price data for beef for example. Currently, the value of the Dow will buy 3,332 pounds of beef at the retail level. But at 14,500 points that is about 20 percent less beef than the Dow could buy in January 2000, when its level was at 10,600 points.