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Posts Tagged ‘CPI’

Good Economic Theory Focuses on Explanation, Not Prediction | Mises Wire

Posted by M. C. on December 20, 2019

All that the various statistical methods can do is compare the movements of various historical pieces of information. These methods cannot identify the driving forces of economic activity. Contrary to popular thinking, economics is not about gross domestic product (GDP), the consumer price index (CPI), or other economic indicators as such, but about human beings who interact with each other. It is about activities that seek to promote people’s lives and well-being.

https://mises.org/wire/good-economic-theory-focuses-explanation-not-prediction?utm_source=Mises+Institute+Subscriptions&utm_campaign=f37e14c0a6-EMAIL_CAMPAIGN_9_21_2018_9_59_COPY_01&utm_medium=email&utm_term=0_8b52b2e1c0-f37e14c0a6-228343965

In order to establish the state of the economy, economists employ various theories. Yet what are the criteria for how they decide whether the theory employed is helpful in ascertaining the facts of reality?

According to the popular way of thinking, our knowledge of the world of economics is elusive — it is not possible to ascertain how the world of economics really works. Hence, it is held that the criterion for the selection of a theory should be its predictive power.

So long as the theory “works,” it is regarded as a valid framework as far as the assessment of an economy is concerned. Once the theory breaks down, the search for a new theory begins.

For instance, an economist forms the view that consumer outlays on goods and services are determined by disposable income. Once this view is validated by means of statistical methods, it is employed as a tool in assessments of the future direction of consumer spending. If the theory fails to produce accurate forecasts, it is either replaced or modified by adding some other explanatory variables.

Again, in this way of thinking, the tentative nature of theories implies that our knowledge of the world of economics is elusive. Since it is not possible to establish “how things really work,” then it does not really matter what the underlying assumptions of a theory are. In fact, anything goes as long as the theory can yield good predictions. According to Milton Friedman,

The relevant question to ask about the assumptions of a theory is not whether they are descriptively realistic, for they never are, but whether they are sufficiently good approximation for the purpose in hand. And this question can be answered only by seeing whether the theory works, which means whether it yields sufficiently accurate predictions.1

The popular view that sets predictive capability as the criterion for accepting a theory is questionable.

We can say confidently that, all other things being equal, an increase in the demand for bread will raise its price. This conclusion is true, and not tentative. Will the price of bread go up tomorrow, or sometime in the future? This cannot be established by the theory of supply and demand. Should we then dismiss this theory as useless because it cannot predict the future price of bread? According to Mises,

Economics can predict the effects to be expected from resorting to definite measures of economic policies. It can answer the question whether a definite policy is able to attain the ends aimed at and, if the answer is in the negative, what its real effects will be. But, of course, this prediction can be only “qualitative.”2

Do We Know Something about Ourselves?

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Of Two Minds – OK Boomer, OK Fed

Posted by M. C. on December 19, 2019

https://www.oftwominds.com/blogdec19/OK-fed12-19.html?fullweb=1

Charles Hugh Smith

Eventually the younger generations will connect all the economic injustices implicit in ‘OK Boomer’ with the Fed.

Much of the cluelessness and economic inequality behind the OK Boomer meme is the result of Federal Reserve policies that have favored those who already own the assets (Boomers) that the Fed has relentlessly pumped higher, to the extreme disadvantage of younger generations who were not given the opportunity to buy assets cheap and ride the Fed wave higher.

OK Fed: you’ve destroyed price discovery, driven housing out of reach of all but the wealthy and hollowed out the economy, all the while patting yourselves on the back for being so smart and fabulous.

OK Fed: you’ve waged generational war without even acknowledging how disastrous your policies have been for younger generations. You’ve bloated the paper wealth of everyone old enough to have bought a home 20, 30 or 40 years ago and who’s had a Corporate America or government job who’s seen their 401K or pension soar because “the Fed has our back” and Fed policies have inflated one bubble in stocks and bonds after another for 25 years.

OK Fed: as a direct consequence of your free-money-for-financiers policies, inflation has gutted the purchasing power of younger generations. As the bogus consumer price (CPI) claims inflation is near-zero year after year, two generations of Americans have been crushed by student loan debt that tops $1.5 trillion– a debt serfdom that would have been impossible had interest rates been settled by market forces.

The clueless higher education cartel would have been forced to innovate decades ago rather than pass on their administrative bloat to those least able to pay, the students. Without the Fed and other federal agencies, student debt would not have exploded.

OK Fed: as a direct consequence of your pump-up-speculative-excess policies, speculation has ruined the U.S. economy as banks, financiers and corporations all skim hundreds of billions of dollars via leveraging Fed cheap money while younger generations get credit cards with nosebleed interest rates and rapacious banks that charge $25 and up for every overdraft that they engineer by manipulating when deposits are credited.

OK Fed: while you’ve been hectoring young people to buy assets so they can join your speculative asset-bubble party, they’ve been dealing with the broken mess of an economy you’ve created while patting yourself on the back, an economy where only the already-wealthy can buy a house in hot job market regions, where young workers have to work crazy-hard to keep their precarious jobs or get by on the gig economy, a happy-story code phrase for an economy in which corporations have transferred the risk to their workers while they get rich buying back their own shares with cheap Fed money.

OK Fed: eventually the younger generations will connect all the economic injustices implicit in OK Boomer with the Fed that created the ever-widening wealth and income inequality between the generations: those who effortlessly rode the Fed’s asset-bubbles to wealth and those who have been priced out of the assets and left the shards of a once-functioning economy, an economy destroyed by the Fed’s toxic worship of speculative exploitation and serial asset-bubbles.

As I have repeatedly observed here: if we don’t change the way money is created and distributed by the Fed, we change nothing.

 

 

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Fed: “Underlying Inflation” at a 13-Year High | Mises Institute

Posted by M. C. on September 9, 2018

Inflation, unemployment, kill ratios, smart bomb accuracy, what Putin did today, how many nuclear weapons Israel does NOT have-

Which set of lies did Washington and it’s media decide to feed you today?

https://mises.org/power-market/fed-underlying-inflation-13-year-high

Ryan McMaken

According to the Federal Reserve’s Underlying Inflation Gauge , the 12-month inflation growth in June was 3.33 percent. That’s the highest rate recorded in 158 months, or more than 13 years. The last time the UIG measure was as high was in April 2005, when it was at 3.36 percent.

uig1.png

The Fed began publicly reporting on new measure in December of last year, and takes into account a broader measure of inflation than the more-often used CPI measure.

Not shockingly, the UIG has shown a higher rate of inflation than the CPI, most of the time in recent years… Read the rest of this entry »

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