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Who's Afraid of the CPI!

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Tags Money and BanksCapital and Interest TheoryMonetary TheoryMoney and Banking

07/01/2006

Everybody worries about inflation these days. It's chic. It's trendy. And it gives me a great comeback to the boss at raise time. "Congrats, Roberts, you're getting a 3% increase."

"Yeah, I just about keep up with inflation," I reply with that snippy look that bosses hate. A smart alecky answer, I know. Because I'm not gonna buy a new house or send a kid to college — two big CPI boosters.

In fact, lofty real estate prices increase my net worth. Good — let 'er rip. May I get another 3% raise and a 10% kicker to my house value next year.

Properly, the Federal Reserve Board worries more about inflation than me. Trouble is that their yardstick, the Consumer Price Index, is a highly politicized — and therefore inaccurate — barometer. And the semi-science of economics (sorry fellas, but that's softer than calling it "dismal" don't you think?) must deal with numbers, not words, if it's to remain a scientific endeavor. Inflation is a word — CPI is a number. But a flawed one because it is judge, jury and recorder of the fate of millions of retirees who receive Social Security, Military, Union, and State employee monthly checks.

Pardon my cynicism, but somewhere in the system there's a positive bias operating to elevate that number we call the CPI. I have noted with scientific objectivity that over the years the CPI has inflated while chicken drumsticks — in many years — remained earthbound. My Social Security account — if there is such a thing — at least my CPI-linked Social Security check — bounced up while my home-cooked chicken dinners were 29-cents a pound.

Now it could have been that subway fares, ferry prices, and toll charges in New York ramped up; and the price of a 2-engine Cessna prop jet went stratospheric. Maybe even the price of artichoke hearts — which I hate in my salad — depressed artichoke lovers. But the economic basics of my existence were as placid as Golden Pond on a windless day. The CPI may work for me while it keeps you in drudgery.

But I must admit if you look around the world, you do see tremendous price growth in energy, taxes, higher education, and housing. But how 'bout technology? How 'bout communication? How 'bout computers and such?

The other day I go to Target to buy myself a flash drive. A magical, miniature memory that you plug into your computer. Made for dummies like me, It's a backup or a transportation device for your software. You drag your files into it. Then unplug it — take it home and plug it into your home computer or friend's computer. Such a device called a superdisc four years ago cost $300 — two years later a smaller, but similar magical device cost about $150. Then along came this creation the size of your little finger, which now costs like $35 for 256 megabytes of memory (two months earlier $35 would only buy 128 megabytes. It's dropping in price as I write. I just saw 1 gigabyte flash drive for $28 in a catalog. Ah, the virtues of technology — whether it goes cock-a-doodle-doo and nourishes chicken leg quarters or whether it hums electronically — the genie of technology restrains prices.

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