tag:blogger.com,1999:blog-8839412.post1404620761667583796..comments2024-03-19T07:48:54.021-06:00Comments on Gus Van Horn: Ten Percent, at LeastGus Van Hornhttp://www.blogger.com/profile/05126749051688217781noreply@blogger.comBlogger4125tag:blogger.com,1999:blog-8839412.post-31672726625047812152011-04-13T12:54:39.039-06:002011-04-13T12:54:39.039-06:00I wonder if that -- hamburger for steak -- is what...I wonder if that -- hamburger for steak -- is what Greenspan meant when he said our fiat currency should act "as if it's backed by gold."Gus Van Hornhttps://www.blogger.com/profile/05126749051688217781noreply@blogger.comtag:blogger.com,1999:blog-8839412.post-35834386003583261332011-04-13T12:38:01.667-06:002011-04-13T12:38:01.667-06:00The other thing I find bizarre about the so-called...The other thing I find bizarre about the so-called "substitution effect" is its inherently self-contradictory nature. The CPI allegedly measures price increases. The substitution effect results in a measure that says prices did not increase because I bought substitute commodity B instead of commodity A because commodity A's price increased.<br /><br />Wait, what? We measure prices as not increasing because I changed my buying habits due to price increases? In a rational culture that wouldn't even pass the laugh test. The entire idea of the substitution effect relies on the government ignoring the way its destruction of my wealth is pushing me down my value preference hierarchy. I prefer steak to hamburger. But because the government has stolen a chunk of my wealth through inflation I can't afford steak any more. The substitution effect says my preference for steak is irrelevant, since I can buy hamburger I'm no worse off.<br /><br />I wasn't surprised to discover that one of the people responsible for this reworking of the CPI was Alan Greenspan.Kyle Haighthttps://www.blogger.com/profile/14608497826478356055noreply@blogger.comtag:blogger.com,1999:blog-8839412.post-80663408791153487062011-04-13T09:47:00.646-06:002011-04-13T09:47:00.646-06:00Thank you for that clarification.Thank you for that clarification.Gus Van Hornhttps://www.blogger.com/profile/05126749051688217781noreply@blogger.comtag:blogger.com,1999:blog-8839412.post-67600832787382152282011-04-13T09:36:28.199-06:002011-04-13T09:36:28.199-06:00The problem is that the concept of inflation is mu...The problem is that the concept of inflation is muddled in the popular mind. People think of inflation as an increase in the general price level, rather than as an increase in fiat money supply. Consequently when they try to measure it they look to price levels instead of currency levels. The first are at best a loose proxy for the second, as there are many other factors that play into setting prices besides the amount of currency in the economy.<br /><br />Putting the point strongly, no measure of inflation that starts out looking at prices is correct, because it's measuring the wrong thing. It's a category error.Kyle Haighthttps://www.blogger.com/profile/14608497826478356055noreply@blogger.com