In my macro class, they go over all the fallacies of using GDP and CPI, citing the need for qualitative analysis accompanied by the data,yet continue to use it.
How does an Austrian explain the concepts of GDP, CPI, and Inflation (in the mainstream sense, ie price inflation)?
The difference is that Austrians don’t use them fallaciously. You should ask your professor for us why they do that. I’d like to know.
CPI is actually adjusted in some nefarious ways that contradict the purpose for it that any reasonable person would assume. I read a gigantic debate between U.S. BLS employees and some skeptics. It ultimately boiled down to a BLS guy calculating that the “real” CPI was about 1% higher. Note that this also affects the GDP deflator.
Inflation is the easiest: Inflation is the creation of money and/or credit while deflation is the destruction of money and/or credit. Price increases in large numbers of goods are not inflation but symptoms of inflation. There can not be a price increase in a broad spectrum of goods without previous inflation.
GDP, CPI and the PPI are modified guesses at “aggregate” numbers to explain the size or the growth in the economy, the changes in price level for consumers and the changes in price level for producers. These numbers have very little meaning as they are computed then modified for a myriad of factors(Mostly to remove any “bad numbers” from the computations.). Even if the computations were not outright lies, they would have little meaning to Austrians as Austrians do not view economies as aggregates but as collections of individuals.
Here’s my analysis of GDP, adjusting for inflation correctly.
GDP and the CPI, as reported by State economists, are lies and nonsense.
Why do you use M2? MZM is the “Austrian” one.
M2 and MZM are pretty close.
I’d prefer to use M3, but the Federal Reserve no longer publishes it.
My favorite inflation measure is the price of gold. Using gold as your index of inflation, the US economy has been shrinking at a rate of 8%-10% per year since the burning of the Reichstag World Trade Center terrorist attack.
very interesting analysis fsk. Not only the word by word break down, but the charts are attractively instructive. thanks for sharing this.
As a side note in reference to GDP I remember a Mises Daily article that discussed how GDP goes up when inflationary actions are made. The article was a month or so ago but I can’t remember exactly when or who authored it.