Inflation is like sin; every government denounces it and every government practices it.
Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hit man.
Inflation is taxation without legislation.
Inflation: Everyone’s illusion of wealth.
By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens.
John Maynard Keynes (Yes! Even Keynes recognized this snake in the grass! – RF)
The financial markets and the Federal Reserve Board watch inflation very carefully. They seem to like an inflation rate of 2%. I’m not sure why that is a “magic number.” And for reasons that also elude me, they seem to be terrified of deflation. Personally, I’m more concerned with hyperinflation (just ask the Venezuelans: inflation > 4000%).
The Federal Reserve was formed in 1913. Since 1913 the dollar has lost 96% of its value. As you already know, that loss in value was due to inflation. I’m not sure what that says about the “stewardship” of the Federal Reserve. But, of course, you and I are interested in today, not 1913. Here are the price statistics in graph form over the past 10 years.
Some of these comparisons are a challenge to make. TVs, for example, have gone down both in price and up in quality (they are much larger and have far higher definition). So can we actually compare the 1997 price with today’s price?
[Source: Inflation and honest data, by John Mauldin]
Perhaps a better example is to go back to when the Fed was hatched. [Financial Times writer Tim Harford] (We have a problem) adjusting inflation for changes in quality. To some extent this is an intractable problem. The Edison phonograph cost $20 (when the Fed was formed); an iPod Nano costs about $145 today. What inflation rate does that imply over the past 105 years? There is simply no good answer to that question. [Inflation and honest data, by John Mauldin] $20 in 1913 would be $598 today, roughly 30 times inflated, which means that the iPod Nano, which can hold literally 1 million more songs than the original Edison phonograph, costs less than one dollar in 1913 dollars. While they are both ways to play music, comparing their prices in two different eras is like comparing apples to polar bears. But the phonograph and the Nano do illustrate the problem of measuring the progress of technology and improvements in lifestyles just in terms of dollars.
I am a little embarrassed by hospital prices leading the inflationary list since I spent my career as a physician. However, technologic advances in medicine happen consistently and do contribute to costs. However, I’m not sure what technologic advancement occurred in college textbooks (unless you consider government intrusion a “technologic advancement”).
I’m certain my readers have their own informed thoughts about these issues so I will not drone on.