How Did We Get Here?
That’s easy.
Average Wages vs CPI
Note the correct CPU comparison for this chart is CPI-W not CPI-U, not that it matters much.
No matter what official CPI one uses, the chart is a joke. Why? The CPI only reflects rent, not actual housing prices.
The Fed made this mistake during the housing bubble and they made it again from 2011 to present.
More bubbles will burts and that is very deflationary. By chasing its tail, the Fed creates the very conditions it seeks to prevent.
Price Deflation Not a Problem
For years, the Fed desperately sought more inflation. However, a BIS Study on the Historical Costs of Deflation shows routine price deflation is not a problem.
According to the BIS, “Deflation may actually boost output. Lower prices increase real incomes and wealth. And they may also make export goods more competitive.”
My Challenge to Keynesians “Prove Rising Prices Provide an Overall Economic Benefit” has gone unanswered.
Meanwhile, people keep faith in the Phillips’ Curve. It’s pathetic.
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