I’m not sure why, but it seems to be my day for quoting Martin Hutchinson, this time on inflation, where he points out that without the Bureau of Labor Statistics adjustments, inflation would be around 9%, which means that prices double every 8 years. (Use the law of 72 for quick figuring)

I noted this two weeks ago, and further noted that the mainstream press is beginning to note this too.

I think that correcting this would be a good thing. The only advantages to understating inflation are to collect more revenues from bracket creep, and to reduce benefits pegged to the CPI.

The downsides are legion:

• It masks declines in living standards, and so removes political impetus for correcting this.
• Pensioners are short changed.
• The poorest of the poor are short changed, which takes mild poverty and creates crushing poverty, with its associated social ills.
• It presents a distorted picture of our society.

In terms of actual inflation, I think that we get out of the credit crunch. If dollars are devalued, which is what inflation is, then repaying loans in those constant dollars becomes easier.

Furthermore, even while home prices decline in real terms, because of the devalued dollar, fewer will be “under water”, which means fewer foreclosures, neighborhood blight, and “jingle mail”.