There is a process for influencing public policy formation. Academics play an important role, discovering problems and suggesting solutions. The measurement of inflation is no exception. The issues were well understood thirty years ago, and the academic literature is active.
There are various problems with the criticisms advanced by bloggers and pundits:
- Their arguments are polemics, not scientific studies. They play to the lowest common denominator of public understanding, since anyone can see that certain prices are rising. The arguments ignore all of the difficult measurement questions -- substitution, quality improvements, falling prices in some categories, and how to separate living costs from investment and tax advantage in home ownership.
- Those advancing these arguments lack any economic credentials and often take pride in that fact. If they really wanted to have an impact, they could write papers, submit them for a journal or a conference, and participate in the debate. Peer review settles many disagreements.
- Those criticizing the Fed's use of core inflation measures often seem to have a conflicted agenda. They are either dedicated short-sellers or have a readership based upon that viewpoint.
The critics could have chosen to attend a conference like the one described here, by a real expert on the topic. We know that readers will not actually follow the links and read the papers, but scroll down to the final conclusions.
None of the core measures worked that well. Some picked up turning points better than others in low-inflation periods. It is an ongoing debate.
Briefly put, the pundits and bloggers are acting like professors, but without doing the work to earn the right credentials, presenting their analysis for peer review, and influencing others who really understand the issues. They instead are trying to influence people like my investor, Mark, who is just trying to get a good return for his retirement.
The complete piece is a must read for anyone active in the market.