The idea of a general price level is as stupid as the idea that inflating credit and the money supply with it doesn’t create inflation, yet the ‘Consumer Price Index’ that measures this imaginary figure has achieved virtual Holy Writ status, and is written into laws, contracts, and payment plans.
For Ludwig Von Mises, any decent analysis of this “inflation figure” would begin by “decomposing” the so-called macroenomic aggregates “into their micro-economic components by rigorously analysing the ‘transmission mechanism’ of a monetary injection.’”
But this is precisely what mainstream commentators wish to avoid. It would demand they recognise that the figure itself is illusory, and their practice credit injection damaging.
Let’s see what the aggregate figure of the general price level hides:
Quite some disparity, eh?
Anybody who thinks there is such a thing as a single inflation figure should be warned. And anyone who reifies it should not be in charge of a baked bean, let alone of being any kind of bean counter. Especially one who constantly “warns” that we have no inflation in New Zealand.
The big lesson, as Hayek once explained: “Mr Keynes’s aggregates hide all the mechanics of change.” In this case, of destructive change.
There’s another important lesson to draw here. The items below the “index bar” all represent the result of of invention, of innovation, of productivity—of everything that makes real wages higher – of the Hank Rearden effect that makes prosperity more widespread and abundant -- all the things the central banks rely on to keep their own phony inflation figure down while their monetary inflation goes through the roof, all while screwing the Hank Reardens around.
Whereas the items in the top of the index bar represent things that the government subsidises, or heavily regulates.
Mind you, the graph is only for the US, although doing one for NZ would look very much the same.
And just to make ours more realistic, I added in the results of our rampant house-price inflation (taken from REINZ figures). Which puts a whole lot of things in perspective, don’t you think?
[Hat tip Catallaxy Files]