Did Prices REALLY Go Up?

Before we get into this morning’s Consumer Price Report from the Labor Department, a reality check is suggested because of what I’ve long-held is one of the Big Lies in economics.

I refer to what John Maynard Keynes talked about:  He sold the marginally-sane idea that there is a prevailing level of prices.  It is this, argued the Keynesians, that determine what goods and services cost.  They’re wrong, of course, but we’ll get to that.

Sadly for the U.S. ever since, we have missed the whole source of booms and busts – because it’s a difficult thing to understand.  Impossible in the thinking styles of the 1920’s but becoming rapidly intuitively apparent today. Recently, on the Peoplenomics side of the house, I explained how booms and busts are natural cycles that arise from company (and technology) growth and replacement.

(Continues below)


What was going on in the 1920’s was one style of agriculture, for example – the draft animal type – was being replaced with the mechanized variety.

We can quickly see how farmers continued to produce crops (even though prices were falling) and it’s something that cursed Herbert Clark Hoover before he ascended to the presidency.  Most people don’t appreciate that Hoover was deeply involved in trying to right the instability that resulted from the farm/mechanization overlap.

” Hoover was a leader in the Efficiency Movement, which held that every institution public and private was riddled with unsuspected inefficiencies. They all could be improved by experts who could identify the problems and solve them. He also believed in the importance of volunteerism and of the role of individuals in society and the economy.

The problem Hoover was trying to solve (inefficiency) was not the right problem.   The REAL cause of first the Roaring Twenties and the ensuing Hard Times of the Great Depression were really generated by too much innovation, too quickly.

If there’s an itsy-bitsy splash of hope that our next Depression could be smaller, it’s because barriers to innovation and new enterprise as lower with computers and programming.  It doesn’t take huge capital to form a company these days – a solid computer with a couple of code monkeys are do it all.  And then there’s Go Fund Me…

Still, the Depression was overlap at the macro level. It’s easy enough to express in set theory.  You have one circle (the farmers) and another – overlapping – circle which is the New Industry called farm automation.

At first, there was little overlap – no intersection of sets.  But companies saw opportunity and so equipment makers (like Allis-Chalmers, for example) expanded like mad.

Allis-Chalmers was a U.S. manufacturer of machinery for various industries. Its business lines included agricultural equipment, construction equipment, power generation and power transmission equipment, and machinery for use in industrial settings such as factories, flour mills, sawmills, textile mills, steel mills, refineries, mines, and ore mills. The first Allis-Chalmers Company was formed in 1901 as an amalgamation of the Edward P. Allis Company (steam engines and mill equipment), Fraser & Chalmers (mining and ore milling equipment), the Gates Iron Works (rock and cement milling equipment), and the industrial business line of the Dickson Manufacturing Company (engines and compressors). It was reorganized in 1912 as the Allis-Chalmers Manufacturing Company. During the next 70 years its industrial machinery filled countless mills, mines, and factories around the world, and its brand gained fame among consumers mostly from its farm equipment business’s orange tractors and silver combine harvesters. In the 1980s and 1990s a series of divestitures transformed the firm and eventually dissolved it. Its successors today are Allis-Chalmers Energy and AGCO.

As Allis Chalmers, Ford, and the new internal combustion engine-driven industries grew, so did the overlap area (the intersection grew).  Job shortages attracted rural people to the big cities.

Back to “set theory” – which was relatively unheard of in the 1930’s when John Maynard Keynes was spewing his notions on economics.  Computers, databases, and advances in technology have significantly changed our ways of thinking at very fundamental levels.

Thank you databases like dBase III.

Today, it should be obvious to anyone with modest computer database skills, that the intersection  (* again, what the overlap of sets is called, or vesica piscis if you’re a math-type) changed over time.

As set overlaps grow, you see a boom.  Work for all farm hands and work for all the factory builders, and what about those distinct Allis Chalmers tractors?  More manufacturing and sales than you can shake a stick at. You see, THE BUBBLE happens due to overlap.

The mistake that Keynes made was not thinking of the Depression  as a SET THEORY problem.  Instead, linear-thinking ruled the day, Keynes had held (wrongly I argue) to the idea that there’s a prevailing prices thingy.

What’s really going on is competing supplies and demands with gobs of moving parts that don’t simplify as easily as economists would like.  Kind of like heat island – another ugly, complicated, problem best simplified and then marginalized, but I digress…

So convincing was Keynes argument that it took hold with the banker crowd – equally in-the-dark about how economic overlaps works.

So today, visiting the International Monetary Fund website here, you can read of the godlike status afforded Keynes for giving clueless bankers some fresh ideas:

“During the Great Depression of the 1930s, existing economic theory was unable either to explain the causes of the severe worldwide economic collapse or to provide an adequate public policy solution to jump-start production and employment.

British economist John Maynard Keynes spearheaded a revolution in economic thinking that overturned the then-prevailing idea that free markets would automatically provide full employment—that is, that everyone who wanted a job would have one as long as workers were flexible in their wage demands (see box). The main plank of Keynes’s theory, which has come to bear his name, is the assertion that aggregate demand—measured as the sum of spending by households, businesses, and the government—is the most important driving force in an economy. Keynes further asserted that free markets have no self-balancing mechanisms that lead to full employment. Keynesian economists justify government intervention through public policies that aim to achieve full employment and price stability.”

Of course, there was another, more simple explanation: and that’s where the monetarists come along.

They point out that the fundamental policy error made in the Great Depression was in trying to hold prices at their old (and no longer supportable) high levels.

This caused all sorts of economic displacements, job sharing, and job cuts.  Arguably, had prices been allowed to go where they would in a bust (down) the Depression could have been shorter (still painful, though) and we’d have come through faster.

It’s an article of faith among monetarists (which I confess to being) that intervention makes things worse.

This may seem like a YUGE yawner to you, but I’m warming up to the point.

As you read today’s data on PRICE INFLATION, try to remember the monetarist’s view:

Prices don’t go UP.  The purchasing power of “money” goes DOWN.

Oh, and how far is down?

Looking at the Federal Reserve’s most recent H.6 Money Stocks report, M2 (not seasonally adjusted because “seasonal adjustments” are nonsensical in year-on-year comparisons since the “seasons” are identical, but that’s a statistics discussion for another morning) is up 4.2% and if you follow the fine work of John Williams over at ShadowStats.com, you’ll see that implied M3 – a revealing statistic that wrong-way Greenspan buried to keep knowledge of bankster schemes hidden from the public – is presently running about 5%.

So keep those numbers in mind:  M2 says your money has been watered down 4.2% and Williams’ M3 reconstruction says try 5%.

Detailed foreplay, but THAT is what you really need to know in order to understand the Consumer Price report which was just released:


The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.2 percent in February on a seasonally adjusted basis after rising 0.5 percent in January, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index rose 2.2 percent before seasonal adjustment.

The indexes for shelter, apparel, and motor vehicle insurance all rose and contributed to the 1-month seasonally adjusted increase in the all items index. The food index was unchanged in February, as a decline in the index for food at home offset an increase in the food away from home index. The energy index increased slightly, with its component indexes mixed.

The index for all items less food and energy increased 0.2 percent in February following a 0.3-percent increase in January. Along with shelter, apparel, and motor vehicle insurance, the indexes for household furnishings and operations, education, personal care, and airline fares also increased in February. In contrast, the indexes for communication, new vehicles, medical care, and used cars and trucks declined over the month.

The all items index rose 2.2 percent for the 12 months ending February, a slightly larger increase than the 2.1-percent rise for the 12 months ending January. The index for all items less food and energy rose 1.8 percent over the past year, while the energy index increased 7.7 percent and the food index advanced 1.4 percent.”

It’s a sad joke that government policy wonks believe in so-called core inflation.  That’s inflation with food and energy backed out.  Try living life without either and you’ll see what I mean.

Markets were about flat after the announcement.  With quadruple options this week, the next few days ought to be interesting.

The Crooked Media

So the House Intel Committee says No Collusion, democrats hold their breath and turn blue.

But what’s terrible instructive is how the networks are burying the story like it didn’t happen.

And those that mention it seem more obsessed with TRUMP USING ALL CAPS IN HIS TWEET.

Meantime, Mueller’s gone fishing again.

Racial Bombings?

The PC media ain’t saying it yet, but all the victims in Austin area bombings have been minorities.  See All 3 Austin Package Bombs That Killed 2, Injured 3 Are Connected, Police Say for details.

US Dept.. of Useful

CoreLogic Reports Early-Stage Delinquencies Increased Slightly in December But Serious Delinquency and Foreclosure Inventory Rates Declined Year Over …

Now, for Useless

European court backs Spaniards who burned royal photo.

Coco Chanel’s Fascination With Fashion Started Early in Life.

French government announces security plan for Mayotte island.  (Damn, there goes my plan for revolution there!)

OK, tomorrow we look at health numbers and life span projections on the Peoplenomics side.  And more fun and excitement here Thursday.


Did Prices REALLY Go Up? — 24 Comments

  1. It does not matter if you can get money from another to start a business. I have started a business, the rules have changed from the day I set out in starting it up. Those rules cost about $30k/year to comply with.

    Borrowing money, simply means you need greater returns on investment as the investor wants a high return on their money – to compensate for the risk taken in the new business.

    Yep have my line of credit and everything else… though as I see it in the low margin business i’m in, ag, I figure borrowing money is the kiss of death. One hiccup and you are out a lot. while all other prices seem to be going up, those commodity prices for food seem stable. It is the processors that are getting the “inflated” value for the products (which is why I get my product ready for retail sale). But it is also why many farmers rely on the feds to make ends meet. The feds also subsidize a system that consolidates wealth into the hands of a few, creates more economic activity as row cropping requires lots of inputs that are killing the planet.

    System is broken and yes tax reform is needed so that those employing people do not foot the bill for the entire government.

  2. When horizontal Wells in gehwar and co2 injection ends, about now, no further ability to perform pays the bills.

  3. Your ‘column’ today was like a free college course lecture in something about money – economics or something ?? I’m sorry I can not afford to pay for your information but it certainly is fun even for us ‘free’ folks. I wonder if you see how you are yourself exactly like the ” British ‘ kneelers’ ” you poke fun at — only you bow to king Trump instead of Queen whatever !! Now that’s providing real fun and laughter to all us free folks who see behind the wall of money that you love so much. Let me know when you figure out how to take it with you on your next real fun and interesting trip — when you and me and others get to join together and say hello. You certainly are a very special and wonderful person to have around — thank you so much for all your hard work. And I really mean to be serious — you are a special and wonderful kind of person to have on this earth — whether you are right or wrong — you sure try hard and are ‘WORTH IT !~” Enjoy !!

    • Cheap skate, why don’t you write your own column and get paid in dim wits. I hear it pays less than no wits.

      • cheap skate?? lol when you can live on a 600 a month social security check let me know !

  4. The House intel committee was overly covered by CNN, MSNBC and all the networks yesterday. It dominated the news, and was not buried at all. The joke though is that it was the House Intel Republican members that came to that conclusion. It was a partisan to the hilt. The Democrats will write a similar report and nothing will be resolved. That memo yesterday and the Democrats report later this week proves that Washington is still partisan politics as usual.

    The big news is that Tillerson was fired, because he was not on the same page as Trump. ‘Trumps words”. In other words, Rex disagreed with Trump and if you are not loyal to “The Donald”, it’s off with your head. I am a bit uncomfortable that a CIA head is leading our State Department though. But Pompeo, a supporter of Marco Rubio in the primary, a critic of Trump on a few issues and a huge believer in Russian meddling in the elections may not be as big of a suck up as Trump thinks he is. These are things that Trump will continuously hold over Pompeo’s head and that is just no way to be managed. We will see.

    • One more thing…GOP congressman, Tom Rooney said it all in a interview yesterday. “We’ve gone completely off the rails, and now we’re just basically a political forum for people to leak information to drive the day’s news. … We’ve lost all credibility” – Rep. Tom Rooney on the Republican decision to end the House Russia investigation

    • Staff and advisers only need to advise or help implement policy. Unlike previous presidents that knew only law and politics, this one knows business, economics and management. Also, Trump seems to know when to hit back at a bad judge or deliver a good ding to mouthy political adversaries, so he also knows enough law and politics to get by. If these appointees think they can dictate policy counter to the president they should be flushed along with the rest of the swamp critters.

    • Criticizing the big boss in public has never been career enhancing in any line of work.

      Most places you’d have been out on the street 30 minutes after the boss heard about it.

    • “That memo yesterday and the Democrats report later this week ”

      I thought they were all still out for recess or some other reason..

  5. I saw on your Comp Future site a story that the SCOTUS will hear the case of South Dakota against online retailers concerning collection of state sales taxes. Whichever way the court rules IMO could have a real impact on the economy. What’s your opinion on this George?

  6. NASDAQ hit a 52 week high today. Does this reset the 55 day clock? FANG stocks still appear to be the market leaders.

  7. Whatever the current news, the Tillerson thing and 1st CIA female chief will likely be covered to exclusion of all else domestically. Draining the swamp by using CIA to head State Dept?

    The Hillary falling video will likely NOT be overshown, but watching it she clearly misses a couple of steps on the stairs. Methinks a bit too much chardonnay?

    What is good news and not being touted is that there were several big pedophile busts and an MS13 bust this last week.

    Looks like a great day for me to plant some trees though!

    • NK has been China’s “thorn in the side of the U.S.” for 40 years. Mr. Trump’s long-term goal is to maneuver NK to where it becomes our “thorn in China’s side.” Pompeo is a triple win for Trump because he’s a means by which to further this, and to begin to gut State of its Obama and Bush imbeds.

      Also canning Tillerson sends a rather succinct message to Sessions…

  8. You are very wrong in that it does not take much to start a new company today. If one wishes to mfg a product, it is extremely capital intensive and the regulations to put a consumable product out there require a whole heck of a lot of paperwork.

    To stop the greater depression from happening, real tax reform is needed, so that all goods and services sold are taxed at the same rate… otherwise, there is no hope for those with limited amounts of capital, imo..

    • Capital is always available to start a new business; but you need to network & become friends to those who have the capital to prove you are not just some dreamer without the ability to follow through. Chinese Proverb: He who sits with his mouth open & waits to be feed, goes hungry.

      • The BBB will help you get a loan if your credit is good and business plan makes sense. BUT if you are an illegal or refugee, you get special help, no interest and no payback loans. That’s white privilege for ya!!!

    • Its too late to STOP the greater depression. All depressions since the 16th century grew from instabilities introduced as “fixing” an economic problem. From then on the whole thing escalated into an expansion phase, a turning point and finally a depression. The path to the last depression was ordained by the creation of the FED. Executive Order 6102 by confiscating citizen wealth brought some relief. President Nixon going off the gold standard was the creation of a “NEW FED” that put us on the road to the next depression. When electronic money becomes the norm, confiscation of citizen wealth will be just a “keystroke” away from some mysterious keyboard. At least that is my take on the subject.

      • I still think that when money goes digital, banks will be free to increase transaction charges, making us poorer at every turn. The IRS will be free to collect what THEY think we owe, and then we will be in the position of arguing a case already lost, as possession is 9/10ths of the law. Civil asset forfeiture is the future model for tax collection – you read it here first.

        These two things, and the REAL value of gold and silver – along with illegal drugs – will create a larger black market than prohibition ever did…

      • Me thinks you are correct…but a caveat to your electronic money confiscation….if that happens ….might ones ‘lead’ BE the medium of exchange…..to regain ones ‘lost treasures’…imho

      • OM2… I think money has already pretty much gone digital.. we still have cash of course but it won’t be long till that has gone by the wayside..
        My fear is with compounding and all its implications.. in my world.. a simple fifty cent increase for fuel has a huge affect on a regular employees expenses.. for us as an example the fifty cent increase means two gallons of petrol for traveling.. or three cents in fuel increase one way.. or ten cents an hour.. this of course isn ‘t really three cents since the increase taking away from the give to uncle sam brings it up to a nickle an hour per employee per gallon depending on travel time and distance per employee.. this isn’t just one employee but all employees.. now drag that out.. lets say soda pop.. their increase is the same.. fifty cents a gallon.. now depending on how many gallons and distance etc.. and how many cans or bottles they sell.. means the real cost of a coke just went up either a nickle or a dime a can.. of course they can’t just increase costs per can to stay competitive.. so you go creative.. bigger bottles to charge more.. or same size can’s with less product.. some companies do away with full time employees cut hours and hire part time instead without benefits..
        it doesn ‘t stop there.. it compounds out.. eventually a simple increase like the flutter of a butterfly expands .. all over a simple fifty cent increase..
        of course we don’t see this.. they will work hard to keep things looking like all is well.. but more people have to seek out federal assistance to survive.. ( one in three right now) all over a simple increase in fuel. so realistically an employer should give each employee a twenty cent raise every time the cost of fuel goes up. this doesn’t happen.. as real world prices edge up each penny makes a real change overall.. it isn’t the dollars that make the huge changes it is the penny’s.. there is a very fragile boundry once it is crossed then you go into what I call the spiral.. you try to not go into it but you don’t have any choice things start to get out of control till everything is going down the drain.. the really big problem is. unless it affects you you will never see it till it hits the crescendo and there isn’t any real way of turning it around.. a two bit increase is just a nuisance and nothing to worry about.. but a two bit on a two bit and then drag it out it becomes a mountain or the pit of hell and despair .. the people that a simple two bit increase will affect are those like me.. the bottom feeders in the wage world the blue collar laborer’s..the family men and women with children and the elderly, the single moms.It starts slow like boiling a frog.. if the temperature is slight and gradual the frog will stay in the water till it boils…..
        I was at a car lot today.. and the salesman and I started talking about the cost of cars it wasn’t that long ago that a new car was only 2500.00 today that is 20,000.00 plus. I got to drive a Bentley just to see how the other side lives nice but then a set of brake pads is six grand.. when I first started to read urban survival the cost of a soda pop was fifty cents that same bottle is now shooting two dollars.
        a little in a little out.. a penny up a penny down.. the simple increase that happened with electricity last year alone for us.. meant a small gas station if they increased everyones wages according to the increase would have had to make an extra twenty five grand a year.. not much for a company but then all prices would have to follow suit. twenty years you and I will see a million dollar loaf of bread.. well we won’t.. but if we are still kicking you will see a ten thousand dollar depends to put on..

      • What’s truly funny.. I could have owned that Bentley.. it’s only a couple years old sweet ride totally ownable by almost anyone.. a quarter of a million dollar car traded in and being sold at rock bottom cost.
        The reasons are the same .. it’s image and your image isn’t that impressive to the group that can afford the costs Bentley driving a slightly used low mileage Bentley a couple years old.

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