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>> Real inflation is 10 times the official rate.

ELI5 please?




Baumol predicted this 50 years ago; it's called the "cost disease".

The inflation rate for a computer with a fixed set of specs is massively negative -- it gets cheaper every year. So it is for many technological devices.

But our whole economy is a mixture of technological stuff (that drops in cost over time, i.e. negative inflation) and non-technological stuff (burritos and health care).

The overall inflation rate is an average across the entire economy. Even if you believe the reporting is not distorted (which is dubious), then the fact that there are so many goods whose prices drop quickly over time, implies that there have to be many goods and services whose prices go up much faster than "inflation" would predict. Because something has to balance that average!

Baumol calls the technological stuff the "progressive sector" and the non-technological stuff the "stagnant sector". As time goes on, prices in the stagnant sector continue to rise until they consume almost all spending.

Baumol made specific predictions based on this model in 1960 that have turned out to be consistently true for 50 years ("the cost of healthcare will continue to rise to degrees that will seem scary" and so forth).

Furthermore, it's not like it is some weird complicated or hard-to-substantiate theory. It is just math, not much more complicated than the definition of the average. Given how big the consequences are, and how hard to argue with, it surprises me that this idea occupies so little of the public conversation.


http://www.shadowstats.com/alternate_data/inflation-charts and links from that page explain further. (The difference has been ~5% understated inflation rather than 10 or 5 times as much, but whatever.)


http://www.businessinsider.com/if-people-knew-the-actual-inf...

Perhaps it's more like 5x, but the point stands




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