Inflation Truth, Really

I’m in Argentina for the day — literally (stuff came up, forcing me to make this a very quick visit; sorry, no time for media interviews or anything not already booked). And I thought it might be worth telling people something they may not know about the history of MIT’s Billion Prices Project.

If you’ve been following the sad story of America’s inflation truthers, you know that a variety of people — angry billionaires like Paul Singer, wannabe economic pundits like Niall Ferguson, etc. — have claimed in recent years that official US statistics vastly understate inflation. There are multiple ways to show that this is nonsense, but one of the easiest is to point to the Billion Prices data, collected independently from online prices, and note that while it doesn’t track the official CPI exactly — the basket of goods sold online doesn’t exactly match the coverage of the CPI — there is not a large, persistent discrepancy:

But does this mean that we can always trust governments? Of course not. The US Bureau of Labor Statistics is in fact squeaky clean, and if you know anything about how it works you realize would be impossible to put it under severe political pressure without that fact being obvious. But that isn’t going to be true in all times and places.

In fact, the BPP owes its origins to questions about Argentine inflation numbers. was created in 2007 as an alternative to dubious official statistics, and this in turn led to the BPP and its offspring PriceStats. And PriceStats continues to produce independent Argentine inflation estimates; their number is in orange, the official number in blue:

Argentina really does seem to have much higher inflation than the government admits.

What’s going on? Basically, Argentina — having benefited hugely from heterodox policies after the collapse of its currency board in 2001 — kept being heterodox too long, and is now experiencing classic developing-country problems, with a persistent budget deficit that it is monetizing because it lacks access to capital markets, leading to persistent inflation and balance of payments problems.

And if anyone starts yelling that I’m being inconsistent in saying that deficit spending and money-printing are a problem in Argentina, because those are the same policies I want in the US, the answer is, yes, they are — because the US is in a liquidity trap, suffering from persistent lack of demand, while Argentina is overheated.

I may have more to say about Argentina, and maybe also about the talk I’m giving shortly before heading to the airport, tomorrow.



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