Tuesday, May 12, 2009

Spot the common professional economists' error

From James Hamilton:

When academic economists talk about inflation, we often think in terms of a single-good economy in which the concept refers unambiguously to an increase in the dollar price of that good.

If you can't wait for me to give you the answer, just go to the link and find my link. Well, I don't give it there either.

Anyway, all I can say is, if you make this kind of error at the beginning, don't expect me to put a lot of faith in your analysis...


Jesse said...

Maybe this "single-good economy" that he's referring to is an economy with only dollars. He doesn't specify any good other than dollars... so maybe this man thinks the common understanding of inflation is an instance when dollars are traded for other dollars at a rising price in dollars.

His sentence should read:
"...in which the concept refers unambiguously to an increase in the dollar price of dollars."

Then again, I'm no economist... and he's the professional.

Unknown said...

Jesse: To me, that sounds like the same thing as saying that inflation is not about an increase in prices per-se, but about an expansion of the money supply. A larger supply of dollars with roughly the same demand as before means, cheaper dollars, or a decrease what can be bought for each dollar.

When making purchases, if you're thinking about the dollars you're "selling" in exchange for goods/services, people with those things wanting to buy your dollars are now able to take advantage of the fact that there's a supply glut of dollars. Because they're cheaper to buy with the goods/servs they're wanting to sell, they can get more of them.

Yeah, I think you and M. Rothbard would've been in good company on that insight.

klonopin said...

I think the error is that monetary inflation is part of the scheme governments use to steal wealth and they get away with it because the average person doesn't know about it and here's this guy reinforcing the ignorance by talking about price inflation which is, in-and-of-itself, meaningless other than that it irks me that I can't still buy a piece of gum for one cent.