I’m commenting here mainly so that smarter people than me can tell me how I’m wrong.
In my opinion, inflation is masked over the last couple of decades by a couple of things. For one, computers, internet, telecommunications, have revolutionized all kinds of things and this has helped to keep prices low and going lower.
Offshoring our manufacturing has kept prices low.
A collapsing economy has cut the price of housing.
A weak economy also affects the demand for trucking, making it lower than it would otherwise be, which helps to keep fuel lower than it otherwise would be.
High unemployment keeps wages from rising much if at all.
Thats aside from the games that the statisticians play, where they claim that something is better, hence the higher cost isn’t really a higher cost. (Similar to the games they play with unemployment figures, where if you’re out of work long enough they stop counting you). The 2% figure, I believe, is a lie.
Still, whatever is the true figure, its lower than it would be if the economy wasn’t on the rocks and we weren’t innovating, and we weren’t letting Chinese do our work for us.
That's exactly my motivation for posting these articles.
I learn much from the questions and comments of others...often, I don't even know what question to ask. So..... (The hard part is steering clear of the Smart Alecs)
You are right that the inflation is masked. First, there has been significant inflation in health care, higher education, and housing (until recently). Not coincidentally, these are three areas where you have significant moral hazard, coupled with governmental policies designed to encourage debt financing.
Equities and debt have also inflated. Once again, this is partially due to moral hazard (especially with respect to sovereign debt). Commodities, as well have inflated.
The reason we don’t see consumer level inflation at the level it could be given monetary policy is because there has been no stimulative effect to all of these policies. Basically, wages haven’t increased, so consumers are generally tapped out. This means no consumer inflation, because companies have no pricing power.
Finally, we export much of our inflation. Since everything out there is priced in dollars, we are printing for a global economy, not a national one. This means that the inflation is spread out over a much larger economy.
The answer is that we have had significant inflation — just not in the areas that they are looking for it.
In terms of inflation being masked, technology was important. But bigger was the end of the cold war. Suddenly, in the span of a few short years, China, Russia, the former Soviet Republics, East Europe, and to a large degree India, became part of the global economy. This created an almost post WWII like environment, where countries which actually produced had a massive, untapped market. Whereas in post WWII it was mostly the US, this period gave the US, Germany, England, and Japan a huge opportunity for wealth creation. Most of this opportunity was squandered, but it did allow Japan especially to remain in their stagnation and not collapse under the weight of their debt.
Unfortunately, everyone decided that the best use of this opportunity was to center an economy around real estate bubbles, so we are now in a situation where we simply cannot allow these price bubbles to deflate. We are stuck with an expansionary monetary policy until everything collapses.
Looking down the road, I think that many of these price bubbles (education, equities, etc.) have hit a kind of ceiling. I think the next round will consist of aggressive currency debasement. I would not be surprised to see commodities as the only asset class to rise in this period, as a currency war naturally leads to a general trade war (increasing commodity prices would, in this scenario, be a supply phenomenon, not demand side). Any other inflationary effect of the race to the bottom in currencies could be offset by further damage to the underlying economy. But we are in a bad place, globally. The entire world is fully dependent on price bubbles, and fully dependent on currency debasement.
That's just part of the story. China is willingly printing up their currency to keep their prices low here. That exports our inflation there and is a big reason why it hasn't shown up here.