CPI is misleading, M3 is more accurate. CPI is heavily influenced by technology trends and offshoring of labor for widgets.
House and asset prices tell different story.
House and asset prices tell different story.
I wonder what happens if we apply that to other metrics...
https://i.imgur.com/2GkpBLZ.png
Uh oh. If we take raw gdp (ie. not adjusted for inflation/cpi), and adjust it by M3 instead, we find that the economy has shrunk by nearly 50% since the mid 90s. That can't be right, can it?
Chart was made in excel from these data sources:
https://fred.stlouisfed.org/series/MABMM301USM189S
https://fred.stlouisfed.org/series/GDPC1
https://fred.stlouisfed.org/series/GDP
edit: fixed axis format.
This assumes a constant velocity of money. That's empirically false. Money supply can remain stable while prices soar or collapse solely on the back of velocity changes.
As opposed to M3, which is influenced by economic growth exceeding inflation, population growth, just overall changes in velocity of money, etc...
This becomes really obvious if you look at M3 vs prices over long periods. If you have say 2x as many people and M3 is 2x the size then a 1$ candy bar that’s still 1$ somehow demonstrates inflation and increases in productivity. Except productivity per worker was unchanged only total economic output which is irrelevant to individuals.