The billion prices project spiders prices off the internet, and gets results broadly similar to the BLS, about thee percent per year, which surprises me, since over the last three years the BLS has been applying “hedonic adjustments” to all manner of goods where hedonic adjustment is impossible or implausible. Today’s supposedly three percent inflation as measured by the BLS is a lot higher rate of inflation than what the BLS was measuring as three percent inflation three years ago.
Three percent a year is high enough to cast doubt on the Keynesian account of the economic crisis, but it is low enough to not worry much about inflation. The billion prices project shows prices rising two percent in the last five months, which is five percent annualized, high enough to thoroughly discredit the Keynsian account of the crisis, and high enough to make one a bit worried about inflation, but not a symptom of imminent hyperinflation.
On the other hand, online goods tend to be small lightweight consumer durables, such as cameras, cell phones, scissors and so forth, where in some countries (but not the US) progress continues, tending to reduce their price relative to goods that are less easily traded internationally, such as medical services and education, and relative to prices with a higher material content and lower skill content, such as food and fuel. So the billion prices project probably honestly under estimates inflation, due to innate bias in what it follows, while the BLS, which attempts to follow everything, is apt to look too hard for rationalizations to interpret prices as falling, and not hard enough for prices rising. The continuous commodities index indicates sixty percent inflation per year, which is apt to make one worry about hyperinflation. Recollect that the early stages of hyperinflation do not hit everything at the same time. Real estate is the last to rise, urgent necessities the first.
An example of dubious hedonic adjustment by the BLS is that the BLS tells us that washing machines have become much better, even though it is obvious that they are not washing clothes as well as they used to, nor lasting as long as they used to, an anecdotal recollection confirmed by consumer reports testing.
The US is getting dirtier and shabbier, the cars are smaller and less powerful, and the tallest building in the US was built in 1972, even though computers are getting more powerful, and internet connections faster, thus uniformly positive hedonic adjustment looks distinctly suspicious. While positive hedonic adjustment for computers is fair enough, there should be broad categories where hedonic adjustment is stable or going downwards, and there are not. Or better still, they just should not attempt to do hedonic adjustment, because it is impossible to do honestly.
There are parts of the world that look the way we thought 2010 would look back in 1972. The US, on the other hand, really does not look as if hedonic adjustments should always be positive over the past forty years. As in Cuba and North Korea, the buildings in the US are getting older and shabbier.
Here is what 2010 was supposed to look like, when were looking forward to 2010 from 1970:
You will notice a couple of other futuristic looking buildings in the same photo, and in different views of the same hotel, I see a third futuristic looking structure, though Marina Bay Sands hotel is the biggest and most science fictional of them all. Singapore, by and large, looks the way 2010 was supposed to look like: Clean, shiny, and science fictional.
That thing on top of the hotel, the Skypark, is not merely a decoration to look sci-fi. It is a gigantic swimming pool, indeed an imitation island, with a view. So that guests can swim, and still see the view, the swimming pool has no visible wall holding the water in:
Due to the curve in the wall, you can see in the distant part of the photo the hidden gear that holds the water in The invisible wall ensures that the guests get the best possible view, and supports the illusion of being on a tropical island in a limitless ocean.
If the US look liked Singapore, then I would believe it when the BLS gave everything a positive hedonic adjustment. But the fact is the US is just getting dirtier and shabbier. The US is still cleaner and shinier than Europe, but the US today just does not look like a society where everything deserves a positive hedonic adjustment over time.