But that said, the index has fallen. I cannot deny that this is the reported data. However, I should draw attention to three things.
The first is that this is backwards-looking information. It records what has supposedly happened (and I use the word supposedly very wisely, because these things are subject to revision), and it does not imply what will happen.
So recorded past inflation is to be noted as recorded past inflation is it?
Well I never.
“ I cannot deny that this is the reported data …”
However Comrade, the data was probably influenced by wreckers and saboteurs.
“It records what has supposedly happened …”
Without having received official Party approval, the events cannot really be said to have happened.
I’m sure every such proviso is noted forcefully when citing data he claims is consistent with his thoughts. And by data of course I mean “past data”, because who’s got future data?
The Intergovernmental Panel on Climate Change,the Met Office, Albert Gore and his hockey stick of doom …
That’s still past data of what their predictions / projections / forecasts were at the time of making. Central banks are pretty good at providing previous forecasts and analysis of them, so you can see how good / comically bad they were. https://www.bankofengland.co.uk/paper/2026/forecast-evaluation-report-january-2026
Particularly nice graph of their inflation forecasting errors… https://www.economicshelp.org/blog/186714/economics/failures-of-the-bank-of-england/
That chart is one of the (many) reasons) why I hate university graduates. In this case ones with economics degrees.
Mind you, the measurement of inflation is no easy matter even if it were attempted by honest men (which it usually isn’t). I offer you this, on US inflation, from no01’s substack:
“Take owners’ equivalent rent. About a third of the CPI basket.
It measures housing costs not by tracking what people actually pay – mortgages, taxes, insurance, maintenance – but by asking homeowners what they think they could rent their own house for.
I’m not making that up!!
A government survey calls homeowners and asks them to imagine being their own landlord. Their answer becomes a third of the inflation measure that anchors monetary policy for the largest economy on Earth.
When mortgages doubled in 2022-2023, official housing inflation barely moved. Because what changed was the cost of buying a house. Not the imaginary rent a homeowner imagines charging themselves”
Why do they fuck about with this nonsense? Why not simply ask people what they pay for housing? Those who have bought outright now own an asset, not a monthly outgoing. It’s just shelter, until sold. It may as well be a tent.
I’m sure our host will tell us why they do this, but, y’know, silly cunts.
From the economics POV using imputed rent isn’t as ridiculous as it sounds – “inflation” isn’t the same thing as “cost of living”. What your house provides to you, aside from being an asset in your portfolio, is “housing services” which you’d need to pay out of your own pocket if you were renting. Obviously you don’t pay yourself rent but those services are a real thing and you *are* consuming them. The most reasonable way to price them is what rent you’d have to pay to purchase the same housing services as you are consuming, so that’s what CPIH does. Note that the point of CPIH, as the name suggests, is to look at changes in the price of consumption. What you’re consuming is the housing services, not the bricks and mortar and land which are an asset – changes in asset prices (like house price inflation) aren’t supposed to be included in a consumption-based index.
There are other measures of inflation which are more akin to “cost of living” – RPI includes mortgage payments for example. But from the viewpoint of a central bank trying to set an appropriate base rate means it’s more useful to exclude that because of the obvious feedback effects – higher interest rates would push up mortgage payments too, hence the need for “RPIX” that excludes them. And unlike CPIH, UK CPI excludes owner-occupier housing costs. Different measures for different things. Obviously in practice people (and governments) try to use the measure that suits them better – unions demand pay rises based on RPI because it’s typically higher. Governments generally do the reverse… But for student loan payments, surprise surprise, they prefer RPI.
“Housing services”.
The little old lady living in the house she owns outright has paid for her remaining lifetime’s consumption of “housing services” by buying the house outright. You could call this a bulk lifetime purchase if you like, divisible by the number of years she lives in it. From the moment she paid off her mortgage the additional cost of her “housing services” is zero no matter what happens to interest rates or the cost of living, and that’s the way it should be. Why else pay off the mortgage?
Not having to pay for “housing services” is a major – perhaps primary – consideration in most homeowners’ retirement plan, until you move into a care home, and are then obliged to turn your housing back into money so that you can pay for other “housing services” that include having your arse wiped.
I’m with BiS on this. Nothing has a price until a transaction occurs, and the moment it’s finished the price agreed becomes obsolete. By all means estimate a market value for an item not on the market, but that’s all it is.
Oh, and St. Milt said that inflation is always and everywhere a monetary phenomenon, and he was right.
.
Have you heard of Milt’s permanent income hypothesis which your response is heading towards? Essentially that people spread their consumption fairly smoothly over their lifetime based on their expected lifetime income, but only if “consumption” is understood properly. He explains very clearly why economists *want* to distinguish between consumotion and asset purchases. https://en.wikipedia.org/wiki/Permanent_income_hypothesis
Will not a man who receives an unexpected windfall use at least some part of it in “riotous living,” i.e. in consumption expenditures? Would he be likely to add the whole of it to his wealth? The answer to these questions depends greatly on how “consumption” is defined. The offhand affirmative answer reflects in large measure, I believe, an implicit definition of consumption in terms of purchases, including durable goods, rather than in terms of the value of services. If the latter definition is adopted, as seems highly desirable in applying the hypothesis to empirical data—though unfortunately I have been able to do so to only a limited extent—much that one classifies offhand as consumption is reclassified as savings. Is not the windfall likely to be used for the purchase of durable goods? Or, to put it differently, is not the timing of the replacement of durable goods and of additions to the stock of such goods likely to some extent to be adjusted so as to coincide with windfalls?
I’d say Anon’s right on this as way of looking at assets like housing. An asset’s value in the present is its utility value. So that is what the owner is benefiting from the asset in the present. As for overall value of the asset, its the future utility values. No it doesn’t end up as infinity. Tomorrow’s money is worth less than today’s so ít reduces by the time value of money & eventually approaches, but never quite equals, zero.
It’s the concept of market value I don’t like. The way john77 uses it. It may be convenient fiction but it’s pure fantasy. Opinion.You can’t know what it is unless it’s tested in a market. And once it’s tested it no longer applies because the transaction has changed the market.
“And once it’s tested it no longer applies because the transaction has changed the market.”
This is one bit I particularly don’t like, homes for sale vs on the rental market tend to look very different (eg family homes more likely to be bought vs flats more likely to be rented) and if all dwellings were put up for rent then there’d be big shifts in that market. Much more sophisticated critiques are available both of the theory of imputed or owners’ equivalent rent and the practical business of the data collection methodology. People write whole books about this stuff. It’s not because they’re idiots or dishonest, it’s because meaningful analysis is hard. As is the data collection.
The reason housing is particularly tricky is because people treat housing in two ways. Regardless of their ownership model and how they chose to finance it, they want a roof over their heads. This is consumption and it’s clearly a service not a good. No matter how strange it sounds, a dwelling produces a stream of housing services that its inhabitants consume. But then for a lot of people, their home is also the major asset in their portfolio and they treat it as an investment. Even more obviously true for those who buy or inherit a place they let out. But true for owner-occupiers too. After all they could choose to let their home out too, so there’s an opportunity cost to dwelling there – but they’d need to rent or buy another place for themselves.
So there’s a bit more to this than a claim like “the true value of a house is the NPV of the time-discounted stream of value that the house provides to its occupant”. It’s more that there are two different perspectives on the value of a house, and anyone designing a consumption-based price index wants to find a way, even if imperfect, to focus on the “consumption” viewpoint and screen out the “investment in an asset” viewpoint. As Friedman points out, this is an issue that affects purchases of durable goods in general, it’s just that housing is the biggie in terms of both value and the time scales involved.
It’s a made-up problem.
What proportion of housing is owned outright by its occupiers, compared with that which is mortgaged by its owner/occupiers or rented by its tenants? I’m prepared to be proved wrong but would be surprised if its more than 30%, and the bulk of this will be owned by retirees, who will soon peg and whose housing put back onto the market.
How distorting would it be simply to ignore these people? In effect, in one transaction, they’ve bought a lifetime’s entitlement to the “housing services” they own. Yes, they continue to enjoy those services, which have a value, but they’ve already paid for them. All that money is historic.
The fundamental reason it’s not viable to just ignore the category is that the level of home ownership changes over time and it’s considered highly undesirable for this to artificially move the inflation and GDP growth stats.
Re “all that money is historic” – conceptually that’s not so relevant as it sounds. Whether someone pays off their mortgage early or chooses to stay on an interest-only mortgage indefinitely is just a financing choice, but what we care about is consumption.
For comparison, if someone purchases an item of clothing, financed by a “buy now, pay later” deal then at what point in time should that consumption be recorded? It should clearly be the time of purchase as that’s when the goods were supplied (and the price applied). Similarly multi-year service contracts need to be pro-rated regardless of whether payments are loaded up-front or at the end. If you ever want to send yourself to sleep by reading official guidance on how to compile GDP stats to international standards, you’ll notice how keen they are to use an accrual rather than cash accounting basis to record transactions at the correct time. Hopefully the reasoning is obvious. This month’s consumption of housing services therefore needs to accrue this month, regardless of whether I’m renting or paying a mortgage or own outright, and regardless of when I made the cash payment.
Just as a general note, many people taking Econ 101 are surprised how little “cash” or “money” actually feature. It’s the study of resource choices under scarcity, it isn’t wonganomics. Even in something like a GDP calculation that finishes with a dollar value, you’re not meant to follow the flow of money but instead try to look through that and focus on the underlying resources. For “housing services” that’s basically “this month’s occupancy of my house”. Simple enough, our difficulty is we want to value it at the price which would apply at this time.
But who needs “GDP growth stats”?
What would I look like if I were a tree?
What rent would I pay if I were renting instead of paying a mortgage?
The two questions will give you answers that are about as accurate.
The problem is that economists have found something they need to measure: the amount of housing that is not being paid as rent because the housing is owner-occupied. That’s a real problem. Kudos to them for thinking of it.
But just because you can think of a problem doesn’t mean you can think of a solution. And the first solution you can think of, isn’t necessarily the right one.
If they asked the question “What would you have to charge to rent your house to not lose money on the deal?”, this would at least be connected to reality, because many people actually know (or can calculate) that number.
But that number accounts for changes in mortgage rates etc. Which you said they shouldn’t do. It’s true that in the short term landlords can’t change things around so they may lose money for a bit if the mortgage goes up.
But if they lose too much for too long they will exit. Reality bites again.
And why do they want to know this? So they can fucking tax it. But you can’t tax goods; you can only tax money. This is why “wealth” taxes are heinous: our little old lady is going to have to pay tax on the notional rental value of her house even though she’s bought and paid outright, in perpetuity, for the “housing services” it renders.
Where’s she going to get the money from? She’s retired. She’s going to have to get a job, get a lodger, sell other assets if she has them, or sell the fucking house. Which terminates its “housing services” and renders her homeless.
“Oh”, says the government, “That’s terrible. We can’t have you homeless. We’ll tot up the annual tax you’re supposed to pay and claim it from the value of your house when you die.” And thereby confiscate your house, leaving jack shit for your kids.
And then fill it with wogs.
You really can’t do any meaningful economics if you’re not prepared to countenance some counterfactuals. On the other hand, it’s clearly preferable (but surprisingly often impossible – this is not an isolated case) for data series to be based on transactions that actually occurred rather than being imputed. So I’m not saying you don’t have a point or that no economists would agree with you, many do.
But it would be wrong to be under the impression that economists are simply doing the first thing that popped into their heads. The literature on this issue is voluminous. The conceptual importance of separating asset from consumption was recognised in the 1950s, and the methodology literature really blew up in the run-up and aftermath of its introduction into US stats in the 1980s. The pros and cons are well understood, even as experts argue about the details. There are ways to improve the accuracy of the imputed rents and no, they don’t just ask people what they’d rent their house out for and use that.
Incidentally, if it concerns you that imputed rents (OER for left-pondians) feature in inflation stats, did you know that about one tenth of headline GDP in a typical developed country is also imputed rents? albeit with a different methodology, and this dates all the way back to the introduction of GDP in the 1940s. Similar sort of logic, GDP stats shouldn’t go up or down just because of a shift in the proprotion of homes that are rented vs owner-occupied. Because good data on rents were available, it was thought safe enough to impute for the owned-occupied housing stock.
Compare that to the situation for household production (think: unpaid or non-market food preparation, housework, child care, care for the disabled/elderly, gardening, maintenance etc). Essentially everyone since the 1940s has agreed conceptually it *should* be in GDP. As Tim says, washing machines and vacuum cleaners make us richer than we realise. But only a handful of countries do the kind of surveying that’s needed to estimate how much household production occurs, and valuation at market rates is tricky. So there’s also been widespread consensus not to implement it yet, though exploratory studies exist. https://apps.bea.gov/scb/issues/2022/02-february/0222-household-production.htm
This obsession with money leads to counting angels on the heads of pins.
Housework. Some people keep their houses spotless; others live in shit. Both kinds of people can be perfectly content with their living environment, so which is of more value? And therefore, how valuable is the housework?
It’s equivalent to cars. I’m content with my dinger; it goes. Some people want something flash and new. They’re both cars which will deliver their contents from A to B. Obviously the new car has a higher potential market value than my dinger because it’s nicer and probably has more years of utility left in it, but after that? If you want to get from A to B, ultimately any functioning car will do. So what’s the value of getting from A to B?
GDP is all about market value. That’s a strength – it does render an objective answer to your questions about “how valuable is the housework”, “what’s the value of getting from A to B”, despite the subjective nature of value. And it does account for the fact that not everyone has that preference to do the housework or have a fancy car. They simply don’t partake. But GDP cannot be the answer to wider questions of value. Tim often points out that it misses huge chunks of consumer surplus – someone who desperately values a sparkling kitchen or nice car considers the market price to be a total bargain. And if you want even broader metrics of value, the New Economics Foundation have plenty of dubious ones to sell you.
Obviously there’s the Sir John James Cowperthwaite approach where you Just Say No To Stats before you get hooked on counting all those dancing angels. Has its attractions. But sometimes you do need high quality statistics with careful conceptual underpinning if you want to do a proper analysis of policy options. Friedman was a fan of Cowperthwaite’s libertarian touch but Friedman also relied on serious data for his analyses (he was very strong empirically, not just as a theoretician) and he regularly bemoaned the quality of statistics available to him. Including complaints about the kind of conceptual muddle that to an outsider looks like weird hair-splitting – see that asset vs consumption quote above. The inevitable conversation occurred when Friedman visited HK: https://www.hoover.org/research/hong-kong-experiment
I met Cowperthwaite in 1963 on my next visit to Hong Kong. I remember asking him about the paucity of statistics. He answered, “If I let them compute those statistics, they’ll want to use them for planning.’’ How wise!
Yet if American administrators had followed that sage advice, then likely none of us would have heard of Friedman and his theories would not have become part of the mainstream economics curriculum. He made it into the textbooks due to his big empirical wins over established theories – this simply wouldn’t have been possible without the effort of hundreds of people over the decades who did care to count the dancing angels, and gave him the figures he needed to analyse.
He has always struck me as backwards-looking.
He has always struck me as backward
That was my joke!
Being pedantic here – Spud says “the index has fallen”. It hasn’t although I know what he means. If you set the index to 100.0 12 months ago then the index today is 102.8.
You beat me to it
Murphy of course embodies the qualities of both of those Titans: Prometheus and Epimetheus. Hence his ability to stride mightily across the land bequeathing his knowledge to us mere mortals who are but playthings of the Gods.
I suspect you mean the reverse of those qualities. So he can neither look forward nor backward accurately.
When The Institute of Crazed Fuckwit Lefties issues statistics using numbers plucked from their arses which supports what Spud believes, he interprets it as ‘proof’ that he is right.
Any statistics from any source, no matter how much evidence there is to back them up which goes against his beliefs, is automatically dismissed as Neoliberal and therefore untrustworthy.
As always spot on – he clings to a booklet which he wilfully misinterprets and over-simplifies issued by the BOE over a decade ago as proof MMT is ‘incontrovertible’ – speaking of which I am planning a counter Murphy review of this excellent work – anyone with time to spare may want to consider doing the same: https://www.amazon.co.uk/You-Just-Print-Money-Taxes/dp/1394375255/ref=sr_1_3?crid=L19LJ1QZXIIW&dib=eyJ2IjoiMSJ9.4HSHjWNLtq7eEqPJMW30Si-g0jLzgP0-_8hpXBwN8FSxLPNwlUvh4hwSeNLbpDX_sGPo1xW03AQt1rqH1E7eP90qZoDmyNYmTsUubTg3u2va0tUAF-dQjKMwgxL8VE5EgGhaCDMKSZXuws7hcfCH97bj31k0o6S9waUcRQ7VMGLqstbrkRlOsuCSkzRIvjwJDwW9Hbm9RBMwtKTev2XBMwRM-BmVicYP5qnoSAIHC6g.isJAP2AdhyvNwtmM539hj78jqtSBzfq2ioSzF-ikDew&dib_tag=se&keywords=modern+monetary+theory&qid=1779274907&sprefix=Modern+mon%2Caps%2C242&sr=8-3
There is a bit of a review war going on!
I’ve added a review…..
Oh Jezus! I just read the blurb. I don’t think these people understand what money is. Textbook definition: A token of value accepted in commerce in exchange for services. So what’s the value, here? The goods & services. So money is something you create by producing goods & services & it disappears when they’re consumed. The goods & services travel in one direction & the money in the opposite. So the total of money in the economy must be a reflection of the current total of the g & s in that economy. The tokens may go round the system but the value underlying them doesn’t
So if the government creates more tokens it doesn’t magically create more value. If the government spends those on goods & services that’s goods & services someone can’t consume. The economy doesn’t get any larger by printing tokens. The only thing that changes is who’s holding the tokens.
Money is a credible and legally enforceable promise to give valued goods/services at a later date. The value, as you say, is the future goods and services. Money is created by making promises which people believe you’re going to keep.
Anyone can create money. Go to a bank and borrow £10k in return for a promise to repay it. When you sign the piece of paper promising to repay, the paper becomes money. The money is subsequently destroyed by paying the loan back. Most money isn’t created by the government, but by the people.
Money is a way of splitting barter into two parts over time. If you have X and want Y, you have to find somebody with Y who currently wants X. That’s inefficient. So instead you exchange a promise to deliver X for Y, the promise gets passed around in trade until somebody who wants X redeems it. The total amount of money is the total amount of split trades currently in progress.
The government can make promises too, to be redeemed by goods/services seized from the population in the form of taxes. They print money which they use to buy the goods/services, and redeem it by accepting it in payment of tax. It’s value is the value of the goods and services seized. Thus, the government can’t just make endless promises without seizing the value out of the economy to pay for it, and it can’t seize an unlimited amount out of the economy without killing it. Just as when borrowing from a bank, you are limited in how much you can borrow to the amount the bank believes you can repay, so the government is limited in how much money it can print to how much government contractors and employees believe it can/will seize from the population in taxes.
MMT holds that the government can spend freely to stimulate the economy without raising taxes if there are unused resources currently doing nothing. If you put those resources into use (employ the unemployed, reopen the empty shops), that creates the extra value that pays for the stimulus. The problem with this theory is that if it could pay for it, people would already be doing it. We can all create money. We can all borrow to set up a business and employ people and fill the high streets again. But the businesses created can’t make enough profit to pay back the loan. That’s why the shops shut and the people were unemployed in the first place. Their work wasn’t worth as much as the stimulus needed. So having the government borrowring to spend and ‘stimulate’ the economy just drains it further instead.
There’s a limit to how much of the economy you can seize before things start to break down, and the government has reached it.
As I understand it, the rate of price rises has decelerated because some stonking price rises 13 months ago have fallen out of the calculation.
Yup. Air fares. Last year they measured them during the Easter peak. This year they didn’t. Silly cunts.
A bit like my local council, which did a traffic survey to gather data for a primary school expansion. They measured it when road works had closed the road in front of the school, which drastically and conveniently boosted their safety estimate. Which was nice.
The idea was floated in private. A handful of senior Treasury figures sounded out supermarket executives behind closed doors about capping the price of basic foods.
But by the time the proposal came to light on Tuesday, retailers were already furious. One senior industry source described the talks as “very private, top-to-top conversations gone wrong”.
The proposal itself was simple enough. In exchange for easing some costly regulations, ministers would ask grocers to voluntarily cap the price of staple foods such as bread, milk and eggs.
Couldn’t someone have gently given the silly cow a lesson in basic economics? Or do the Rolls Royce Treasury dopes actually believe, despite all the historical evidence, that it’ll work this time?
Oh, but it was a deal. “In exchange for easing some costly regulations.” What are the fucking regulations for, then? I suppose at least the dopes recognise that their stupid regs are costly.
The UKIPgraph has a chart of price rises showing the usual erratic path including some 5% declines with a comment “prices have continuously risen since 2022” – I think it means “continually”
Yes. Apparently the regulations are optional since they can be “eased”.
“Nice grocery store here. Shame if some regulations happened to it.”
The proposal itself was simple enough.
It already sounds horrendously complicated.
. “In exchange for easing some costly regulations.”
And if you believe that, I’ve got a bridge to sell… no mention of removing the regulations, just a handshake agreement to go easy for a while.
Of course, when the shelves are empty or when the prices return to market price the retailers would cop the blame. So, win win for Treasury.
Hang on, he keeps telling us that MMT relies on know the inflation rate so that taxes can be raised to counter the increase in money in circulation. If he’s now saying that inflation is backward looking (of course it is, we’ve pointed it out a few times), and only a supposed measure subject to revision doesn’t this put a stake in the heart of MMT?