Old News

I am a big fan of Harper’s magazine, not least because it costs only about $15/year to subscribe and because the company itself is not-for-profit (harpers.org on the net), but even more because its mission is to try to rectify the gross misrepresentations and misperceptions foisted onto the public by mainstream media. This morning, I picked up an issue of Harper’s and read awhile at breakfast: an essay by Wendell Berry, an essay by Lewis Lapham (its one-time editor) and an essay by Kevin Phillips (a one-time Republican). Lapham was explaining to me how disastrous the situation was in the credit markets/mortgage markets; Berry was telling me that Americans had to come to grips with the fact that there wasn’t going to be a quick, technological substitute for an oil-based economy, and Phillips was explaining to me how all the numbers that are constantly being spit out about the ‘economic fundamentals’ are basically fudged for improved public consumption and that the economy is actually in disaster status.

Well, yes, you might say. Plenty of mainstream media people writing about that this week. Of course, the Harper’s I was reading was published five months ago, was written more than five months ago, so what could possibly explain the fact that Lapham and Phillips, for example, already knew last May what Mr. Bernanke and Mr. Paulson seem only to have discovered last week? What a burden it must be to be a Harper’s writer, to be stuck with being Cassandra for the 21st Century. I suppose the Bernanke-Paulson insistence that the world must be turned around under their direction this very afternoon is a function of their being so shocked at finding out what they found out this past week. Perhaps the single, most effective thing I could do to make the world a better place would be to send Mr. Bernanke, Mr. Paulson, Mr. Bush, and a few other Mr.’s subscriptions to Harper’s. Better yet, send them an audio copy so that they can listen to the articles while they do their morning exercises. That way, they’ll get a little lead time to plan their fabulous solutions to world-class problems.

There were several things I already knew before I read these articles (even the first time, last May: this morning’s read was a re-read: I forget so easily, you know?), and one of these was about the Consumer Price Index. They’re always telling us that it hasn’t gone up very much, even though it seems to me and everyone I know that things seem to be going up quite a lot: house prices, food, clothing, gas. If it doesn’t go up much, of course, then we are not suffering from inflation. Well, maybe, maybe not. Some years back, they stopped including the price of buying a house in the ‘Consumer Price Index’ (the CPI). Instead of what it actually was costing to buy a house (you remember that housing bubble?), they substituted what you could rent the house for if instead of buying it, you rented it to yourself or to someone else. That immediately lowered the Consumer Price Index substantially. You can imagine that those three-bedroom houses on tiny lots in L.A. that were selling for $1 million are not drawing $10,000 a month in rent. If you can pay $10k/month for rent, you’d buy.

Then, a decade later, they decided that there was no reason to include the costs of food and energy in the CPI because they were always going up (and occasionally going down), so now we get the ‘Core Consumer Price Index,’ and you can imagine what the former CPI would look like in 2008, a year in which we have seen enormous increases in both food and oil, increases that don’t look like they’re going to be reversed any time soon, if ever. We can be comforted by knowing that, according to the CCPI, there’s not much inflation to worry about. Unless you are a Harper’s reader, anyway. Or unless you’ve recently put gas in your car or bought groceries.

In a time of inflation, interest rates go up; but at the moment, they are not up; they are way down. Interest on Treasuries is virtually non-existent. And that is the nature of the upside down economic world we’re in. Maybe time to re-read Alice in Wonderland.