I read Kevin Phillips cover article [$$$] in this month's Harper's, and thought he was completely crazy. First of all, I was amazed that they printed an article largely about one of my pet interests, the methodology of the Consumer Price Index, which I thought was a bit too esoteric for a general readership. But I was really baffled by Phillips' claim that the CPI massively underestimates inflation. Phillips thinks the Boskin revisions were a big mistake, despite the fact that they were very conservative, and most economists who know about this that I have talked to think the problem goes in the opposite direction. Tyler is his usual ambassadorial self in his blog review of Phillips' book Bad Money when he says:
Either the current market estimate of inflation is the best estimate available, or you know that it is wrong and you will be a very rich man. I find the former scenario more plausible.
But thankfully he really lays it out there in his comments:
A lot of the Phillips book is simply economically illiterate. For sure America has its economic problems, but they are not the ones identified in *Bad Money*
Perhaps it is time to convene an Overcoming Bias colloquy about how it is that estimates of the trend in real wealth can be so massively divergent.