http://www.nathannewman.org/log/archives/001392.shtml
You hit good points. Of course, I already have the answers ;-) Seriously, though, I think there has always been this two tiered system, since this is class society. It has only become more glaringly obvious (as well as distorting the economic measurements) when the disproportion grows between state subsidies to the incomes of workers, versus the state subsidy (no matter how 'indirect') to the income of capital. Since the 1970's, inflation is basically calculated from the wage level; profits do not factor into inflation calculations. This makes sense if you think like a capitalist: the whole point is profit without limit, therefore the rate of profit cannot be subordinated as a measurement gauge in any way useful as an "economic management tool" - that would be the subordination of the capitalist pursuit of profit to a "larger rationality", inpermissible under capitalism. It is a particularity of the US that all residential real estate is counted as "capital".
So the result is, under conditions of generally growing inequality in income distribution between the two classes as we have at present (nowadays fought over largely within the state sphere, without whose massive subsidies contemporary capitalism would simple cease to exist - I call this financial - military Keynesianism), we see what some have called an "asset price inflation", a permanent bloat of fictitious capital allowed to expand without (theoretical) limit, but also never permitted to "fail". That is why Greenspan strenuously resisted calls to count "asset price inflation" into the general inflation index during the dotcom bubble. This is not a "failsafe" system, however; it comes with costs, one of which is the decreasing usefulness of the official economic statistics as a guide to the direction of the economy. It is rather analogous to the way Soviet bureaucratic pilfering tended to render the official statictics less than useful for economic planning.
Another cost involves how all this will resolve itself. It will not resolve itself purely in the economic sphere in the form of a "collapse"; rather it will play out in the political sphere. Financial-military Keynesianism is inevitably leading to ever-widening waves of political instability, spreading wars of aggression, and eventually fascism.
As for the source, here is a case where a generally detestable source produces something of use in a particular conjuncture. Newman, being a progressive Democratic party fanatic wedded to whatever its strategy is at any given moment in time, currently is required to refute the rosy Repub story on the "improving economy", because the Dem bigwigs have mandated the strategy of challenging the Repubs on "the economy", while they cowardly "stay the course" with Bush on the real strategic ground, foreign policy. This causes Newman to question the economic statistics, which can be usefully redeployed (to the extent that it contains anything useful, the the stuff on housing prices is old news) to the class struggle, part of which is to cast doubt on the capitalist state's official statistics, which are themselves deployed as a class weapon against workers, as in the infamouse case of US unemployment statistics, which are a systematic lie.
BTW, this Dem strategy is a really stupid case of fighting the last war. They think they can do to Bush Baby what they did to his daddy. But they seem to forget that this required Perots' Reform party to split the conservative vote, and I don't see that happening this time: Soros and that other moneybags with Berkshire Hathaway have no Repub leverage, and the "traditional" far right (Buchanan, Raimondo) act like the Boy Emperors' loyal advisors. Its all up to the pro-Israel neocons to screw it up, for instance falling for Powells' Geneva bait. They shoud just shut up and lay low until Bushs' recoronation. Otherwise, Boy Emperor is pumping the US economy full of money like crazy, shortterm, and will not repeat daddys' mistake so - barring something unexpected - odds are Dems lose.
-Brad
Gordon Fitch wrote:
Hakki Alacakaptan:
>You may not like the author but this is the Mother of all Enrons:
>
>http://www.nathannewman.org/log/archives/001392.shtml
>
>November 29, 2003
>Is Growth Real II?
>
>If inflation is being underestimated, then the inflation-adjusted growth
>numbers we've seen reported are overestimating growth.
>
>On top of the "quality" adjustments {I noted}, there is a fundamental
>problem in the inflation statistics related to the housing market.
>
>As this {CNN/Money article} details, a serious problem with inflation
>measures is that they include changes in the cost of rental housing, but do
>not take account of increases in housing prices for home owners. The
>assumption is that even home owners are merely saving the costs of renting
>their homes, so the numbers are substitutable.
>...
>
>
I've been thinking about this in my economically uninformed way. It seems to me that what we're observing is a two-tier economy with respect to money value. Because of the very low interest rates, and maybe tax reductions as well, the rich, and those who are temporarily in rich mode, such as homebuyers getting big mortgages, are in one money sphere where there is a lot of money and a lot of inflation, and everyone else, who must borrow money under the high rate on card credit or not at all, and many of whom are unemployed or part-timing, are in a different money sphere where there is very little inflation because there is not much money.
There are certain borderline areas, like medical services and credentialed education, where the supply is artificially constrained and the rich bid against the poor for the available supply, so one observes a certain amount of inflation in this area as well, although not as strongly as in real estate and the stock market. (I know the stock market is hardly soaring, but I believe it would be much, much lower without the cheap money.) There is also a certain amount of leakage from the rich to the rest where the rich, who by and large do not create value, exchange their inflated money for real goods and services, but evidently there is not enough of this to cause serious inflation in the lower realms as yet. Possibly a lot of this money is soaked up in what we might call "border towns", luxury goods like jewelry or art objects which the non-rich don't compete for very much. The adept suppliers of these goods may become rich themselves and return most of their profits to the upper monetary sphere by buying real estate or equities.
On the whole, however, I think the two money realms are functioning separately for the most part.
Since inflation is measured on the price of goods and services sold to the poor, the rich folks' inflation doesn't show up in inflation indexes and adjustments, but it still exists. Eventually I suppose there must come a day of reckoning, but I haven't figured out what it is likely to be as yet. Most of the paths I can think of are catastrophic, i.e. the interest rates are forced up somehow and the housing and equities markets collapse, leading to massive bankruptcy and unemployment; or large amounts of money are allowed into the lower realm, causing sharp inflation of basic goods and all the political and social difficulties which _that_ entails. The real puzzle is trying to figure out how they can get off the plank _without_ falling into the shark-infested sea.
-- Gordon