>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".
The point of a consumer price index is, in more or less Marxian terms, to measure the costs of reproduction of the working class. Why should profits enter into this calculation? Producer price indexes measure the costs of raw materials and capital equipment, which are relevant to profits and investment.
The point of the owners equivalent rent approach to measuring housing costs is, as the BEA has said, to separate the consumption and investment aspects of housing. That is, people buy houses both to live in them and to make a buck when they sell (or add to their paper wealth through unrealized price appreciation). It sounds to me like a sensible concept, but it's very difficult to accomplish in practice, especially in periods when house prices are rising rapidly, as they have been. After all, people don't buy new houses every year, so you can't just plug some kind of house price index into the CPI or PCE deflator. Compounding that problem is the huge regional disparities in the U.S. housing market, with the midwest showing little change and some of the coastal areas at the tail end of a heated boom. With such cross-currents, who is the representative consumer (sorry, Michael Dawson) the averages are supposed to represent?
Doug