The Government Should Publish the Real CPI Figure

It is about time the Government informed the public about the true rate of inflation and increased payments to those who are entitled to it. Okay, unemployment is low but those living in rural areas depend on it to survive. They can continue to to rely on the unemployment benefit, or they can move to the city. That is the last thing we want - more people living in the major coastal cities.

The problem is that non-essentials are included in the CPI. This offsets the real inflationary increase in the necessities of life. Many do not know that essential goods have increased by a massive 8 per cent over the past year. The high dollar is "hiding" this by making imported non-essentials cheaper. Prices of such goods have actually fallen. Those on low incomes spend a higher proportion of their income on essentials like food, electricity, water, fuel and rent.

Oddly, interest rates are not in the CPI package. Curiously, it was taken out in 1998. In other words both political parties have been covering up the cost of living. Furthermore, Price rises in property are out as well.

Another important thing that the public is not informed of is the practice of discounting a price that hasn't changed (quality adjustment). If the price of something has not increased over a year you would think that this would have zero effect on the the CPI. This is not the case. The price of an electronic product will reduce the CPI even if it has not gone up. How does this happen? It is because the Government discounts the price of this non-essential by saying it is a better product due to technological improvement. It says you are getting more for your money and the price has fallen when it has not. This is purely a value judgement. Measures of inflation should contain factual data only. This is no more nor less than doctoring of figures which benefits the Government. Both political sides alter the CPI to make things seem better. Note how the Coalition passed over the CPI when the GST was introduced? A fully independent body should regularly revue the way the CPI figure is evaluated and this nonsense should stop.

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Economics

Greece Can Spend Its Way Out of Trouble

It is taught in economics at university that the way to get rid of debt is to print money. Though some will pull back in shock horror at the thought this is actually true. Keynesian theory dictates that a high spending fiscal policy, i.e., spending money that a country doesn't have, creates employment, improves GDP and wipes away debt.

A comparison can be made between the US debt after WWII and Greece's debt today. The US then owed 122 percent of its GDP to other countries. Greece owes 113 percent. The US printed money and spent. By 1956 the US debt was still the same but repayments could be sustained due to higher GDP. In fact the US ran trading surpluses during this period.

The alternative action for Greece is to cut back on spending, in other words cut services such as hospitals, the police and new roads. It is easy for people in other countries to say this is what they have to do. If you are Greek, however, life is going to be oppressive for decades. Many Greeks could consider opting out of paying the debt by moving to other European countries. They can do this because they have free movement in the EC. I predict that if spending is cut drastically then emigration will increase to a flood. Life is better on the other side of the fence.

Spending cuts have a bad side effect: it reduces buying power thus causing deflation. Note, the Great Depression was caused by deflation. There will be unemployment queues stretching for blocks. To believe otherwise is an error. Some believe that falling prices allows people to buy more - but paychecks fall even faster and stop completely for some. Rarely does deflation happen, but when it does it means big trouble. Goods remain on shop shelves because people have low, or no income. How can real wages remain high when business income is falling due to low prices?

Unfortunately the US has an advantage that Greece does not have: the US dollar is seen to be the world currency, like a gold standard. Though the US currently prints money and dishes it out worldwide especially where its troops are operating, the value of the dollar remains high.

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