Houses agrees to raise debt ceiling, plan still sucks.

[Lord Zentei]

The idea that the 100% debt-to-GDP ratio is some kind of magical threshold beyond which everything collapses automatically is a popular one, but it's also a load of shit. It conflates income rates with property: US net value is about 3.5 times its GDP. It is the national debt as a percentage of national net worth and the interest payments on government loans as a percentage of the government income that are the important numbers. Unfortunately, the tea party and other idiot populists have decided to make a last stand at this arbitrary line, come what may, and their stupidity is what's driving this mess. They don't realize that they're making the situation much worse with their horseshit (or if some few of them do, they incredibly don't seem to care.

Of course, they're partially right: high debt is obviously not good, and the deficit must be fixed, but this asinine, ham-fisted and sophomoric method of doing so isn't the way to go.

[Chirios]

Apple holding more cash than USA

US President Barack Obama is known to be an iPad owner, along with 28 million other people
Continue reading the main story
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Key US House vote on debt delayed
Apple in record sales and profits
Apple now has more cash to spend than the United States government.

Latest figures from the US Treasury Department show that the country has an operating cash balance of $73.7bn (£45.3bn).

Apple's most recent financial results put its reserves at $76.4bn.

The US House of Representatives is due to vote on a bill to raise the country's debt ceiling, allowing it to borrow more money to cover spending commitments.

If it fails to extend the current limit of $14.3 trillion dollars, the federal government could find itself struggling to make payments, and risks the loss of its AAA credit rating.

The United States is currently spending around $200bn more than it collects in revenue every month.

Apple, on the other hand, is making money hand over fist, according to its financial results.

In the three months ending 25 June, net income was 125% higher than a year earlier at $7.31bn.

I might be wrong about this, but does this mean that if the debt ceiling is not increased the US will only have $73 billion left to spend?

[UnderAGreySky]

(edit: first para meant for Stas)

Look, the largest contributor in anything - the best player in a team for example - can always be the biggest weak point when their contribution with respect to others is massive. So if you have a team that does well on the basis of one quality player (Lionel Messi in Argentina?) and that player falls sick, the team takes a big hit.

In any case, the US is not going to default on its debts. It will, as per the 14th, pay those debts but not be able to pay other things - employee salaries, Medicare contributions, Medicaid... Not saying this is a good option but it may be a better option if it means lasting for a couple of weeks before Congress passes (eventually) the debt limit increase.

The damage done, though, is in the fact that future Debt Limit increases will be held hostage too. And since we're in the era of Austerity, I predict the GDP is not going to climb anywhere as fast as debt. Hence rinse, repeat.

Good times.

[K. A. Pital]

The idea that the 100% debt-to-GDP ratio is some kind of magical threshold beyond which everything collapses automatically is a popular one, but it's also a load of shit. It conflates income rates with property: US net value is about 3.5 times its GDP. It is the national debt as a percentage of national net worth and the interest payments on government loans as a percentage of the government income that are the important numbers. Unfortunately, the tea party and other idiot populists have decided to make a last stand at this arbitrary line, come what may, and their stupidity is what's driving this mess. They don't realize that they're making the situation much worse with their horseshit (or if some few of them do, they incredibly don't seem to care.

Of course, they're partially right: high debt is obviously not good, and the deficit must be fixed, but this asinine, ham-fisted and sophomoric method of doing so isn't the way to go.

I heard that the US government has about as much cash on hands as Steve Jobs - 74 billion, right? Which means that "US net value" is not important when considering debt and sovereign default matters - only whether the government can pay. Because sure as hell trying to cover the gap with assets belonging to other people would be frowned at by private property fans. It necessary should.

And I also heard that for some reason people stopped giving money to Greece, after it reached the magic 140% to GDP ratio. And Greece had a rather good debt rating from Moody's and the like in 2007. Sometimes people just might... stop giving money.

[Starglider]

The basic US budget problem;

Through the years, mandatory spending has steadily increased (with some fluctuation from year to year) in relation to revenues. Here is mandatory spending as a percentage of total federal receipts, by year, according to published White House figures:

1970: roughly 33 percent
2000: 47 percent
2005: 61 percent
2010: 90 percent
2011: 101 percent

The trajectory seems clear. Meanwhile, President Obama has not proposed entitlement reform. He has, however, proposed adding a massive new entitlement: Obamacare. At the same time, the baby boomers’ retirements are looming, which means higher entitlement expenditures and a smaller proportion of the population available to finance them. In light of all of this, what do the Obama administration’s projections for mandatory spending as a percentage of total federal receipts look like, going forward? Here they are:

2012: 81 percent
2013: 73 percent
2014: 70 percent
2015: 69 percent

Seriously?

These estimates are made possible because (among other things) the Obama administration is projecting a 21 percent increase in federal receipts from 2011 to 2012. Never mind that we haven’t seen an increase like that in 40 years. In fact, the largest increase in the past 40 years has been 16 percent.

How is the Obama administration’s track record in forecasting such increases? For 2010, it projected a 9 percent increase in receipts. The actual tally was 3 percent. For 2011, it projected a 19 percent increase in receipts. Just one year later (in this year's budget), it has now modified that projection to less than 1 percent (actually, to 0.5 percent). So that’s a swing from projecting the highest increase in the past 40 years, to projecting essentially no increase at all — in just 12 months.

US politicians, most US economists and assorted liberal pollyannas continue to assume that a massive, historically unprecedented economic recovery will occur any day now. Meanwhile the actual productive US economic peaked around 2000 and only property bubbles and central planning bullshit (e.g. stealth monetisation with much the resulting inflation exported via reserve currency status) maintained the growth illusion. A 19% revenue increase was and is impossible outside of massive tax rises, which are politically impossible.

The US will inevitably trend up to 200% debt-to-GDP. Unlike Japan, which even now has positive balance of trade and a very high savings rate, the US will not be able to maintain this. The dollar will lose reserve currency status, Treasury interest rates will spike, and either the Tea Partiers will force a default or (more likely) the US will openly print money in vast quantities to meet entitlement payments. With the inflation export mechanism broken by the loss of reserve status, the US will see stagflation and general misery on a scale far greater than the 1970s. IMHO the sooner the crash comes the better, both because it will only get more serious the later you leave it and because the sooner it comes, the sooner economic rebalancing and rebuilding can start. Actually averting a crash is now politically impossible and will soon be financially impossible, if it isn't already. Every month you wait more jobs and tooling are packed up and shipped to China, more retirement accounts become vulernable and more kids graduate with awful job prospects. I fully expect the can to be kicked for another four to six years though, due to the utter selfishness and short-termism of all parties involved.

This is not a conservative position. Contrary to the beliefs of tea partiers that are at least as delusional as their liberal counterparts, default will massively damage US global influence and living standards for 99% of the population for at least a decade. This is just the harsh reality of the situation.

It conflates income rates with property: US net value is about 3.5 times its GDP.

Aside from being a pretty major stock/flow conflation fallacy, that assumes US valuations are accurate, while in fact they are still hugely inflated. Try deflating US property prices to 20th century mean price : earnings ratios for an accurate picture, and that doesn't even consider the collapse in value that will follow the withdrawal of municipal services (after the wave of municipal bankrupcies starting right how) and failure of worn-out undermaintained infrastructure that serves those properties.

[Lord Zentei]

I heard that the US government has about as much cash on hands as Steve Jobs - 74 billion, right? Which means that "US net value" is not important when considering debt and sovereign default matters - only whether the government can pay. Because sure as hell trying to cover the gap with assets belonging to other people would be frowned at by private property fans. It necessary should.

The US government has LESS money on hand than Steve Jobs. But the money Steve Jobs has on hand wouldn't last two weeks at the rate the government is spending it. That doesn't change the fact that net value is more important as opposed to the magic 100% mark: at least it is not based on a fallacy (as you're not comparing apples and oranges). Of course, of the two statistics I mentioned, the interest rate payments vs government budget is more important than net worth, I mostly mentioned the other statistic because that at least was a statistic which made sense that involved total debt. And obviously, when you're talking about a time-frame of just a handful of days before the bills are due the money you have on-hand becomes the more important number - assuming you refuse to raise the debt ceiling, that is.

And I also heard that for some reason people stopped giving money to Greece, after it reached the magic 140% to GDP ratio. And Greece had a rather good debt rating from Moody's and the like in 2007. Sometimes people just might... stop giving money.

Wasn't that was more of a benchmark? And based on a host of factors internal to the Greek economy, not that there was anything special about the number 140% per se. The reason people freak out at the 100% number is that they feel that this is the point where the country should be technically bankrupt since then debt exceeds income rates. But my point is, bankruptcy doesn't work that way.


EDIT: damn tags.

[JME2]

Mark my words, Caligula is rolling his grave.

Caligula at least had some novel ideas about solving his deficit.

Hence why I agree Nero was a better choice of words.

Economically and financially, the last 2 years have been a nightmare for me -- and the idea of it getting worse and nosediving again scares the hell out of me.

[Cecelia5578]

Because sure as hell trying to cover the gap with assets belonging to other people would be frowned at by private property fans. It necessary should.

So, now you channel your inner libertarian just to take a jab at America, eh?

[J]

The idea that the 100% debt-to-GDP ratio is some kind of magical threshold beyond which everything collapses automatically is a popular one, but it's also a load of shit. It conflates income rates with property: US net value is about 3.5 times its GDP. It is the national debt as a percentage of national net worth and the interest payments on government loans as a percentage of the government income that are the important numbers. Unfortunately, the tea party and other idiot populists have decided to make a last stand at this arbitrary line, come what may, and their stupidity is what's driving this mess. They don't realize that they're making the situation much worse with their horseshit (or if some few of them do, they incredibly don't seem to care.

Of course, they're partially right: high debt is obviously not good, and the deficit must be fixed, but this asinine, ham-fisted and sophomoric method of doing so isn't the way to go.

While it's true that things do not explode and fall apart as soon as the 100% debt:GDP ratio is breached, there is factual basis to say it's a place where countries should tread with caution and avoid if possible. As Reinhart and Rogoff observed in This Time is Different: Eight Centuries of Financial Folly, when a country gets around the 100% mark it becomes a lot harder to keep all the balls in the air and the chances of a default or painful budget restructuring increase dramatically.

Does this mean the US will default? Of course not. But it will be rather painful to bring the deficits & debts under control and ensure that compounding doesn't do its magic and cause the debt to take off. In other words the budget will have to be balanced soon and you'll need to start running a surplus within the next few years to start paying down the debt. Doing so while going into a depression recession will be doubly challenging.

[NecronLord]

Because sure as hell trying to cover the gap with assets belonging to other people would be frowned at by private property fans. It necessary should.

So, now you channel your inner libertarian just to take a jab at America, eh?

That post is not especially communicative.

His stating a measure will be unpopular with certain persons does not mean it will be unpopular with him.

[Johonebesus]

The basic US budget problem;

Through the years, mandatory spending has steadily increased (with some fluctuation from year to year) in relation to revenues. Here is mandatory spending as a percentage of total federal receipts, by year, according to published White House figures:

1970: roughly 33 percent
2000: 47 percent
2005: 61 percent
2010: 90 percent
2011: 101 percent

The trajectory seems clear. Meanwhile, President Obama has not proposed entitlement reform. He has, however, proposed adding a massive new entitlement: Obamacare. At the same time, the baby boomers’ retirements are looming, which means higher entitlement expenditures and a smaller proportion of the population available to finance them. In light of all of this, what do the Obama administration’s projections for mandatory spending as a percentage of total federal receipts look like, going forward? Here they are:

2012: 81 percent
2013: 73 percent
2014: 70 percent
2015: 69 percent

Seriously?

These estimates are made possible because (among other things) the Obama administration is projecting a 21 percent increase in federal receipts from 2011 to 2012. Never mind that we haven’t seen an increase like that in 40 years. In fact, the largest increase in the past 40 years has been 16 percent.

How is the Obama administration’s track record in forecasting such increases? For 2010, it projected a 9 percent increase in receipts. The actual tally was 3 percent. For 2011, it projected a 19 percent increase in receipts. Just one year later (in this year's budget), it has now modified that projection to less than 1 percent (actually, to 0.5 percent). So that’s a swing from projecting the highest increase in the past 40 years, to projecting essentially no increase at all — in just 12 months.

US politicians, most US economists and assorted liberal pollyannas continue to assume that a massive, historically unprecedented economic recovery will occur any day now. Meanwhile the actual productive US economic peaked around 2000 and only property bubbles and central planning bullshit (e.g. stealth monetisation with much the resulting inflation exported via reserve currency status) maintained the growth illusion. A 19% revenue increase was and is impossible outside of massive tax rises, which are politically impossible.

The US will inevitably trend up to 200% debt-to-GDP. Unlike Japan, which even now has positive balance of trade and a very high savings rate, the US will not be able to maintain this. The dollar will lose reserve currency status, Treasury interest rates will spike, and either the Tea Partiers will force a default or (more likely) the US will openly print money in vast quantities to meet entitlement payments. With the inflation export mechanism broken by the loss of reserve status, the US will see stagflation and general misery on a scale far greater than the 1970s. IMHO the sooner the crash comes the better, both because it will only get more serious the later you leave it and because the sooner it comes, the sooner economic rebalancing and rebuilding can start. Actually averting a crash is now politically impossible and will soon be financially impossible, if it isn't already. Every month you wait more jobs and tooling are packed up and shipped to China, more retirement accounts become vulernable and more kids graduate with awful job prospects. I fully expect the can to be kicked for another four to six years though, due to the utter selfishness and short-termism of all parties involved.

This is not a conservative position. Contrary to the beliefs of tea partiers that are at least as delusional as their liberal counterparts, default will massively damage US global influence and living standards for 99% of the population for at least a decade. This is just the harsh reality of the situation.

It conflates income rates with property: US net value is about 3.5 times its GDP.

Aside from being a pretty major stock/flow conflation fallacy, that assumes US valuations are accurate, while in fact they are still hugely inflated. Try deflating US property prices to 20th century mean price : earnings ratios for an accurate picture, and that doesn't even consider the collapse in value that will follow the withdrawal of municipal services (after the wave of municipal bankrupcies starting right how) and failure of worn-out undermaintained infrastructure that serves those properties.

The article you quoted didn't even address the question of how much of that proportional increase was cause by increased spending and how much was caused by tax cuts. Raising taxes to pre-Reagan levels would go a long way to solving the deficit problems. Looking at history, there's no reason to believe that higher tax rates on great wealth will hurt the economy.

[Starglider]

The article you quoted didn't even address the question of how much of that proportional increase was cause by increased spending and how much was caused by tax cuts. Raising taxes to pre-Reagan levels would go a long way to solving the deficit problems. Looking at history, there's no reason to believe that higher tax rates on great wealth will hurt the economy.

It wasn't in the scope of the article, and it's from a conservative publication so of course they aren't going to advocate taxe rises. Personally I agree that the Bush tax cuts were a big mistake and one of the major contributors to the current situation. Unfortunately repealing them at this point won't solve the problem; it's politically impossible to do it before the next presidential election, but in 2013 it will be mandatory merely to keep up with the rising debt service costs (particularly if the US loses its AAA rating and interest rates go up significantly, which looks likely). The increased revenue will be swallowed up and unless both entitlement and discretionary spending are savagely cut the primary deficit will remain. Whether the democrats or the republicans win in 2012 will decide what mix of tax rises and spending cuts you see in 2013, but unless there is a massive economic recovery out of the blue, no plausible combination is going to be enough to balance the budget. US state and local governments are already ramping taxes as much as they can to deal with their horrible fiscal situations, which further reduces the population's tolerance for federal tax rises.

[Enigma]

Justforfun... are you posting drunk?

Yes.. I admit.. I've had a few..been a long week.....lot of family in town...big wedding I'm playing for... I'm a TERRIBLE insomniac at times...hope I'm not being obnoxious...I've had some bad postings in the past...honestly not interested in repeating them,,,

Trying to be light in tone..but am truly interested in the topics....and just about to read Sir Nitrams response which I'm sure will be very astute! Cheers!

Just wondering, do you live in Canada and work in the U.S.?

[Lord Zentei]

While it's true that things do not explode and fall apart as soon as the 100% debt:GDP ratio is breached, there is factual basis to say it's a place where countries should tread with caution and avoid if possible. As Reinhart and Rogoff observed in This Time is Different: Eight Centuries of Financial Folly, when a country gets around the 100% mark it becomes a lot harder to keep all the balls in the air and the chances of a default or painful budget restructuring increase dramatically.

Does this mean the US will default? Of course not. But it will be rather painful to bring the deficits & debts under control and ensure that compounding doesn't do its magic and cause the debt to take off. In other words the budget will have to be balanced soon and you'll need to start running a surplus within the next few years to start paying down the debt. Doing so while going into a depression recession will be doubly challenging.

I didn't mean to imply that rising debt this high wasn't highly problematic, merely that the 100% number in and of itself didn't signify anything. You might as well place the danger point at 90%, or 110% or whatever. It sure as hell doesn't justify digging your heels in and threatening a default to prevent the debt from going a dime further.

[Simon_Jester]

Starglider, yes the US deficit has to be resolved. Yes, this will involve cuts to parts of the budget that have been or will be ballooning out of control.

But the current mess in Congress is so fucking obviously not the way to do it that it shows a profound fault in our political system. In a healthy country it would be neither necessary nor possible to take on the budget gap in a way like this. We could actually engage in serious planning, without half the toolkit being taken off the table pre-emptively and replaced with "you must be joking" plans.

Fixing the budget has to be done with pruning shears, not a chainsaw.

[Starglider]

But the current mess in Congress is so fucking obviously not the way to do it that it shows a profound fault in our political system. In a healthy country it would be neither necessary nor possible to take on the budget gap in a way like this. We could actually engage in serious planning, without half the toolkit being taken off the table pre-emptively and replaced with "you must be joking" plans.

Sure. My point is that the situation is realistically unfixable. You can't wish away the tea party, the republicans or anyone else you don't like, and you can't make tax rises for the majority popular when people are already experiencing crushing debt and massive loss of personal wealth. Avoiding the tax cuts in the first place would have avoided some of the property bubble silliness, but at this point a significant increase taxes on the middle class would push more over the edge into bankrupcy and foreclosure. Raising taxes on the wealthy is more feasible, at least up to the 50% we're at in the UK, but more than that is just not going to work. Aside from the utter reliance of politicians on camapign donations from the wealthy, tax avoidance and international capital flight is vastly more sophisticated and easier now than it was in the mid 20th century, so puntitive 70%+ rates are just not going to be enforcable even if they become politically possible.

[Simon_Jester]

Spending control is necessary, I buy that- it's just that it has to be done sanely, and some of the money needs to be shuttled into other spending, because otherwise we're going to suffer GDP crash because of a lack of education and infrastructure, insofar as we haven't already.

[Starglider]

some of the money needs to be shuttled into other spending, because otherwise we're going to suffer GDP crash because of a lack of education and infrastructure, insofar as we haven't already.

The US spends 5.7% of its GDP on education, more than France (5.6%), the UK (5.3%), Canda (5.2%), Germany (4.6%) or Japan (3.6%).
Similarly, the US spends 15.4% of GDP on health care, more than Germany (10.6%), France (10.5%), Canada (9.8%), the UK (8.1%) or Japan (7.8%).

On a per capita basis these are even higher, as the US has a higher GDP-per-capita than all those nations. How is it that the US is spending more than any major first world nation on education, in both relative and absolute terms, yet you agree (with me) that US education is not good enough? If the problem clearly isn't the amount of funding, why do you think another 1% of GDP would fix it? Healthcare on the other hand is going to continue increasing as a % of GDP regardless, due to population aging and care costs increasing faster than inflation for the last 40 years. Of course if you use the pre-Reagan measure of inflation, US GDP has been declining for the last decade;

[Simon_Jester]

Yeah.

Let me put it this way- I am not opposed to a smaller budget, but the kind of budget contractions that won't gut the US are, unfortunately, exactly the kind the Republicans won't do. I'm hoping they discredit themselves enough that in 2012 it becomes possible for Democrats to engage in vaguely intelligent pruning-shears cuts rather than mindless chainsaw cuts, and to accompany this with a sane approach to increasing taxes on the parts of the population that are least feeling the squeeze of current conditions to mitigate the pain.

Do I expect such a thing? Not answering that question. If it's not done properly, well, the less is done properly, the more desperately this country is going to need massive reforms in the 2020s and 2030s. I predict that the American political landscape is going to change a lot in that timeframe, but I don't know what will happen. Much depends on the next few years.

[Justforfun000]

Enigma Wrote:

Just wondering, do you live in Canada and work in the U.S.?

No. Live and work in Canada. Used to visit the US a lot, but not anytime recently. Wouldn't be a bad time to go considering our dollar..

[Surlethe]

While it's true that things do not explode and fall apart as soon as the 100% debt:GDP ratio is breached, there is factual basis to say it's a place where countries should tread with caution and avoid if possible. As Reinhart and Rogoff observed in This Time is Different: Eight Centuries of Financial Folly, when a country gets around the 100% mark it becomes a lot harder to keep all the balls in the air and the chances of a default or painful budget restructuring increase dramatically.

It seems clear at first blush that "debt:GDP ~ 1" and "higher chance of default or budget restructure" are correlated because both are symptoms of a dysfunctional political system.

Of course if you use the pre-Reagan measure of inflation, US GDP has been declining for the last decade; [graph]

wat? What's the source for this?

[Starglider]

wat? What's the source for this?

The source is specified right there on the graph. I find it quite amusing that liberals hate everything about the Reagan administration... except for one dishonest accounting trick originally used to make Reaganomics look more successful, which they have eagerly adopted because it helps them to pretend that massive endless government borrowing is not a problem.

[Surlethe]

Oh, I see. They have a problem with the notion that people might substitute out of the consumption basket when relative prices change.

[Fingolfin_Noldor]

some of the money needs to be shuttled into other spending, because otherwise we're going to suffer GDP crash because of a lack of education and infrastructure, insofar as we haven't already.

The US spends 5.7% of its GDP on education, more than France (5.6%), the UK (5.3%), Canda (5.2%), Germany (4.6%) or Japan (3.6%).
Similarly, the US spends 15.4% of GDP on health care, more than Germany (10.6%), France (10.5%), Canada (9.8%), the UK (8.1%) or Japan (7.8%).

On a per capita basis these are even higher, as the US has a higher GDP-per-capita than all those nations. How is it that the US is spending more than any major first world nation on education, in both relative and absolute terms, yet you agree (with me) that US education is not good enough? If the problem clearly isn't the amount of funding, why do you think another 1% of GDP would fix it? Healthcare on the other hand is going to continue increasing as a % of GDP regardless, due to population aging and care costs increasing faster than inflation for the last 40 years. Of course if you use the pre-Reagan measure of inflation, US GDP has been declining for the last decade;

The US is only nation among the above listed that has an increasing population, whereas the others are facing declining enrollment. Of course US education spending would be more than any of the above. This probably translates to other costs in other areas, never mind the constant expenditure in arms, and the increasing health care costs because the US cannot bring itself to impose more order on its health care system but instead allows a tag game between insurance companies and healthcare companies and pharmaceuticals which translates to increasing costs. I suppose a free market would solve the system but wait...

[Simon_Jester]

Oh, I see. They have a problem with the notion that people might substitute out of the consumption basket when relative prices change.

The problem comes when substitution is used as an excuse for an endless downward ratchet of the quality of the goods in the basket.

Suppose that I have three options for my protein: beef, chicken, and beans. Beef costs twice as much as chicken. To simply, pretend that there are no other kinds of food than these.

Suppose in 1980 the reference commodity basket assumes that everyone eats beef every day. Now imagine that the statisticians notice in 1982 that the price of beef has gone up and say "oh, well that's all right, people can eat chicken instead of beef once every ten days and still be spending the same number of dollars on food." Substitution of goods outside of the consumption basket, probably because of a relatively minor change in relative prices.

In 1984, this process has gone on even farther- people are now eating chicken instead of beef one of every five days. It keeps going, and if it proceeds at a more or less linear rate we can imagine that by the year 2000, everyone at the reference line is eating chicken pretty much every day, while beef has become a luxury meal, because the price of beef is now something like five or six times that of chicken and only a fool or a man with money to waste would buy beef.

We can stop and say "the relative price of commodities has shifted, so people substituted for something outside the basket." But if beef is actually better food than chicken, we must ask ourselves if these economic changes reflect an irrelevant price shift, or a 'hidden' type of inflation. Perhaps what's really been happening is that even as the real income of people at the reference line shrank, the food industry developed newer, cheaper ways of supplying food... but only chicken could be mass-produced in this way.

The problem gets even more serious if now the price of chicken starts going up relative to the price of, say, beans. And if by 2020 everyone at the reference line is living on beans instead of chicken- because now chicken costs four times as much as beans, and beef costs four times as much as chicken.

If this kind of process continues across a wide range of commodities (people buy harsher, lower-quality soap, less appetizing food, shoddier furniture and homes in worse conditions), at some point a great deal of inflation becomes hidden in the substitution process. Officially, inflation since 1980 might have only been, say, 50%... but to get the same relative quality of life now as I had then, I might have to be spending 60% or 70% or 80% more dollars. In that case, you can make a case that inflation's being measured wrong.

Does the official process control for this properly?