“Inflation” Is Not One Thing

Okay, let’s play a word association game.

I say “faceless government headquarters,” you say…

Yes, that’s right: surprisingly strong TripAdvisor reviews!

No joke. The Dallas branch of the Federal Reserve is apparently a real tourist-pleaser. So when I had a free morning in Dallas this February, I gave it a shot. A daunting security system, like the kind of airlock you’d need on an intergenerational space voyage, led into a mostly-empty lobby. Only two other tourists joined me.

And let me tell you, it was the other 7+ billion people on earth’s loss. The building housed a nifty museum on the Fed’s history, as well as the general topic of macroeconomics (which I find about as intuitive and graspable as general relativity).

In particular, I loved this visualization of inflation. Rotate the wheel, and you change the decade, revealing how prices rose (or, in some cases, stagnated):

35,35,300,304.175232
No, Bay Areans, that’s not $4200 for rent. There’s a decimal. It’s $42. Please stop crying.
34,35,302,306.383514
My guess is that “Eggs get cheaper!” was not the price change making headlines. Which is exactly why the papers should have consulted with me first! It’d be a great headline.
34,35,302,306.475769
By this point, rent has risen more than 100%; gas, less than 50%. Not depicted: the rise in Beatles cover bands, which was presumably astronomical.
33,35,301,305.624573
Yeah, the ’70s were rough. Especially for coffee-drinkers. Or, I suppose, gas-drinkers. But then again, every decade is rough for gas-drinkers.
35,35,301,305.592773
Footballs get way more expensive in the ’80s…
33,35,300,304.278931
…and then barely change price in the ’90s.
36,35,303,308.145020
If these numbers are accurate, I’ve been buying real fancy bread. Where is this $1.37 stuff? Does it have flaxseeds? Because I’d pay $20 to avoid flaxseeds.

Inflation is strange enough in itself. But the uneven way that prices rise – coffee and clothing and eggs each following their own unique trajectory – is even stranger. Just one of many “real-world” subtleties that we elide in our teaching.

When I mentioned this exhibit to my father, he pointed me towards an impressive project by a colleague of his: The Billion Prices Project, which creates a day-by-day inflation tracker via crowd-sourcing. A billion prices, it turns out, is about the level of nuance you want!

This strikes me as the raw material for a killer math project. Some brainstorms:

  • MildPick 5 goods. Graph their changing prices over time. Discuss what you notice and what you wonder.
  • Medium: Pick 5 pairs of goods. Graph their changing prices over time, as well as the change in their ratio. Discuss the significance.
  • Spicy: Design your own inflation metric by picking a basket of goods. Compare your metric to the consumer price index over time. Discuss their relative merits.

Other ideas?

7 thoughts on ““Inflation” Is Not One Thing

  1. When discussing inflation, it’s always a good idea to discuss what can’t be captured by the Consumer Price Index measure of inflation – such as improvements in product quality (e.g. cars today with AC and Bluetooth vs. cars in the 50s 60s and 70s) and new products not previously available for comparison (e.g. smart phones, tablets, Instapots). Rising prices alone tell only part of the story. Products are getting much better and more plentiful, and the CPI can’t measure how much better that makes the world, despite increasing prices for other things.

  2. The rent story is not surprising. As GDP increases, the amount of it that can be skimmed off in rent increases more than proportionately. (Rent here includes house prices, which are just the net present value of an infinite stream of rent payments, but excludes the value of the actual buildings.) If we-the-people reclaimed some of that rent from the rentiers and banks, whose title to the land is ultimately no better than force, we’d be able to afford all kinds of nice public goods as well as paying everybody a citizen’s dividend, as Alaska does with its oil revenues.

  3. I would push a thermodynamic analogy. We can treat inflation as entropy and work as…work! Are evolution differences here just explainable by the energy cost of the goods(work) intrinsic evolution?

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