A Fed President says there is no Inflation while the Price of the Big Mac says Otherwise

Posted by PITHOCRATES - April 13th, 2014

Week in Review

Inflation is bad according to Rep. Chris Van Hollen.  And, therefore, we need baseline budgeting (taking last years’ spending and automatically adding more to it to arrive at the budget for the following year) to overcome the corrosive effect of inflation on government spending.  And he illustrated this by showing how inflation has increased the price of a Big Mac over the years (see Members of Congress debate budget with Big Macs by Eric Pfeiffer posted 4/8/2014 on Yahoo! News).

On Tuesday, two members of Congress got into a detailed discussion over inflation, with Rep. Chris Van Hollen using pictures of hamburgers  to argue that inflation estimates are necessary to undercut future budgets.

Holding up a chart that showed the average cost of a McDonald’s Big Mac in 2004 ($2.71) compared with its cost today ($4.62), Maryland Democrat Van Hollen argued that not adjusting budget numbers for inflation equates to a net cut.

But while arguing that we need baseline budgeting to counter rampant inflation we have someone whose job is to keep inflation from rearing its ugly head in the economy saying quite another thing (see Fed’s Evans ‘exasperated’ by inflation warnings by Greg Robb posted 4/9/2014 on MarketWatch).

Many people who argue that inflation is just around the corner have been repeating the same warning for the past five years, said Charles Evans, the president of the Chicago Federal Reserve Bank, on Wednesday. “I confess that I am somewhat exasperated by these repeated warnings given our current environment of very low inflation,” Evan said in a speech at an economic policy conference in Washington D.C. Evans said he still sees the economic environment pointing to below-target inflation “for several years.” Evans debunked current arguments that inflation is just over the horizon. He said that there is “substantial room” for stronger wage growth without inflation pressures building and added the Fed’s large balance sheet is not a “classic warning sign” of inflation. Commodity prices also seem to be an unlikely propellent of inflation at the moment, he said.

So while Rep. Chris Van Hollen is wringing his hands over the rampant inflation everywhere that we can only counter with baseline budgeting the president of the Chicago Federal Reserve Bank gets exasperated by people like Rep. Chris Van Hollen.  Because there is no inflation that he can see.  And it’s his job to find inflation.  So he can stop it.  So who’s right?  They can’t both be right.  Of course, the price of the Big Mac has gone up through the years.  But there is only one problem with Rep. Chris Van Hollen presentation in Congress (see the Yahoo! News article linked to previously).

Regardless of which side of the debate you fall on, there was one falsehood on display at the House committee hearing on Tuesday. As The Washington Post noted, those hamburgers used in Van Hollen’s charts weren’t actually Big Macs.

That’s right.  With all the resources our representatives have at their disposal they could not even take the time to get a picture of the right hamburger.  Perhaps because the only beef our representatives eat is the tenderloin and wouldn’t be caught dead ‘slumming’ it at a McDonald’s.  Food the vast majority of Americans find delicious.  But then again, we’re not a bunch of pompous, arrogant, condescending prima donnas like our representatives, are we?

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