Oklahoma Senator Tom Coburn doesn't believe inflation is what the official numbers say it is. He just isn't sure whether it's really higher or lower -- that depends on whether he's playing the part of an inflation or a deficit hawk.
Republicans are convinced, just convinced, that Ben Bernanke is going to let the inflation monster out from under their beds -- if he hasn't already. Now, for years, they've warned that the Fed's bond-buying risks a return of 1970s-style stagflation, and for years they've been wrong. Historically wrong. Indeed, core PCE inflation just hit an all-time low going back 50 years, and headline inflation is only 1 percent. So where is the inflation? Well, maybe the government is hiding it! That's what Coburn suggested to Bernanke during the latter's Congressional testimony on Thursday:
One of the things that concerns me is that since 1980, we've changed the way we measure inflation 20 times. If you used the same measure of inflation we had in 1980, our inflation rate would be over 8 percent right now.
Now, it's true that the Bureau of Labor Statistics (BLS) has changed how it measures inflation the past 33 years. And it's true that the old methods would say inflation is higher now than the new methods do. But that's where things stop being true. Inflation isn't "really" 8 percent today. For one, as Paul Krugman points out, private inflation estimates like MIT's Billion Price Index mirror the official numbers. For another, with nominal GDP growing 4 percent, an 8 percent inflation rate would mean real GDP was falling 4 percent today, which is impossible to reconcile with an economy that's adding jobs. In other words, the old way of calculating inflation is the old way for a reason -- because it's not as accurate. As the BLS explains, it now accounts for how much people substitute between similar goods when the price of one goes up more than the other. Say, for instance, that the price of your favorite cereal shoots up, but your second-favorite does not. You're probably going to switch to the cheaper one -- so has inflation gone up? The new method says not as much.
The question is how much people substitute. Now, even after all the tweaks the past few decades, some economists think people substitute more even than the current consumer price index (CPI) assumes. That is, they think inflation is actually lower than the official numbers. Deficit hawks have latched onto this as a sneaky (but, in their view, fair) way to cut spending and raise taxes. Things like Social Security benefits and tax brackets are indexed to inflation -- so indexing them to a lower level of inflation like chained-CPI would mean fewer benefits and more revenue. Would you believe that a deficit hawk like ... Tom Coburn has endorsed exactly this? Well, here's what he said about it in his 2011 budget Back in Black
From the tax code to mandatory spending programs to Social Security, the benefits provided though many federal programs are adjusted each year to account for inflation. The measure currently used to calculate these automatic increases, Consumer Price Index (CPI), is considered by many to be outdated, leading to higher increases in federal spending than actually justified ... Chained CPI is widely regarded by economists and analysts as a more accurate accounting of inflation than the traditional Consumer Price Index.
In other words, Coburn thinks inflation is understated when he's an inflation hawk, and overstated when he's a deficit hawk. It's almost as if he, and the rest of the Republican Party, don't know what they're talking about