There are loose ways of speaking, which are literally incorrect, and precise ways of speaking, meant to convey exact information. As an example of loose speaking, I read in yesterday’s Wall Street Journal (“Why You’re Losing More to Casinos on the Las Vegas Strip,” May 29, 2023):
In addition to smaller winnings, visitors are also paying more to visit Las Vegas. Prices for everything from hotel rooms to concerts to restaurants have surged in recent years. So far, tourists haven’t been deterred.
The last sentence is confusing at best. It means either (1) that no visitors have been deterred by higher prices, or (2) that some visitors haven’t been deterred by these prices.
The first interpretation cannot be true. For zero visitors to have been deterred by the price increase, it would mean that there was no marginal tourist who was close to the point of not gaining net utility (or “consumer surplus”) at the previous prices, and who would thus have been brought into negative utility by the higher prices. It would also mean that no visitor would decrease his visits to, or time in, Vegas. In other words, the implication is a perfectly inelastic market demand curve, meaning that quantity demanded of casino services and other tourist attractions does not change with their prices. This could only happen if there were no other good or service on which these consumers would want to spend their money. If more than one good or service are available, economic theory gives a formal proof of the law of demand, which states that there is a negative relationship between the price of a good and its quantity demanded. Virtually all empirical (econometric) study confirm the law of demand: the higher the price, the lower the quantity demanded.
If some visitors haven’t been deterred by Las Vegas higher prices—the second interpretation of the incriminated sentence—we cannot of course conclude that no visitor has been, and the suggestion that higher prices don’t deter tourists is baseless. (Nor can the whole argument rely on the possibility that a few eccentrics using their contrarian free will could have purchased more because the prices were higher.)
It is true that other factors than prices could have pushed up the whole relation between prices and quantity demanded of Las Vegas services, thus compensating for the increase in the latter’s prices. For example, leisure travel in general may have jumped after the end of the pandemic. But saying that visitors haven’t been deterred by higher prices implies that no one has reduced his quantity demanded relative to what it would have been if prices had not increased. Otherwise, we are confusing many possible causes. Counterfactual such as “relative to what it would have been” constitute an essential part of any causality argument. It corresponds to the ceteris paribus condition: one may only affirm that A caused B if that happens when other things are kept equal.
Examples are endless. When, in January 2016, the CEO of McDonald’s declared that the profit “momentum continued into the fourth quarter with the launch of breakfast all day in October,” he meant that this part of the profit increase would not have materialized if the breakfast menu had only remained available until 10:30. You may say that your wine glass broke because you dropped it on the floor only if you know that it would not have broken otherwise; for example, you don’t think that a tiny time bomb had been imbedded in the stem and set to go off, coincidentally, at the precise moment when you clumsily tripped in the carpet.
The Wall Street Journal could seriously suggest that higher prices caused no change in quantity only by tacitly assuming that other causes changed demand (as opposed to quantity demanded as a function of price). On the distinction between demand and quantity demanded, see also a previous post of mine on this, “A Frequent Confusion and the Yo-Yo Economic Model.”
READER COMMENTS
Jon Murphy
May 30 2023 at 11:28am
I think your last paragraph highlights what they were trying to get at (no change in quantity demanded). Although I think it’s also worth pointing out that, if that’s truly their interpretation, it is not literally correct to say “So far, tourists haven’t been deterred.” Even if quantity demanded hasn’t changed, it’s probable that the composition of tourists have changed. For example, you may have fewer middle class tourists and more wealthy. Some tourists have been deterred even if there are others who have not.
Jon Murphy
May 30 2023 at 1:36pm
The point of my comment is a little muddled. Let me give an example:
I am considering a market demand curve where the composition of the demand curve changes.
For example, let’s say the market for Vegas trips currently consists of 3 people (for the sake of simplicity, let’s assume that each person can only buy 1 Vegas vacation for the relevant time period): Bob, Mike, Mary. Bob is willing to pay up to $100 for a Vegas vacation, Mike $90, and Mary $80. If the market price is $80, then the equilibrium QD is 3.
Now, let’s say that Brad and Barbrara join the market. Brad is willing to pay $110 for a Vegas vacation and Barb $120. Because new consumers have joined the market, the market demand increases. Let’s say the new equilibrium price is $100. At $100, Mike and Mary drop out, but Brad and Barb are still in the market. Equilibrium quantity still equals 3.
In this case, some tourists were deterred (Mike and Mary) because of the new price, but others were not. The equilibrium Q stays the same but we’d be incorrect to say that literally no tourists were deterred.
David Seltzer
May 30 2023 at 5:24pm
Jon: Nice example of subjective theory of value for each individual mentioned and how markets work as a result.
Henri Hein
May 30 2023 at 12:14pm
What if a Vegas trip is a Veblen good?
Pierre Lemieux
May 30 2023 at 12:38pm
Henri: Intriguing question. But wouldn’t Veblen-good enthusiasts (“Veblen-good-nuts”) patronize the Casino de Monte Carlo in Monaco instead? (I have never been there and my question is a naïve one.) Would habitués of the restaurant Paul Bocuse in Lyon start going to McDonald’s instead if the latter’s prices were multiplied by 100? Luxury brand names have a value and may be an essential condition, or perhaps a synomym, for a Veblen good (which has its own deman curve), but these brand names can’t be created in a season anyway.
robc
May 30 2023 at 12:58pm
I have a question re: veblen goods.
Wouldn’t the demand curve only be reversed in a short range? I can’t imagine that the quantity demanded would drop to zero as the price went to zero, so at low costs, the demand curve would have the “traditional” slope. Also, at high enough costs you start pricing out the wealthy and eventually even the super-wealthy, so it would also be downward sloping at higher costs (as opposed to going infinity). So there is a range in which the slope changes directions and then changes again.
Is this correct? And if so, has there been much research on how tight that range is? I would assume luxury goods manufacturers would have a good handle on that.
The wikipedia page on veblen goods was not useful for these questions.
Pierre Lemieux
May 30 2023 at 3:25pm
robc: I think there is no way, with neoclassical assumptions and tools of anaysis (ordinal utility, “more is better than less,” “a consumer cannot both prefer bundle A to bundle B and consider them indifferent,” and such) and with the only exception of difficult-to-find inferior goods (the opposite of Veblen goods in a sense), to build a demand curve that would bend backward over any range. If I am correct, the only way to analyze a status good (say, a Louis Vuitton handbag) is to consider it, with very similar items, as having its own market. The producer knows that he cannot sell it at less than $X without depreciating his brand name, and that he would lose too many sales by selling at more than $Y. What the consumer buys with the handbag is a bundle consisting of a purse-to-carry-stuff (a small part of the price) and status (most of the price). The law of demand still applies as the quantity demanded of status decreases with price (between $X and $Y a unit). If anybody knows of a better treatment in the literature, I am interested! (What I said is consistent with Becker’s silent treatment in his textbook Economic Theory, pp. 27-28.)
Henri Hein
May 30 2023 at 1:05pm
Pierre: Maybe, I don’t know either. I was thinking more of something on the margin. Perhaps traditionally Vegas has had lower status as a destination over alternatives like DisneyLand and New York because of the hotel discount. Now that they are paying full price for their hotels, the Vegas enthusiasts can get their gambling and their status. I’m not sure of the plausibility myself, but the possibility came to mind when I saw the WSJ quote.
Pierre Lemieux
May 30 2023 at 3:39pm
Henri: Tentatively–and following what I said above in reply to robc– perhaps any glamorous destination has some brand-name feature built into its price(s) and in the quantity demanded for its amenities. But if it is really built-in, it means that the quantity demanded of status will decrease as its price increases. It also implies a minimum price below which there is no supply: a Super-8 motel cannot be built on the Strip. And there needs to be no regulation forbidding it (as I think there is little if any on the Strip): real-estate prices will take care of that. If land prices increase, hotel prices will also increase. Of course, demand can still change for other reasons.
Dylan
May 31 2023 at 7:28am
I feel you’re making too much of this. Yes, it is loose writing, but for readability almost everything is.
Let’s suppose something like the following state of affairs. Pre-pandemic, average occupancy rates for Las Vegas hotels were 80%. Let’s say that after the pandemic real prices rose 30%, yet hotel occupancy went to 95%. Two statements can both be accurate 1) Demand outstripped supply at the pre-pandemic equilibrium price, so prices rose to a level that deterred some individuals from visiting Vegas at this time. 2) “So far, tourists haven’t been deterred.”
If more tourists are visiting Vegas than ever before, despite higher prices. It’s very fair to say tourists haven’t been deterred, even if baked into that statement is an implicit assumption of shifting demand curves.
steve
May 31 2023 at 9:29am
I think you have the right of it. Also, I would guess that a lot of the lower level gamblers wouldn’t know that the blackjack payout had changed or the change in the roulette wheel.
Steve
Pierre Lemieux
May 31 2023 at 10:51am
Steve: How is it that theft of copper wires by lower-level thieves increases follow copper prices on world markets? Or that lower-level car nuts switch to used cars when new-car prices go up?
Pierre Lemieux
May 31 2023 at 11:05am
Dylan: I could make my point by asking you two questions. First, is it instructive to say that, during the pandemic, used-car buyers were not deterred by the higher prices of clunkers? Second, is it correct to say that if the demand for tourism increases in Las Vegas, this will push up prices, deter tourists, and push prices down, so that tourists wont’t be deterred?
AMT
May 31 2023 at 12:13pm
Your conclusion here is incorrect because the actual answer is 3): aggregate quantity demanded has not decreased. You said,
It’s obvious that’s exactly what they did. This clearly means that the total quantity demanded by “tourists” (in aggregate! not individuals!) hasn’t dropped. I agree with Dylan that you are being too critical of the writer, who I would say is just trying to be concise and not triple the length of the article with a bunch of qualifiers and boring explanations that don’t add any substantive information to the point they are making, when every non-economist easily understands what they mean anyway. Imagine if every single article about business or the economy needed to reiterate explanations of supply and demand. Just look how many words you wrote for this post. I would hate if every article I read had to explain every single time that demand must have also increased, if prices increased and quantity did not change.
Pierre Lemieux
May 31 2023 at 1:05pm
AMT: With due respect, it’s not called “aggregate” (except in macroeconomics), but “market demand” (horizongal summation of individual demands). And this is exactly what I was talking about. Please reread. You see that terminology is important?
AMT
May 31 2023 at 3:13pm
I just added in the word aggregate to highlight for you the error you were making, which was assuming they could not be talking about the whole market. I guess I should have also included this erroneous quote, which is your core problem:
This does NOT imply that no one has been deterred, because individuals obviously have varying elasticities of demand. Some people may consume less and others may consume more even as prices increase, for various reasons. When they say “haven’t been deterred,” they clearly just mean the total quantity of tourists hasn’t changed since the leftward supply shift was countered by a rightward supply shift.
Jon Murphy
May 31 2023 at 1:21pm
That’s the thing: they aren’t being concise. Their word choice actually leads to potential misunderstandings for non-economists.
Let’s go back to what was written:
The literal reading of these two statements are: prices rise but quantity demanded hasn’t fallen. The “So far” indicates that the author expects quantity demanded to have fallen (or will soon fall). But that is reasoning from a price change. A non-economist can square the circle here by imputing a change in demand, but in that case the second sentence doesn’t make sense. If there is an increase in demand, we wouldn’t expect quantity demanded to fall.
The non-economist, who doesn’t understand the difference between demand and quantity demanded, would (reasonably) read those two sentences and conclude that higher price = lower quantity demanded, but that is an incorrect conclusion. The economist reads those two sentences and sees an unclear second sentence (Pierre’s point).
So, the author is neither being concise (adding an unnecessary sentence) nor being clear (adding a second sentence that misleads).
Jon Murphy
May 31 2023 at 1:54pm
I wrote:
That should say “economist” not “non-economist.” Sorry for the typo.
Dylan
May 31 2023 at 2:58pm
No. That is not the literal reading. Literally no one that is not an economist would read it that way (I’d wager few economists would read it that way either)
Here’s a stylized version of the world we might live in. Over a 3 year period we would expect X visits to Las Vegas. In years one and two, visits to Las Vegas were way below X/3. But, not because people didn’t want to go to Vegas, they just didn’t want to (or couldn’t) go in the first 2 years. Now they all want to make up for the lost time, but capacity hasn’t gone up (might even have gone down) so prices rise and the less price sensitive people go now, and the more price sensitive people hold off. But, that just looks like an increase in demand, it’s actually the same demand as always, just in a compressed time frame. That’s the premise hidden in that seemingly simple sentence. That once you get the bolus out of the way, we’ll go back to the same/similar demand characteristics we had pre-pandemic.
Jon Murphy
May 31 2023 at 3:34pm
Given that is the literal meaning of those words, yes it is. The mere fact we have to talk about implicit assumptions is evidence of my point.
That’s, by definition, a change in demand. Demand fell in periods 1 and 2 and it rose in period 3.
AMT
May 31 2023 at 3:46pm
I agree with you the two sentences mean prices rose but Qd hasn’t fallen. I disagree the author necessarily expects Qd will fall; but they are leaving open the possibility of that happening in the future. Maybe the change in demand will be permanent, or as Dylan said it is temporary pent-up demand due to covid. I could also see how, since Las Vegas vacations are a rather infrequent occasion for most people, it might just take longer for their spending habits (demand) to change than in other markets. So the author is just refraining from making any predictions.
At the end of the day, all they did was not explicitly state that demand must have increased at the same time. As I said before, I feel it is unnecessary for them to always have to restate even the most elementary lessons of economics.
I’m not the best at being concise, but maybe there is a better way of phrasing these sentences to provide more information with fewer words. If you can think of a way to clearly state all the additional information Pierre demands using fewer words, please do so.
Dylan
May 31 2023 at 4:03pm
Are you perhaps using that newfangled Millennial definition of literal where literal means figurative? ; ) I think if you were to give those two sentences from the article to a random selection of a hundred people and asked them to give the literal meaning of those words, not one would come back with an answer that includes “quantity demanded.” But, maybe I’m just projecting. We should probably just agree to disagree here.
Only if you define a period as one year. If a period is 3 years, demand remained the same (hypothetically, I don’t know demand for the previous 3 year periods). If a period is one second, then we’ve had lots and lots of times that demand has risen and fallen and risen again.
But, to get to AMT’s question. How would you rewrite the offending sentences in the same number of (or fewer) words, for a general audience, that would better convey the meaning?
Dylan
May 31 2023 at 4:36pm
Pierre: Let me answer one by one:
A lot hinges on the context here, obviously, some used-car buyers were not deterred, because sales happened at these higher prices. However, what I think we’re really interested in is the total amount of sales in the current period compared to the previous period. If that number is the same or bigger, then yes, I think it is pretty fair to say that buyers were not deterred by the higher prices. (Like AMT, I think you might have a hang up because you like to look at the individual as the unit of analysis, where I think the behavior of the group is more relevant here)
That is not correct. But it is possible that you get a temporary increase in demand and sellers think it is more permanent and keep prices high even when demand slacks off. That’s kind of what happened on New York’s Bleecker St.
Pierre Lemieux
Jun 1 2023 at 12:14pm
Dylan: With due respect and my apologies, but it’s difficult to discuss these things if you don’t know how an individual and a maket demand curve are constructed. I fear there is no alternative but to study demand theory within microeconomic theory, and my post is just an attempt to provide the gist of that (or to remind the reader of what he once learned). You can find a basic but technical introduction in David Friedman’s Hidden Order: The Economics of Everydy Life (I think it’s available online). As a second step, I give a simple representation of demand and supply curves in a sidebar of my Regulation article on “supply chains.”
Of course, as you and others have correctly pointed out, a journalist cannot provide a microeconomics course in a short report on Las Vegas tourism. But what he should do is to make sure he does not make statements that contradict, or appear to contradict, basic microeconomic theory. Such statements obscure everything for everyone–for the reader who knows microeconomic theory, for the one who has a good intuition of it (through market experience), and for the one who understands nothing of it (but presumably wants to learn and can’t be helped by sloppy wreiting).
Dylan
Jun 1 2023 at 12:54pm
That’s fair, Pierre. I did study economics, but it was a long time ago and my memory is not good. However, I’d still argue that in the plain meaning of the words “So far, tourists haven’t been deterred.” Does not refer to any individual tourist, it just means that tourism is not down despite higher prices. No need to reference the individual at all or to know anything about demand curves.
Again, how would you rewrite this sentence for the layman to convey the basic fact that prices have gone up and more tourists are coming?
Pierre Lemieux
Jun 2 2023 at 2:39pm
Dylan: Used-car buyers were not deterred by the higher prices of clunkers (their quantity demanded did not decrease, except on the new demand curve) because it is their own demand that caused prices to rise. Hence the importance of clearly understanding the difference between demand and quantity demanded. QED.
AMT
Jun 2 2023 at 2:59pm
What is “quatity demanded“? I know it’s definitely not sloppy writing….
Pierre Lemieux
Jun 2 2023 at 3:36pm
AMT: Thanks for catching the typo. I just corrected it. Write to the WSJ too!
Dylan
Jun 3 2023 at 5:42pm
From the prior piece you linked to, I was unable to tell if it was a shifting of the supply curve or the demand curve. Did supply of vehicles go down due to supply chain constraints or did all of us city folks suddenly want our own car so we could get the heck out of the city and drive up demand. I heard both stories at the time and I didn’t know which one dominated, hence asking what happened to the quantity bought and sold.
Pierre Lemieux
Jun 3 2023 at 6:30pm
Dylan: That’s a good question and it illustrates the usefulness of the supply-demand model. It was a reduction of supply of new vehicules (larger than any decrease in demand due to Covid) that started that. Only a reduction of supply (larger than any reduction of demand) could produce both an increase in price and a decrease in quantity demanded (the graphical representation on my Yo-Yo Model post should make this clear). Second stage: Since used cars are a substitute for new cars, demand for used cars increased (the curve shifted up), which let to an increase in used cars’ prices. (Just like a reduced supply of beer would lead to an increased demand for wine.)
Craig
May 31 2023 at 8:49am
My ex-girlfriend actually dumped me on the Vegas strip at midnight on New Year’s Eve. Now, that price was definitely too high, consider me deterred. Next day got up, genuinely not hung over, and went to the Hoover Dam. My ‘ex-future mother in law’ even called to console me.
Whenever I read such things as the following right now: “In addition to smaller winnings, visitors are also paying more to visit Las Vegas. Prices for everything from hotel rooms to concerts to restaurants have surged in recent years. So far, tourists haven’t been deterred.”
I actually do wonder if the price surge is inflation adjusted or not? Is it actually a price increase? If so, are they measuring the increase from a pandemic trough?
https://www.bls.gov/data/inflation_calculator.htm
Tells me $1 in Jan 2020 has same buying power as $1.18 in April 2023.
https://www.nerdwallet.com/article/travel/travel-price-tracker
“According to NerdWallet’s Travel Price Index, the overall cost of travel is up 18% compared with April 2019 and up 2% versus the same month in 2022. ”
Even the NW article notes inflation but still they aren’t clear as to whether their price comparisons are in nominal or inflation-adjusted dollars even though the article does make the point that inflation is obviously relevant.
Pierre Lemieux
May 31 2023 at 10:59am
Craig: Good point. I’ll write a reference letter if you apply for a job at the WSJ.
Craig
Jun 1 2023 at 9:59am
Hehe, thanks for the offer! I also have some suspicion that the US theoretically might be in an actual recession right now because inflation measures might be off enough that if computed more accurately would show a decrease in real GDP. I don’t think of it as a conspiracy to bake the numbers, but I suspect that as the inflation rate grows it magnifies the issues. For instance, when inflation was at 9.1% Y/Y the OER component, a price nobody actually pays, was mathematically dragging the CPI down. Now the reverse is true, the 4.9% Y/Y number is being pinned up by the OER lagging behind it. At minimum I suspect it makes analysis much murkier.
Pierre Lemieux
Jun 1 2023 at 12:42pm
Craig: This is another, perhaps more difficult, topic. First, one must realize that the general price level is not observable and that no price index (CPI, PCE index, or variations thereof) can correctly estimate inflation. The basic reason is that such an index also catches changes in relative prices. (There are deeper theoretical reasons why real GDP changes cannot measure the ultimate reality which is changes in welfare. Because of such reasons, most economists think that the indexes overstate inflation.) Secondly, the owner’s equivalent rent (OER), which is properly included in such indexes, is one of the main drivers of the CPI’s long-term increasing trend although, as you point out, it can work both ways in the short run.
This being said, as the annoying saw goes, “make no mistake about it”: everybody house owner-occupant pays the OER. This is what he would pay if he sold his house and rented an equivalent one. (Opportunity costs are real and really paid.)
Pierre Lemieux
Jun 1 2023 at 1:21pm
Craig: Alternatively, and more directly expressed in terms of opportunity cost, the owner’s equivalent rent is what he loses by not renting out his house instead of occupying it himself.
Craig
Jun 1 2023 at 6:25pm
” Alternatively, and more directly expressed in terms of opportunity cost, the owner’s equivalent rent is what he loses by not renting out his house instead of occupying it himself.”
True, BUT there are other ways to look at that too. One could look at the price of the house amortized over 30 years as simply locking in the price of living for 30 years, no?
So let’s just say my monthly living expense is $500, mortgage, interest, taxes, homeowners and I could rent the place for $750. So naturally in one sense it absolutely is correct that by deciding to reside there I forego the $750 in rent. BUT, I also might look at it as, I’m saving myself $250/month because I have to live somewhere, right?
But nevertheless I haven’t been polled, but if somebody called me up on my home in FL, I wouldn’t really know how to answer. I really don’t have much insight into what this home would rent for and I’d be skeptical of anybody expressing a desire to rent it at all actually. Perhaps I’d answer what my monthly housing cost is, but I did a refi @ 2.25% so that went DOWN. Though homeowners is going up, particularly in South FL, because of inflation of course. I might think in terms of the house could fetch $X and $X could earn $Y in bonds? I might think like that. So, I do think most tend to keep track of what their homes could SELL for, but they don’t ponder much about what their homes could RENT for. Just to expound a bit further, a fair amount of housing also isn’t particularly suited for the rental market. Cookie cutter townhomes/condos etc might be, but a fair amount of housing isn’t really ‘rentable’ in the sense that any genuine fair market rent, assuming the person could afford that rent, would just as soon buy a home. Not saying it wouldn’t ever happen, but mentally anybody who would express interest in renting my home in FL is either a moron or scamming me.
So, I’m a bit skeptical of that metric.
Pierre Lemieux
Jun 2 2023 at 3:32pm
Craig: Let me try to cut through the beefy meat of your comment(s). First, other things equal, the cost of renting is equal to the cost of buying; arbitrage will see to that. A few things can be not equal, though, like you may be willing to pay a premium for the feeling of ownership; alternatively, some other individual may willing to pay a premium for the flexibility of renting. And so forth (including your estimate of the future value of your house). Each makes his own choice, and supply and demand establish market prices taking all consumers’ (and investors’) preferences into account.
Secondly, the owner’s equivalent rent is not found through a survey of homeowners, which would be very shaky as you point out, but from a survey of renters about what they actually pay. The OER is deduced from that (on the basis of the theory explained in my paragraph above). See Chap. 17 (“The Consumer Price Index”, as updated 2-14-2018) of the BLS Handbook of Methods 2018, notably pp. 16 and 21.
Craig
Jun 2 2023 at 4:53pm
I’ve actually been doing a fair amount of reading on inflation and that does include doing some deep dives into the online data put out by the BLS which I have perused just out of curiosity.
You note: “Secondly, the owner’s equivalent rent is not found through a survey of homeowners, which would be very shaky as you point out, but from a survey of renters about what they actually pay. The OER is deduced from that (on the basis of the theory explained in my paragraph above). See Chap. 17 (“The Consumer Price Index”, as updated 2-14-2018) of the BLS Handbook of Methods 2018, notably pp. 16 and 21.”
I have not yet had the opportunity to read that source, but I would like to direct your attention to this source
https://www.bls.gov/cpi/factsheets/owners-equivalent-rent-and-rent.htm
“The expenditure weight in the CPI market basket for OER is based on the following question that the Consumer Expenditure Survey asks of consumers who own their primary residence:
“If someone were to rent your home today, how much do you think it would rent for monthly, unfurnished and without utilities?”
The page then lists the weights from Dec 2022 making it a bit more recent than 2018. Perhaps they changed their method? Nevertheless, when I read that I thought, “That is really sketchy for something that is 25% of the index”
And just to expound I did pick up on the secondary home metric as well, a 1.3% weight in the CPI as of 12/22 it is labelled “Unsampled owners’ equivalent rent of secondary residences”
And there’s a footnote: “Rental equivalence for vacation homes and timeshares exist [ok, that makes sense to me] as items in the Consumer Expenditure Survey (UCC 910105, 910106, and 910107) and have a small amount of weight in the CPI as Unsampled owners’ equivalent rent of secondary residences (ELI HC090), but as this item is unsampled, no price quotes are actually collected for it.” (emphasis supplied)
I had ChattyG translate that into Greek and it made more sense to me in Greek.
SKETCHY!
Pierre Lemieux
Jun 3 2023 at 12:04pm
Craig: What you say seems pretty consistent with the original source I referred you too. I understand the weights of rental payments in the CPI to be obtained from a survey, but not the rent of owner-occupied houses. I may be wrong. Let me know if you find anything else that’s relevant.
All this being said, an index is a complex mathematical creature, even without the statistical estimation of its components. The CPI is just a cost-of-living index, and cannot be read as the word of God on inflation.
Craig
Jun 3 2023 at 5:35pm
As a segue back to the article I initially began to post here because the article is simply presuming that there is a price increase for Vegas vacations. I actually do suspect that to be the case as well, but I have seen this over and over where nominal price increases are discussed without taking into account inflation. If the inflation rate is stable and low, let’s say 1% year after year after year, when these articles come out one can simply ignore inflation, generally, because its impact is typically felt in the long term.
But now with the highest CPI print at 9.1%, it can’t be ignored anymore because now even a large nominal increase in prices can still be a drop in the real price.
Friedman predicted long and variable lags between monetary policy and its impact on the CPI and in there I suspect the basic information being conveyed by prices starts to get fuzzy. I suspect that the model, yes, indeed a complex model, starts to get strained as it moves away from steady low inflation into inflation spikes and disinflation dives. I suspect the model has flaws that are magnified by that, ie as inflation spikes up, the model is prone to greater errors.
Many of the finance people I have listened to online like Michael Pento, Stephanie Pomboy, David Rosenberg all suspect that the actual inflation rate is straight up underreported.
Perhaps more famously, Peter Schiff also opines as such, but naturally when one listens to Mr. Schiff one should absolutely be cognizant that he’s in the business of selling gold, so while there is an hyperbole in what he says, I do think there is a kernel of truth. Mr. Schiff notes that ‘asking government to report inflation is like asking mafia to report on crime.‘
The regime is the world’s largest debtor and ultimately to make the debt manageable they will likely resort to inflation and when they do that they would like to jawbone the bond market into accepting negative interest rate bonds. Kind’ve what they did with respect to the pandemic. The government has an incentive to underreport inflation, but to do so in a way that possesses some legitimacy. And given where the 10 year yield right now is, I would suggest the regime has definitely impressed the bond market sufficiently, at least for now!
Lastly, let’s face it, the regime is not the good hands people. So while I readily admit that I am committing a logical fallacy by resorting to the reverse of an argumentum ab auctoritate, or in this case an argumentum ad ineptiam … the regime simply does not deserve the benefit of the doubt.
Warren Platts
Jun 1 2023 at 1:56pm
I take that to mean that prices have surged because demand has surged. What am I missing?
Pierre Lemieux
Jun 2 2023 at 2:56pm
Warren: You are not missing anything. You just have learned much economics. (You must be in favor of free internal and external trade now.) You read the sentence as it should have been written, that is, “Prices for everything from hotel rooms to concerts to restaurants have surged in recent years because demand has increased.”
This will also answer our commenters who asked how the WSJ journalist could have written the sentence correctly and concisely. You and I did it, and even more concisely.
Unfortunately, it was written as to mean “Prices for everything from hotel rooms to concerts to restaurants have surged in recent years, and despite that tourists haven’t been deterred.”
Warren Platts
Jun 2 2023 at 6:50pm
Heh! I’m all for free trade — I’m just against mercantilism!
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