Economic hypocrisy
It’s been over a year since I wrote Tariffs Are Not Inflationary, lampooning the econ lite presumption to the contrary. Since econ lite continues to err, I continue to correct. Let’s revisit it from a different angle.
Suppose that the government imposes a 5% sales tax on consumer goods and services. The sales tax is added to the price, collected by the sellers and remitted to the state. This 5% increase in prices is counted in the CPI, raising it by 5%. Is that inflation?
Next suppose the identical tax is levied, but instead of being collected by sellers, consumers pay the tax. They report all the money they spent during the year in a tax return and remit the sales tax to the state. It is not added to the price of goods and services and so is not counted in the CPI. Is that inflation?
Is there any fundamental difference? The first is similar to tariffs, since some of their effect may be to increase the prices of goods at the point of sale. The second is similar to an income tax, since it is not added to the prices of goods but instead is billed to the buyer. Virtually identical in fact to an income tax with a deduction for income that is saved rather than spent.
The net effect of both of these tax schemes is identical. Purchasing power is taken from consumers by the government. The difference is purely accounting.
If tariffs are inflationary, then so must be income taxes. If income taxes are not inflationary, then neither can be tariffs.
The problem here results from the confusion of inflation with consumer prices. Inflation – a decrease in the value of the currency – can increase consumer prices, but other things can too, that are not inflation, and to confuse them is economic hypocrisy.
Remember this the next time you hear Federal Reserve or financial media punditry talk about the supposed inflationary effect of tariffs. It’s flat out economic nonsense. Taxes are not inflation. Creating money is.
Extending the same line of reasoning, a refinery fire that increases gasoline prices is not inflation. But new technology that decreases the prices of flat screen televisions is not deflation, either.
This last error is pernicious. Confusing technological advance with deflation is the basis for so called “hedonic” adjustments to consumer prices that lower reported inflation below its actual level. This accounts for a large portion of the gap between price increases that people experience and much lower reported inflation. In so doing it also accounts for why Social Security COLAs and tax brackets fail to keep pace with inflation. Because of this and other tricks like substituting “owners’ equivalent rent” for actual house prices, inflation is simply much higher than the heavily statistically massaged CPI reports. Nominal per capita GDP, retail sales, M2, the S&P 500, and the prices of copper and gold are all better measures of inflation than the CPI.
Worse yet, it is a diversion from the real source of inflation. By gaslighting the public with all sorts of other putative causes, it serves as a cover for monetary malfeasance.
This, not any cogent economic rationale, also accounts for why the financial media persist in confusing inflation with consumer prices.
Mega’s Motoring Saturday:- P.L.E.B cars are coming
Good morning my fellow Financology followers……….Car prices, inflational or by direction?
For many years i noted that there has been a push for people to buy more & more expensive cars. Cars like the Ford (anything on a Fox body platform) or GM or Chrysler “K” car etc.
Simple inexpensive transport basic suspension, tyres etc…….all for cheap running costs etc.
All this has changed, now car producers are acting more like bankers than anything else. They WANT you to go massively into debt to buy a car you cant afford. Producing cars is a rather unfortunate thing you have to do to sell debt…….i mean $100k for a truck!
I look back at music vids from the 80’s & 90s & i see lots of unassuming compacts & sub compacts. Trucks were used for work……..
Now both in the US & Europe we been forced to buy & drive obasse vehicles that make little sense on crowned urban streets……………….but are things about to change?
In Japan they had “Kei” cars since the end of WW2……in short if you can not prove you have parking space then you may only buy a “K” car. They short, narrow & boxy like with no more than 64 bhp. Ev Kei cars are very popular with Nissan leading the pack & Honda now doing the same.
Talk round the campfire is European governments are starting to look at this as a good idea. The EEC is now about to invent a car type that will fit bill. Car makers (who are going bust) will be allowed to for go a lot of safety systems to help keep the price down.
I note that FIAT has just done this:-
https://www.autocar.co.uk/car-news/new-cars/new-fiat-500-gets-64bhp-hybrid-set-manual-%E2%80%99box-fresh-look
Not how they reduced the the BHP to 64, the Fiat 500 is very close to Kei car size……hmmmm
Now then how to convince the Plebs to trade in their 10-20 year old BMW/Merc/Audi & buy one of these instead?
Mike
Fascinating point about cars seemingly being built for financing. It used to be the financial economy served the real economy … now the real economy serves the financial economy … what a topsy turvy world it is.
That this has come to the car market isn’t a good omen. Once upon a time Mrs Finster and I went out looking at model homes in northern Virginia. After touring one, a sales rep chatted us up about our buying prospects. Something to the effect of how we would finance a home purchase. I replied that we would use the proceeds from selling our current home. The salesman was almost aghast … oh no, don’t do that … keep your current home, rent it out, and finance this one. The sales pitch wasn’t about the house, it was about the mortgage. We came away with the distinct impression that’s all that beautiful home had been built for … to sell mortgages.
That was back around 2004 … when the seeds of the 2008 financial crisis were being sown … fed … watered …
The big picture. Alan Greenspan – whom Barron’s Alan Abelson nicknamed “Bubbles” even at the time – inflated a stock market bubble in the 1990s. The famous “Greenspan Put” referred to his tendency to ease money whenever the stock market sold off, removing a lot of the downside risk. Not unreasonable in itself, except that it was asymmetric … there was no corresponding tightening when stocks soared.
Anyway, when the bubble deflated in 2000-2002, Greenspan cast about for a way to paper over the damage. Pump up the money supply. Being as money is created by being lent into existence, a big lending market was needed. The housing market presented itself. The Greenspan Fed went about replacing the stock market bubble with a housing bubble. That the government also sponsored huge housing finance agencies like Fannie Mae, Freddie Mac and Ginnie Mae etcetera greased the skids of easy money with easy terms and lending standards.
This endeavor of course turned out to be a spctacular success. But as bubbles are wont to do, it too imploded. That then led to even more desperate measures, using the federal government as borrower of last resort, and years of ultralow rate policy and money printing and inflation.
The point being that everything is connected. The roots of the 2020’s housing affordability crisis can be traced at least as far back as the 1990s.
https://www.carscoops.com/2025/11/subprime-auto-loan-borrowers-are-falling-behind-in-record-numbers/
Oh Dear………..wot happens when you sell a $100K truck to some Red Neck who could not afford it at zero rates….
China getting a SSB…………
https://carnewschina.com/2025/11/23/chinas-first-large%e2%80%91capacity-60-ah-class-all-solid-state-battery-production-line-built/
Mega’s Motoring Sunday:- School run Mum gets her revenge/1
“Hell hath no fury like a woman scorned”
I like it to be known that i undertake a lot of wide ranging research for Finacology, all internet based, be it Youtube or BB’s…….mostly money/business based but a few “Out there”. Adult work dot com……..what a “Professional woman” charges for her time will tell you what is happening in the economy ref discretionary spending……..during the cash of 08 the asking price fell by 50%.
Also take note of a number of women’s sites, the strange thought processes & sex advise aside i have noted something of a strange phenomenon, the Jacoo 7.
For those whom might not know it here in blighty for a very long time it has been the fasion to take your children (God forbid they should walk or get the bus!) to school in the mornings. Afternoons as well & its become a bit of “Who got the best car”. Some EV’s, some less cars but mainly BMW/MERC/Audi…………& most important LANDROVER.
Why goes back to the 1970’s when land owning types would drive into London new Range Rover, powered by the lovely Rover V8 engine (Fantastic motor) Being the 1970’s it was the reliable UK transport about & more importantly it proved you had an “Estate” in the country.
Over time Landrover became a standard bearer for people whom would “espirer” (Wet Dream) that they too have a vast country estates……not just a 3 bed semi with a driveway unable to accommodate said 4X4.
This would be a good idea if Landrovers were well built & reliable…….they are not. Most of the troubles stem from an engine built by themselves. It was designed & built to a very tight budget & that included R+D of said motor. It seems in their penny pitching haste they made a MEGA F**k up.
If the car does not warm up correctly it can mix its fuel with the engine oil, which leads to heavy wear on the bearing & timing chains. The engine will then brake & guess wot…..you need a new motor.
Landrover don’t have spare engines so the best they do is sell you an “Half engine” & you find someone to rebuild it for you. Landrover also do their very best NOT to honor their warranties.
Mega’s Motoring Sunday:- School run Mum gets her revenge/2
Such is the hubris of Landrover that they seem to not care much. As one mum said “They only thing they developed well is a tough you bought it bitch”. One of the uppermangerment team called said females “mooring cows”. The very same “Team” that has all but killed Jaguar.
Then, something strange happened, one of these Mums who has a large Youtube following spotted a strange car. It looked like a shrunken Range rover. About the size of a Ford Focus nice looking, good build quality etc. She walked over & asked what it was?
Jaecoo 7
Its a brand from China, prices from just less than half the price of a Landrover. Being smaller its much easier to park, will fit on your driveway. She bought one & raved about it on her youtube channel. Other followed & found that the dealerships are helpful & friendly, the cars have been mostly fault free.
As one Mum said “After the abusive relationship i had with Landrover this is so much better”.
Even the Telegraph has now run stories on this & suddenly this cool smaller SUV is winning heats & minds…..
As for Landrover?…………i suspect “Paybacks a bitch” is something they going to find.
Mike
Watch them do the same thing to US Big Tech. Planned obsolescence, endless security patches, spyware, multi-thousand-word user agreements, forced updates … the US car industry grew complacent and arrogant a few decades ago too, and Japan came along with better and more reliable products and ate its lunch.
I’ve already forecast that Alphabet will overtake Nvidia for the Number 1 top spot in world stock market cap. On top of a generalized retreat in teracap tech stock valuation. Mere hours later Alphabet is trading up by ~1.5% and Nvidia down by ~6%. Yet OpenAI, which has no publicly traded stock, could be the biggest loser. Alphabet has both the hardware and the software … tensor processing units and Gemini with prospects of competing with Nvidia’s graphics processing units and beating OpenAI’s ChatGPT.
ChatGPT may have made a big splash with its sensational debut three years ago, but Alphabet had already been working quietly on its own AI innovations for years. As a reminder, AI has been around for decades … including such notable developments as IBM’s Watson and Apple’s Siri. The thing that changed was the public excitement generated by ChatGPT … not a technological revolution so much as a media sensation.
If you haven’t already, check out an example of Gemini performance at Google Drops a Nuke in the AI Wars. This is no mere word play, it’s reasoning. For technical detail, see The Google TPU: The Chip Made For The AI Inference Era.
Nvidia is a formidable enterprise and is not about to fade into irrelevance. But OpenAI – the AI nonprofit that turned out to be all about money after all – may be incredibly overrated … it has no publicly traded stock but I’m glad I’m not SoftBank. These remarks BTW are not implicit investment recos … the entire sector is in an overheated state due to an excess of liquidity and excitement and is constrained by the yet to be fully priced in fundamentals we’ve been discussing.
As Benjamin Graham (although the words may have been first used by Warren Buffett) once said, in the short term, markets are a voting machine, in the long term, they’re a weighing machine. Substance beats flash.
Tortoise beats hare.
…………..& you thought Mega was joking!
https://news.sky.com/story/luxury-cars-removed-from-motability-scheme-ahead-of-budget-13475029
https://www.carscoops.com/2025/11/this-is-the-way-says-porsche-exec-after-driving-hyundais-ioniq-5-n/
Which begs the question “Why do i need Porsche?”………..
Even Honda was ahead of them!
https://www.youtube.com/watch?v=ZOtaTAj8I58
Mike
Gold has been closely following the prescription I wrote all the way back on October 13 – seven days before its October 20 peak of $4378.31 – where I anticipated both the peak and the trading range to follow. Gold, which had been on a rocket ride, did indeed stop just short of $4400, plunge, and enter a broad trading range.
Let’s update that. The trading range I foresaw of $4000-$4400 has been more like $3900-$4300 with an ascending bias. Not bad for a call made before it even started. I suggested a “few weeks”, which could easily extend into next year. At which point gold will enter another leg up.
It happens that Synthetic Systems had also forecast a fourth quarter correction, but without confirming fundamentals, I put little stock in its short term projections (recall the lower range of time resolution is about a quarter). Its outlook for a continued bull market though is credible.
I’d call gold a “buy” in this range except that in Financology there is no such thing … buys and sells are not functions of the asset but of the investor. For example for an investor with no gold it’s virtually always a buy and for an investor with his entire nest egg in gold it’s virtually always a sell. In between the question is whether you’re under or over your target allocation, what that target should be and how to best get there.
It’s a matter of certainty. As investors we never know the exact future course of asset values, but we can know our own circumstances and objectives with certainty.
The Fog of peace
What is going on?
28 or 19 point plan i can’t see Russia agreeing to any of them
Mega’s Dispatch from England:- Budget day rape
I sorry to use such an emotional title, but the vast majority of the British people are feeling very much like this now. I could spend an hour writing out ALL the tax rises but here’s just a sample:-
Tax free savings allowance cut from £20,000 a year to just £12,000.
Tax on your savings to go up another 2%
Fuel Duty to go up year by year
EV’s to be taxed by the mile! (From 2028).
Tax thresholds to be held till 2030……thus the effective tax goes up as wages rise.
……………………& who is NOT getting their ass handed to them?
The “Privileged poor”.
The Minimum wage has got lifted so its costs more to employ people, they also bring in employment law that makes it Bloody difficult to sack anyone. They removed the cap on 2 children pay outs so the more you have the more money you get (low class “Fast breeders” will begin as soon as tonight).
Yes, they removed the Lux Motability cars, but fine print hints they might carry on with it.
So, while the welfare claims rocket as half the nation go “Sick” or its spent on new boat people. They had a half hearted attempt to trim some costs off, but gave up, so what have we got going on here?
Tax by mile will be a track everyone system, full 1984.
The end of Jury trials means a judge will decide on your guilt & not your peers whom might have one or two concerns about your case.
In short the Labour party has gone FULL dark Marxist, they intend to turn blighty into a Soviet union type nation were everyone is working for the State!
The revolution is brewing.
Mike
This from the nation that gave us the Magna Carta! Alas, things going the wrong way across the pond too. Trump cured the illegal immigration crisis but otherwise has been a big disappointment. Latest mess is his Trumpcare proposal. A bureaucratic maze even worse than Obamacare. As long as it’s getting more complicated, it’s going in the wrong direction.
There’s been a disturbing trend towards tax breaks with phaseouts. As you pile one on top of another, the hidden pattern emerges … effective marginal tax rates way above advertised. On the already beset middle class. In some cases, they’re sharp cutoffs, leading to near infinite marginal rates.
If true this is VERY big news
https://www.zerohedge.com/news/2025-11-24/eu-and-india-bypass-swift-usd-payment-rails
Hmmmmm Silver had a RIP today
It’s baaack … inflation, that is. Every single thing in my portfolio is up today … in dollar terms … the Titanic Effect in spades. I can now look forward to every single thing in my shopping cart being up.