Niall Ferguson Cries “Inflation!”

by Ramesh Ponnuru

In Newsweek the pundit claims that “double-digit inflation is back”: “The way inflation is calculated by the Bureau of Labor Statistics has been ‘improved’ 24 times since 1978. If the old methods were still used, the CPI would actually be 10 percent.” If Ferguson is right about inflation, it leaves two possibilities. Either our statistics on the size of the economy in current-dollar terms–which ought to be easier to compile than any numbers on inflation–are hopelessly flawed. Or the real (that is, inflation-adjusted) size of the economy is shrinking rapidly. Instead of 1.8 percent real growth, in the last few months we’ve been going through something more like 7 percent real shrinkage. (Nominal growth, remember, has to equal inflation plus real growth.) Is that even remotely plausible? Does Ferguson believe this rate of shrinkage is compatible with even the modest job increases we’ve seen? Or does he doubt the unemployment stats too?