He speaks of the absurd way we calculate official inflation in the U.S. using the Apple iPhone battery example. Because the iPhone now has twice the battery life than last year’s model, yet the price hasn’t changed, economists at the Commerce Department account for the quality improvement through hedonic adjustments to the inflation data. That is, the price of the iPhone shows a 15 percent decline in the CPI, not based on a realized price decline, but an adjustment for quality. The Fed’s current monetary policy, effectively, tries to make up for the phantom deflation in iPhones by raising the price of clothing, for example.
He is critical of policy and says, “I noticed through the crisis… the Federal Reserve is more concerned about which way the next 50 points in the S&P go than your average hedge fund manager is.” The interview is well worth your time. Click here.