Perhaps a new high in bureaucratic separation from reality came a week or so ago when Bill Dudley, the president of the New York Federal Reserve, was grilled by a group of working class citizens about surging inflation in the food sector.
Dudley, who before his current post was head economist at Goldman Sachs (you will remember them as the too-big-to-fail outfit that got something like $12.9 billion in taxpayer bailout funds at the same time they were preparing to hand out bonuses of $12 billion to 443 partners), was slogging through prepared remarks about how inflation continues at negligible levels, when one of the audience members asked, “When, sir, was the last time you went grocery shopping?”
To which he gave a circuitous reply, finally noting that while “food prices may be rising … other prices are falling — today you can buy an Apple iPad 2 that costs the same as an iPad 1 and is twice as powerful.”
There followed, according to news reports, “incredulous, boisterous laughter.”
If Dudley, who is reported to get a $400,000-plus yearly salary in his Fed post, gave any response as to whether he ever sets foot in a grocery store, it wasn’t noted in media accounts.
One can reasonably expect that he and most of those in the upper echelons of government — including most members of Congress — have little or no exposure to what’s happening with prices in the supermarket. It is difficult to imagine, for example, Fed Chairman Ben Bernanke pushing a cart through the local Safeway and taking note of the constantly rising prices.
At the same time, the average workaday citizen who doesn’t have a multi-hundred-thousand-dollar salary and is just trying to stay afloat in today’s miserable economy, can only wonder at the Fed wizards’ ongoing insistence that inflation is minimal and their sleight-of-hand that omits energy and food costs from their calculations of “core” inflation.
Further straining credulity is the Fed’s position that the impact of skyrocketing oil prices will only be “transitory.”
Starting with the 1973 Arab oil embargo, which set energy prices on their upward spiral, costs for everything have inflated as companies increased the price of their products and services to compensate for the energy component.
Once a price is increased, it almost never comes down, but rather rises yet again when the next spike in energy prices occurs. As just one example: the McDonald's Big Mac that was 65 cents in 1979, $2.44 in 1999, and $3.57 in 2009, is set for another increase as Mickey D compensates for higher ingredient costs. While beef prices may fluctuate over time, the Big Mac price doesn’t come down when cattle prices fall.
So, while the Fed continues its fairy tale that rising food and energy prices aren’t really inflationary, wink, wink, we can take consolation in the knowledge that the new Apple iPad is a better value than the earlier model.