you did not yet give your proof for your contention that RE in Texas is inflationary whereas CA is not inflationary. you need to explain this and other absurdities which arise out of your theory that if you rename inflationary things they no longer exist.
I never made the claim that real estate is inflationary in Texas but not California and you know it. I merely pointed out that in California that property taxes were not going up.
In fact, rising real estate prices are just plain not inflationary period. Rising real estate prices may be a RESULT of inflation, a result of speculation, or a result of other factors. It is important to understand cause and affect.
The fact is, rising real estate prices are a result of a combination of factors, one of which is indeed inflation, one of which is the trend toward bigger houses, but the biggest one at the moment, at least in my mind, is rampant speculation.
Do I think the FED should act to stop asset bubbles?
Yes, as a matter of fact I do.
But, if you want to call the rise in every price "inflation" then you must logically call every drop in price "deflation".
Are you willing to do that? I doubt it.
I do not believe either extreme is correct. I also gave reasons why using housing prices alone to compute CPI is just plain wrong. It is wrong for renters, and it is wrong for someone who buys a house and stays in it for 20 years. If their expenses do not go up, I believe it is absurd to raise the CPI by the increase in home prices.
That is in fact where this discussion started... with your contention that the CPI grossly and purposely is understated.
It clearly is NOT understated for renters, and it clearly is not understated for someone buying a home and living in it for 30 years continually refinancing the house at DECREASING interest rates.
I do admit that prices have gone up for new buyers. To that extent and to that extent ONLY should the CPI be adjusted. That is a much much smaller % than what you want the CPI to show.
Now, if you want me to admit that a big portion of the rise in home prices over the past x number of years is due to inflation you will get no objection. That is a different thing indeed than personal expenses rising. If a person's expenses have not risen you need to make the case that it should be reflected in the CPI. I presented a very logical case that says the CPI would be grossly distorted if the sole basis of the housing component was average home price as you seem to be suggesting.
Now, if you want me to admit that greenspan should act to prevent asset bubbles and speculation then that is a different issue and my answer is YES he should. Thus I think we agree on that point. I think we agree that housing prices have risen because of inflation (and also other factors that I mentioned), so we are probably more in agreement than not on that issue as well.
Our difference of opinion seems to be how housing prices should be reflected in the CPI.
Now, two questions:
1)What other absurdities do you think I made?
2)Care to revise your thinking on how housing should be reflected in the CPI? Perhaps I am wrong, but I am 100% positive you are wrong (if you do not consider any of the points I made).
Mish
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