One of the serious problems with any of these cost or CPI or GDP initiatives, and really any economic measurements whatsoever, are that they fundamentally ignore the essential primary economy of raw materials and environment which makes all of the produced goods and financial paper schemes possible and coherent. Ignoring the mechanisms themselves, I see a few fundamental causes hiding behind the hidden and manipulated price increases and wage suppression:
- The increasing disconnect behind financial valuation and markets (e.g. stocks, bonds, derivatives, all forms of “money that makes money”) – let’s call this the “tertiary economy” – and the actual production of goods and services that have tangible “value”, which I’ll call the “secondary economy”.
- The increasing disconnect between the expectations and demands placed on the secondary economy and the primary economy of raw materials in the earth and the environmental conditions (clean air, water, stable climate, etc) that are necessary to produce, consume, and enjoy those goods and services and which fundamentally enable them (this includes energy in raw forms, as well), and
- The deliberate politicization of ignoring the costs and drawdown effects of the primary economy in valuing the tertiary, at the expense of the secondary which gets squeezed - preventing any successful reconciliation of the two (read: too big to fail, there is no alternative, etc…).
If that’s a bit too abstract (but do try to think through it), basically we’ve started pretending that “value” and “cost” and “money” are all the same terms - if you can’t value it in money you don’t have an accurate cost. But money isn’t actually value, it’s just one of many plausible yardsticks for it, and there is such a thing as real value. The analogy of four stranded billionaires on a desert island with all their wealth in cash washed ashore comes to mind - they have immense amounts of money, but nothing of value in their situation. If they start trading derivatives for all they’re worth, they still won’t get food and shelter no matter how much economic “value” they create.
Now, take this same principle and apply it to today’s world of ever-increasing real costs of energy (that is, costs in energy terms, not money terms) - energy is a very unique good, because without it you cannot substitute other types of goods for each other. Substitution requires energy in some form - the common example of being able to substitute (still relatively abundant) taconite for high grade iron ore (which is now virtually depleted) demonstrates this principle very well - it requires massively more energy to mine and process taconite into a given quantity of iron than it does to process the high grade ore. Without that energy being comparatively cheap, the cost of iron goes up as we deplete the more readily available forms. But that isn’t priced into anything because we expect the “price” of energy to be the driver for that signal. Energy of course is astoundingly cheap compared to its value, today, but it is clear that the EROEI (energy returned on energy invested - the cost in energy terms to get more energy) is dropping rapidly and has been dropping fairly steadily since even before global peak oil was hit in the early 2010’s. In other words, energy is getting more costly to get at, regardless of how much of it we have to get. If it takes more than a barrel of oil’s worth of energy to get a barrel of oil out of the ground, there’s no economic case in the world that will justify getting that barrel of oil for the purpose of energy (we might get it for the purpose of essential chemical production, perhaps, but it’s a net loss if we get it just to burn - better to use the greater quantity of energy we put into getting it out instead). Again, the cost in money terms of that barrel has nothing to do with it because that price has been intentionally and artificially decoupled from the real value, and thus hides this underlying reality of massively increasing real costs to the prime input of the primary and secondary economies. This increase is hidden by the manipulations of the tertiary (financial paper) economy, which is in a very real way the only market that economics consider when it comes to metrics.
So what I think is really driving this so-called “cost disease” is that “cost” (or at least monetary price) is the wrong metric for, well, pretty much any financial measurement ever, because price has never factored in the true value of the fundamental primary economy except in highly distorted and decoupled ways - meaning that the measurements of economic value and activity are inaccurate and deceptive if you care about the actual fundamentals of economic production and drivers of activity. Economics are not just about money and its flows - they’re fundamentally about value and the distribution and production thereof and money is, again, simply one yardstick of this concept of “value” - and an increasingly decoupled one at that. This distortion is the true “cost disease”, and it’s a false equivalence to look at cost at all as a meaningful model of the actual economy.
This applies across the board, whether it is healthcare or houses or food or services or tractor tires, the distortions of the tertiary economy far outweigh the real economic signals the primary and secondary economy are generating right now, and the tl;dr of this whole thing is that those distortions are why we experience the obvious problems of insane prices on genuine needs in hidden ways. There is a reckoning coming that’s been successfully (well, for the upper classes, at least) postponed for decades now, but (again, refer to the desert island analogy) literally cannot be postponed forever, though it may well destroy far more than it already has on its way to guttering out, depending on whether or not the systems we have in place are able to continue mitigating destabilizing shocks or end up miscalculating one time too many and turn a gradual slide into a Seneca cliff.
(These points and many others are covered very well in “The Wealth of Nature” by Greer, as well as Ugo Bardi and Gail Tverberg’s writings, and are all fundamentally extrapolations of the deep economic research and practice documented by E.F. Schumacher, who coined the primary, secondary, and tertiary economy terms, identified the uniqueness of energy as a fundamental good, and formulated the initial critique of Adam Smith’s theories upon which the above points are based.)