Tyler Cowen makes some interesting points in his Bloomberg column:
The most obvious effect of the pandemic is often better understood by the public than by professional economists: It has been an inflationary time, but not in the traditional manner.
The measured numbers indicate deflationary pressures, but that is misleading. In times of crisis, measured inflation rate becomes much less meaningful as an economic indicator.
Let’s take education, which many American students have been doing online or not receiving much of at all. Whether for K-12 or at the university level, the cost of getting a quality education this year has risen drastically (think private tutors) — and for many individuals it may be impossible altogether. We are seeing deteriorating quality, and thus much higher real prices, yet this does not show up as either a quality adjustment or a price increase in standard calculations.
Or consider health care. For months, Americans were afraid to visit hospital facilities, for fear of contracting Covid-19. The perceived cost of the hospital visit was thus much higher, in terms of anxiety and medical risk, even if the sticker price or reimbursement rate for heart surgery hasn’t budged.
In many parts of the country, the lines at the motor vehicle offices are much longer, or it is much more time-consuming to get your car inspected for state approval. That is mostly due to pent-up demand from the worst months of the pandemic…
Education, health care and government are pretty big parts of our economy. If you add on the lower quality of restaurant visits, reduced sports performances (your ESPN cable package is worth less), and an inability to take preferred vacations and trips, you have many more negative quality adjustments that don’t show up in measured rates of inflation.
The Bureau of Labor Statistics, the Bureau of Economic Analysis, the Fed and other institutions have declined to make formal adjustments for these changes in the real standard of living…
Inflation measures work best when the consumption bundle is roughly stable over short periods of time, and that just hasn’t been the case this year…
Perhaps most important, price rules and other forms of inflation rules don’t really work in times of pandemic. The very measurement of price inflation becomes arbitrary, and dependent on inertial measurement conventions from normal times, so the numbers don’t have enough actual economic meaning to guide policy.
Cowen makes these points in a wider essay discussing Fed decisions based on traditional price index measures, which I am less inclined to agree with, but his point here on how the quality of goods and services have declined during the lockdown is a very important observation.
Off the top of my head, I can think of instances where it applies for me.
The local Whole Foods maintains a count of the number of customers in its store and makes others wait outside until customers leave to keep the occupancy limited. I really don’t have time for this nonsense (a cost for me) and so I rarely visit.
There are restaurants that don’t have outside dining just takeout. I pass them by.
The Jos. A. Bank clothing store in downtown San Francisco has closed. There is a sign in the window of the closed store suggesting I visit their nearest store—in Sacramento, a 2 hour drive.
It goes on and on. The unmeasured decline in goods and services that Cowen references because of the lockdowns is major and certainly not measured by the government indexes.