So I am not really arguing with you. Mainstream macroeconomics has been, quite literally, made for this world, which it serves administratively and — secondarily but interconnectedly — as a sophisticated propaganda organ. Since confidence is a crucial economic variable, which the regime openly and even proudly manipulates, it would be sheer mystification to pretend that any of this is ‘science’ (unless the art of mesmerism is). “Since we’re dealing with markets that are being manipulated by central bank policies, there is no such thing as economic analysis anymore.” (Link)

We understand that lots of variables play a part, and that all these variables can change, The analysis hits a variety of challenging obstacles unless we use a model that assumes a lot of things are static when in reality they can be, and are, dynamic.

The usefulness of the current “basket of goods” model varies according to divergence between the static assumptions and the dynamic realities. We live in very dynamic times. The most popular kludges are using the chaining technique, the much pilloried “hedonic-improvement estimates adjustment”, “Purchasing Power Parity”, and excluding (or proportionally discounting, or using multi-period running averages) goods with traditionally highly volatile prices from the model’s basket. Naturally, all of this is prone to abuse.

And that’s assuming that the idea of a price level even makes sense – a notion which has received a good amount of fair critique for nearly a century. Personally, I take a pragmatic approach. Given the context and the analysis one is trying to conduct, how useful is any particular metric to make cross-period or cross-context comparisons? There is always a trade-off between a tailored approach to the analysis, and using something like official CPI with which your audience is more familiar and the data is more accessible.

“Inflation” seems to be a hybrid and something that is empirically real and socially constructed. I would prefer people have a variety of ways to communicate about comparisons of nominal prices over time, but it seems inescapable that the mind favors assuming the existence of a single phenomenon so it can have the linguistic asset of being able to talk about many things as if they were one thing, even if it’s at the expense of definiteness.

The Internet-Austrians take a schizophrenic approach – at once hyperventilating about “hyperinflation”, which they clearly mean to refer to the price level, yet simultaneously trying to redefine the concept away from price level and towards “monetary base expansion” – a base the definition and measurement of which they cannot even agree upon (they should listen to the market and use Divisia M4).

They attempt to salvage this mess by implicitly taking Friedman’s Monetaristic approach and assume that the base and the price level become proportionate in the long run. “What other explanation for the price level could there be?” But it’s an artificial “long run” that further assumes no intervening circumstances – of which there are bound to be so many that the concept falls apart.

I would add that mainstream economists also exhibit anti-epistemology, in the sense described by Bryan Caplan here.

The problem for the Austrians is that the counter-intuitive mechanisms of etatism that characterise our financial system vastly complicate economics, such that analysts cannot rely so heavily on deduction and its tiny Kolmogorov complexity. To understand central banking, and not just vanilla catallaxy, we would need its talented practitioners to tell all, i.e. to audit the Fed, but of course that would be contrary to their game-theoretic interests.

A more outlandish solution would be to create a bespoke MMORPG, and then simulate the global financial system, hopefully without allowing the players to catch on.