Marian Tupy and Gale Pooley, at the Cato Institute, write about the Simon Abundance Index. SAI is named for Julian Simon, famous for his bet with the Malthusian Paul Ehrlich (infamous for writing The Population Bomb). Simon bet Ehrlich that commodity prices would fall from 1980 to 1990. Simon won the bet, but the whole exercise did not prove what he thought that it did.

I wrote about basic error in the methodology of “adjusting” for inflation. In brief, the error was in “adjusting” the dollar using the Consumer Price Index. This “adjusted” dollar is used to measure commodity prices. Thus showing that commodity prices fell.

The flaw is that consumer goods are made from commodities. Thus the whole calculation is circular!

This is not measuring commodity prices objectively, as Simon supposed. It does not show that commodities fell in absolute terms. Only relative to consumer goods.

What this wager actually measured, is the spread between commodities and consumer goods. This spread widened.

Is this a good thing? Perhaps, if the ultimate consumer good consists of more and more other things than raw materials, such as technology, manufacturing process, engineering, etc. Or perhaps not, if it merely shows the exponential growth of mandatory “useless ingredients” constantly imposed by government.

Enter the Simon Abundance Index (SAI). Thankfully, this index does not use consumer price index adjusted dollars to measure commodities. Instead it uses what the authors (who created the index) call “timeprices”. In brief, this is how many hours one must work to purchase something.

This is a lot better than “adjusted” dollars, because the time spent working to earn a consumer good is not directly subject to monetary policy.

It is indeed good that the timeprices of commodities have fallen dramatically (though not for long periods like 2003-2008, or during the Covid lockdown).

However, what is not shown is the timeprices of consumer goods. More importantly, the ratio between the two. It would be very instructive to see this ratio, because this ratio would show us the clearest picture of the impact of the Regulatorium.

Suppose the ratio of consumer timeprices to commodity timeprices doubled. Perhaps both timeprices fell (i.e. one’s labor buys more commodities or more consumer goods). But the timeprices for consumer goods fell less. What would that be telling us?

That the consumer good – commodity spread is widening. This means that more and more cost is being inserted somewhere in the process of converting raw materials to consumer goods and/or distributing those goods to consumers.

As I explain in my dissertation, a widening spread is proof of a decrease in coordination. This decrease is caused by the chronic, relentless addition of more regulations and compliance enforcement, as well as taxes.

In other words, the price of a 25,000 pound lot of coffee in Jakarta may drop. While the price of a coffee in a downtown cafe only gets a bit cheaper (or actually gets more expensive).