The Fed Beats Marie Antoinette With “Let Them Eat iPad2s”

In fairness, I must point out that Marie Antoinette has gotten a bit of a bum rap.

The infamous “let them eat cake” was actually “qu’ils mangent de la brioche” which is “let them eat brioche”. The only French queen who might have said that was Marie Therese, about 100 years before the French Revolution. In addition, Marie Antoinette was concerned with the welfare of the poor, so such a clueless remark seems even more unlikely to have come from her.

However, there is no excuse for this telling example of how out of touch Fed officials are, specifically, New York Dudley of the New York Fed. From Reuters:

Dudley faced persistent questions from the audience on food inflation. The president of the Federal Reserve Bank of New York said people forget that even as the price of food is rising, other prices are falling. He mentioned the price of the iPad 2, prompting guffaws from the audience.

Now before you forgive this as standard economist thinking….the Wall Street Journal’s Economics blog makes clear Dudley was speaking to people in Queens:

The central banker hit the iceberg when he was trying to defend his belief–one shared by many private-sector economists–that underlying inflation in the U.S. economy is low despite a worrisome surge in commodity prices which Dudley said the Fed would be “unwise” to overreact to. The grief Dudley got indicates the Fed is facing a growing gulf between how it and the public at large perceives inflation. If this disconnect widens, it could risk undoing the public’s confidence that the Fed will be able to keep price pressures at bay.

Dudley’s day went south when he was pressed by several audience members about how he can view inflation as low when things such as grocery prices are marching higher. One participant asked “when was the last time, sir, you went grocery shopping?”

The central banker told the audience “I certainly acknowledge food prices have gone up.” But he added some prices are lower and noted “Today you can buy an iPad 2 that costs the same as an iPad 1, that’s twice as powerful,” as an example of favorable price dynamics. His example was greeted with widespread grumbling in the audience, in a display of conspicuous discontent unusual for a Fed speaking event.

The WSJ piece is still a bit of a fail, in that it attributes the gulf between the Fed and the great unwashed as being due to that food prices are “highly visible” and hence are in everyone’s face when they rise.

Hello! What planet are these people from? Yes, the food and fuel prices are noisy, so the Fed focuses on so-called core inflation. But using only one metric is naive and in this case overlooks the fact that food and fuel loom large in the household expenditures of lower income people. And does Dudley not understand that eating, heating your house, and getting to work are non-discretionary activities, contrary to technology purchases like the iPad?

Plenty of finance ministers and central bankers in emerging economics believe QE2 has played a significant role in stoking commodities inflation, including food prices. There is some evidence to support that view although the jury is very much out (perishable commodities, which cannot be hoarded and thus reflect fundamentals better than ones that are storable, as well as non-exchange traded commodities in India, such as cooking oil, do not show the same degree of price appreciation as exchange traded agricultural goods have). But there is a large cohort that would applaud if the idea that Bernanke had said, “Let them eat iPads” got traction.

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  1. Sufferin' Succotash

    I think the “eat cake” business was hung on Marie Antoinette because she was so unpopular in France to begin with. She wouldn’t have used the word “cake” anyway. Being an Austrian, she would have said “torte”.

    1. SqueekyFromm

      Oh. I think the people did commit tortes, particularly the Torte of Decapitation, which is also known as Damage to Chattels, I think???. I am not sure exactly who Chattels was, but he sounds French.

      Squeeky Fromm
      Girl Reporter

  2. Fraud Guy

    When you don’t have the income for much discretionary spending, price rises in necessities is the only inflation you’re concerned about.

    During the last $4+ gas binge, we went from $200/month for discretionary/entertainment spending to about $50. We would have had to drop the wireless account that allowed us to have an iPad (1, 2, or any #).

  3. Max424

    Regarding matters of inflation, what I never understood and probably never will; what does commodity volatility have to do with the price of cheese, or the price of tea in China?

  4. Francois T

    Musta been quite an experience for Bo Dud & Lay to talk to real people with down to earth preoccupations.

  5. Mogden

    Articles that contain nuggets like “it could risk undoing the public’s confidence that the Fed will be able to keep price pressures at bay” are always humorous.

    Is there anyone, anywhere, who believes honestly that the public has any confidence whatsoever that the Fed can keep price pressures at bay?

  6. Namazu

    The hits just keep on coming. In his most recent appearance on CNBC, James Bullard expressed his contempt for savers hurt by artificially low rates, essentially saying “take or leave it.” The disdain is palpable if you watch the clip.

  7. readerOfTeaLeaves

    But there is a large cohort that would applaud if the idea that Bernanke had said, “Let them eat iPads” got traction.

    As an avid fan of iPad (v1, in my case), this makes me wince. I’m sure that theBenBernanke is a perfectly decent, well-intentioned man whose little boat of central banking appears to have been swamped by tsunamis of Black Money moving offshore, by money launderers, and by a host of other relatively contemporary technical and social innovations.
    With that said, I see no point in damaging the excellent reputation of the iPad by associating it with the cluelessness of Fed employees.

    As for Marie Therese, who was married off to that barbarian Napoleon, she was said to be ‘insipid in five languages’.
    Here’s hoping that our (presumably well-intentioned) Fed employee will be insipid only in one.

    As for the commodities prices, I interpret the Fed gentleman’s remarks to assume that ‘prices’ are set by demand-supply pressures. As I understand commodity price spikes, they are set by speculation.

    What I find worrying is that the costs of speculation accumulate: if the commodity is wheat, the farmer gets no more money for his crop, while at the same time raising his price because the oil and diesel his combines require are also commodities, so he’s paying speculators:
    – to raise the price of the basic fuel that
    – he uses to raise the wheat, upon
    – which they also speculate.
    Although the wheat is more time-sensitive than the oil, the speculator makes money at every phase as the wheat is produced, trucked, shipped, and then sold.

    The best short term solution may be better apps for farmers that would enable them to connect directly with their customers, and cut the speculators out of the mix.
    At this point, I have more faith in my apps than I have in my government.
    (All the more reason not to besmirch the reputation of my iPad.)

    This post calls to mind a section in EConned, in which Yves points out that financial intermediaries and regulators embrace ‘computational convenience’ rather than models that would actually better reflect reality. Yves points out that economic theory is as outdated as the 19th century medical views of the ‘four humors’ (black bile, yellow bile, phlegm, and blood).

    1. Paul Repstock

      rot; the only “speculators” making money at this time are the ones with a hot line to Washington. one any given day the prices are going limit up or down, depending only upon what government announcement is made or omitted. The ringers get dealt the aces in this game.

  8. Parvaneh Ferhadi

    Remarkably out of touch those guys at the Fed. Do they not understand that people who are already struggling to make ends meet and complain about high food and commodity prices are unlikely to even consider buying the iPad2? And that many people being unable to afford iPads or other things – even if they are cheaper will undermine the Fed’s claim of any recovery or growth taking place?

    1. psychohistorian

      When you buy into rampant consumerism as a core part of the economy then, of course, ipads are as important as foodstuffs.

      Imperialist America has been pushing the consumerist meme all over the world for decades and it has/continues to make many rich. I believe that many folks will continue consuming beyond their means because they have been brainwashed into doing so. Its a faith based thing like free markets, free trade and perfect competition and information. Look at how many vote against their best interests because of brainwashing.

    2. SidFinster

      One of the (many) questionable assumptions in modern economic theory is that is assumes that the marginal social utility of a dollar is exactly one dollar.

      Whether that dollar goes to pay a nurse’s salary, to an iPad or for crack cocaine is seen as irrelevant.

  9. dave

    So, should the Fed raise rates to counter the rise in commodity prices?

    Or is this just a bitch session.

    1. Paul Repstock

      Dave; the Fed will raise the rates at the very first oportunity they can manufacture. Their buddies at the banks demand that. But, they need the other currency blocks to raise first and further, otherwise the dollar will jump.

      As to Mr. Dudley do wrong, the presumption that Ipads are an intrinsic part of American life and a purchase to be equated with food, shows a certain distain for the bulk of people. Yves hit the metaphor very nicely.

      1. Veri

        That is the problem. If The Fed raises rates, The US Government will be unable to pay the debt. Currently, The US Gov’t is rolling over several trillion in short term debt every year. Right now, you can buy two-week (YES, 2 WEEKS) USTs for 99.9817 dollars for a profit of about $0.02 (less actually) due to the low interest rate on The USTs – currently near 0% interest rates. That interest rate is the only reason The US can continue to roll-over debt and finance all operations.

        The Oligarchs that bought the politicians do not wish to pay higher taxes.

        Raise that to 3%, 4%, or 5% interest rates and The US Gov’t is now paying interest rates with no money – instant bankruptcy. 5% is the number I have been seeing that says, INSTANT BANKRUPTCY.


        BTW, it is now reported that The US Treasury now has only $14.2 billion dollars left in their accounts as of now. There are no short-term or long-term sales of UST to fund operations scheduled for the next week. Tomorrow will cost The US Treasury around $12.5 billion. That leaves the entire US Gov’t with roughly $1.2 billion dollars.

    2. financial matters

      Yves discussed this somewhat in a previous commentary,,

      “”That in turn means central banks may have no way out. They may not be able steer a road between inflation and a resumption of Japanese-style low growth and borderline deflation. They can only choose one or the other.””

      It seems like there are no good choices but a choice of the lesser evil. Right now we have QE, budget deficits and low interest rates. These primarily seem to be helping banks rather than consumers and the real economy. Good discussion at “”The GSEs and large banks, not the real economy, are the true beneficiaries of QE and low interest rate policies by the Fed.””

      Stopping QE would be a good start as it would take speculative money out of the stock market and commodities and limit the hot money flows into emerging markets.

      Also as mentioned in the above IRA article… “”Insolvency is, at the end of the day, the economic reality inside all of these institutions, esepcially if we see residential home prices slip another 10% or more during 2011. The zombie dance party is not nearly at an end.”””

      The fraud here needs to be dealt with to get to the bottom of the MBS fiasco. Before people accept austerity measures the people that made off like bandits on the back of this massive fraud need to be prosecuted and have these ill-gotten gains clawed back.

      Interest rate increases will benefit savers but hurt current homeowners who will see these prices fall further. But for new homebuyers with stricter guidelines the average price of a home needs to be matched up with average income that can afford the loan.

      1. dave

        Interesting how I’ve got two replies to this. One says raising rates is what banksters want, and one says continued low rates are what banksters want.

        1. Cedric Regula

          Banksters want low or zero rates when they are in trouble, and higher rates (as that implies a sound currency value) when they are not. Tho this may not even be true anymore since it appears that banks have become really, really big debtors and may now view that fee based banking needs an ever escalating velocity of money to generate ever escalating profits and bonuses, which can the be converted to gold where it matters…in one’s personal account.

          Personally, I’m not that sure the Fed will raise rates at the behest of banks, because there is now quite a bit of motivation to “inflate out of debt”. But this could be another silly, unfounded economic fallacy because the free market (not just banks, but anyone that has money or spends money) reacts negatively to having your currency and/or livelihood devalued. At a national debt level you usually get the “debt trap”. See Greece, etc…where it becomes very expensive to borrow money and/or roll over existing debt. And that happens to counties that can print their own currencies as well. (and there are many historical examples of this phenom in world history besides just Zim and Weimer)

        2. Veri

          Raising the rates means that The US Treasury can not pay the interest on the debt – which is why The Fed is keeping the rates near 0%. The financing costs for US debt remains extremely low.

          When you DO want to collapse a government is when you are ready to seize power and declare martial law. You collapse a government through economic warfare – finance.

          Banks, specifically the Big 5 on Wall Street are buying UST and The Fed is turning around and purchasing them – which means, that the favoured banks (The Big 5) can demand more money for the USTs as a favour. The Big 5 make money. The Fed ‘provides liquidity’ to markets.

          The Big 5 Banks buy the USTs. That money goes to provide money for US Gov’t operations. The US Gov’t is now on day-to-day financial life support.

          So, to sum it up:

          1. US Treasury sells USTs.
          2. Wall Street buys USTs and gives money to US Gov’t for operations.
          3. The Fed buys USTs from Wall Street and gives them money – providing liquidity (actually, enriching the few).
          4. The US Taxpayer gets stuck with all the bills.

          To collapse the Gov’t and seize power, Wall Street Bankers stops buying USTs. To seize power, however, you have to have the mechanisms in place or all hell breaks loose.

          You have to time the collapse just right, when you are ready to take advantage of it. Until then, the charade continues.

      2. Cedric Regula

        The other problem with the bizzare nature of Fed economic thinking is they use products where we get rapid technology advancement (the CPI technicians get to lower the price below what we pay for hedonistic advances in power or functionality) or rapid productivity gains (usually by offshoring in that case) to offset rising costs in “mature” products.

        The net effect is they monetize these gains to prevent “deflation” in the aggregate, then hand the new money to the financial system.

        Then we wonder why our real purchasing power doesn’t rise. Sheesh.

        1. Veri

          Think of this and you will understand part of the reasoning of The Fed when it comes to food inflation.

          1. Steak becomes to expensive
          2. People eat cheap hamburger or eat less steak
          3. The Fed says, because of this, no inflation.

          The problem being, that when people can no longer afford cheap hamburger, then it’s potted meat by-products. What happens when no once can afford the potted meat by-products, hot dogs, chicken burgers, entrails, etc…

          Eat dirt?

      3. Bill

        Either way, housing loses. Raise rates and fight commodities or keep interest rates low and commodities rise.

        The cost of building a new home has gone up about 30 percent in the last three months. Lumber, pvc, copper, shingles, pretty much every physical good involved in building a new home has gone up 30- 40% in the last three months.

  10. hermanas

    Aren’t supply-demand curves a function of elasticity? Yet basic needs (food, shelter and healthcare) are basically inelastic. Core inflation should measure basic needs, not items that are stable because of elasticity. Imagine if health care were the sole indicator of inflation.

      1. hermanas

        Yes, a CPI of 10% would focus a lot more attention on the schemes and send more schemers to the big house rather than the governor’s mansion.

  11. bluffraise

    I doubt very much if any of the high priests of capitalisim do their own shopping. Can’t see them raising rates as the system still needs time to heal. The situation in Europe is still playing out(they need even more time), oil above $100 and the natives are getting restless(emtpty bellies will do that)Japan is dead in the water for a bit. Lots of money chasing yield. Anyone like a bit of HP with that Ipad?

  12. KnotRP

    The Q&A was a great learning experience for the Fed.
    They’ll be sure to never speak to normal people again.

  13. F. Beard

    The basis for our money system is to steal purchasing power from all money holders including and especially the poor and to invest that stolen purchasing power for the good of all. So yeah, some economic progress is made but at the cost of economic and social dislocation.

    The system is based on theft. Is it any wonder then that it is unstable?

  14. Doug Terpstra

    The aristocracy can be rather comical in their cluelessness. SNL could do a great skit with Bernanke in a powdered whig demonstrating the nutritional value of iPads, maybe bringing back Dan Akroyd’s ‘Bass-o-matic’.

    Hacker Group “Anonymous” which skewered PR flack HBGary recently, has now targeted the Criminal Reserve in “Operation Empire State Rebellion”

    The Anonymous manifesto(transcript from Z-Hedge):

    “We are a decentralized non-violent resistance movement, which seeks to restore the rule of law and fight back against the organized criminal class.

    “One-tenth of one percent of the population has consolidated wealth in unprecedented fashion and launched an all-out economic war against 99.9% of the population.

    “We are not affiliated with either wing of the two-party oligarchy. We seek an end to the corrupted two-party system by ending the campaign finance and lobbying racket.

    “Above all, we aim to break up the global banking cartel centered at the Federal Reserve, International Monetary Fund, Bank of International Settlement and World Bank.

    “We demand that the primary dealers within the Federal Reserve banking system be broken up and held accountable for rigging markets and destroying the global economy, effective immediately.

    “As a first sign of good faith we demand Ben Bernanke step down as Federal Reserve chairman.

    “Until our demands are met and a rule of law is restored, we will engage in a relentless campaign of non-violent, peaceful, civil disobedience.

    “In our next communication we will announce Operation Empire State Rebellion.”

    1. Cedric Regula

      Just one SNL skit? Methinks it has potential for a treasure trove of skits. But I want original cast back. Something like this:

      Steve martin gleefully screams out “Risk On Risk On” and goes into his Happy Feet dance. Along comes Belushi in his Killer Bee getup brandishing his assault weapon and announces “Your Repos are Cut Off!”. Steve freezes and screams “Well, Excuuuuuse Me!”

      Gilda Radner is bouncing up and down on her big bed in her little girl outfit (a very tiny Armani suite and pigtails) screaming “Get the Government Off My Back”. Chevy Chase, dressed in another Armani suit climbs a ladder next to the bed to make some adjustments to the spotlight focused on Gilda. Chevy falls off the ladder on to the bed causing Gilda to trampoline off camera. The camera angle follows to show us Gilda safely in the arms of Dan Aykroyd in his conehead costume, the closest thing I can think of to a Bernanke imitation. Jane Curtain reports the news. She must be playing Hank Paulson.

  15. Psychoanalystus

    The subtitle of my upcoming book is, “When bread vanishes, circuses remain the only reality.”

    The American society is rapidly sinking into a state of quasi schizophrenia, whereby the entire nation is hallucinating in front of their iPads, iPhones, games, and television sets, and living in a state of permanent delusion, whether embodied by being one’s own YouTube, tweeter, or Facebook celebrity, or a belief in one’s superiority and exceptionalism.

    As greater and greater sections of this nation become impoverished, as more and more people become afflicted with things like diabetes as result of the dismal state of American health care and the toxicity of American food, as the prospects of finding an honorable job dwindle, and as more and more Americans become marginalized and isolated, the only reality of prosperity, health, beauty, community, and excetionalism remains that created cheaply virtually.

    This, my friends, is the American version of the circuses.


  16. Pwelder

    wrt “core inflation” as a currently meaningful metric:

    A week ago Friday CNBC had Alan Greenspan on for a couple of hours guest hosting their morning show. The subject of core vs. headline came up, and the ex-Maestro’s response deserved a lot more notice than it seems to have gotten.

    I’m paraphrasing here, but Greenspan said that using core rather than headline for making policy makes sense as long as one key condition prevails: that the price of commodities is trendless, noise-generating. But, sez he, in a world where a billion Asians are becoming middle class this is no longer the case.

    This most likely was a gaffe on AG’s part, in the sense that such a flat rejection of a major tenet of the current Fed’s self-explanation is something that he most likely would want to reserve for paying clients. To me it’s a pretty big story, and I’m amazed that it seems to have floated by with nary a peep from the financial press or the blogoshpere – not even from Yves.

    Am I the only one who watches CNBC? Yikes!!

  17. Hugh

    Always important to point out in these discussions that Dudley used to be Goldman Sach’s chief economist and that the New York Fed which he runs is the size of all the other Fed banks combined.

    Again what we are seeing is a double whammy of inflation inside deflation. Big ticket items like your home continue to lose value while essentials like food, gas, and healthcare continue to go through the roof.

    It is hard to overstate the malevolence of actors, like Dudley. This is not a man who is clueless. He is someone who is committed to the looting of the country by the rich for the rich. As for the rest of us, except for a little rube control now and then, like the event in Queens, we and our resources are just so many targets to be looted.

  18. Ignim Brites

    When Volvo came out with their “car to save your soul” campaign in 97, you had to know that sooner rather than later the whole phoniness of the 90s would end pretty badly. In the even, ther greenspan put was able to postpone the DOR a couple of years thanks to LTCM and the Y2K hysteria. (google Y2Kyoto for an amusing takeoff on the later). Still it was not enough to save poor Al Gore. The reverence among the “knowledge class” or the denizens of The First Circle (as Solzhenitsyn might have characterized them) for the iPhone and iPad is reminiscent of that folly. There is a difference though. The Volvo campaign occurred during a period of nearly Aquarian revelation. Today Apple products seem more to be regarded as talismans against the evil times. Won’t work though.

  19. Gentlemutt

    Bob Dudley’s faux pas is revealing of more than just the uninformed complacency at the Federal Reserve. It is worth noting that Mr. Dudley is part of the obscenely large number of Goldman Sachs alums who so regularly f**k up our public institutions.

    In the case of the Fed NY, where Dudley is now president, until recently he was joined by another Goldman alum, Stephen Friedman. Mr. Friedman is the nice fellow who evidently thought it was perfectly ethical to purchase more Goldman stock after he was privileged as an insider to learn that the Fed NY was going to decisively bail out Goldman by guaranteeing that AIG would pay Goldman in full.

    So, here we have two Goldman guys in leadership roles at the Fed, one who apparently thinks inside trading is something only ‘little people’ get punished for (and is correct because his friends will see to it that he will never be punished), and one who seems to genuinely think that sequential price/feature changes for non-essential items actually matters as much as the real inflation facing all the Americans not lucky enough to work for….Goldman!

    Bob Rubin uber alles!

  20. river

    I guess I don’t understand how the Fed can simply say that they don’t grow food or drill oil, so any price increases or decreases that occur are outside of their control. But with technology, which they didn’t invent or build, they perform all kinds of hedonic adjustments to prove that there has been no inflation over the last couple dozen years.

  21. pravin

    is the rise of the asian middle class really driving up prices? that would be reasonable to an extent.but the rise to middle class occurs over years and decades .it is more or less the same speed at which commodities are mined/harvested from nature. more wealthier and productive people should mean more food and basic needs available.
    i therefore reject greenspan/msm bollocks about commodity prices being driven up by asian upstarts/nouveau-middle class.
    in the absence of worldwide environmental catastrophe, money printing should alone be the primary driver of scarce non discretionary items.

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