Let Them Eat iPad2s: Even Marie Antoinette Cringes at NY Fed Chief's Remark

In the almost 40 years since Watergate, senior government and corporate officials around the world continue to make unfortunate (some would say clueless) statements. You would think they would have learned by now that a vigorous and attentive press makes its living reporting such misstatements. This latest example comes from William Dudley, Chairman of the New York Federal Reserve Bank, who was trying to explain why inflation in food and gas prices might not be as bad as it seems.

Yves Smith gives him plenty of rope in Naked Capital:

"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.