Corporations Understand Inflation Better Than The Fed

Anthony Pompliano

Oct 25

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To investors,

Jack Dorsey sent the tweet heard ‘round the world on Friday night. He explicitly called out hyperinflation, which has been historically considered an off-limits topic for executives and politicians in developed nations.

jack⚡️ @jack

Hyperinflation is going to change everything. It’s happening.

As you would expect in today’s internet age, everyone started to pile in and call Jack Dorsey uninformed, stupid, irresponsible, and much more.

Vincent Bevins @Vinncent

Idiots literally run everything

jack⚡️ @jack

Hyperinflation is going to change everything. It’s happening.

Robin Wigglesworth @RobinWigg

Strong contender for “macro tourist of the century” gong.

jack⚡️ @jack

Hyperinflation is going to change everything. It’s happening.

David B. Larter @DavidLarter

Hyperinflation is not happing. Put the bong down.

jack⚡️ @jack

Hyperinflation is going to change everything. It’s happening.

Oliver Renick @OJRenick

Nice to see Jack finally out himself as a huckster

jack⚡️ @jack

Hyperinflation is going to change everything. It’s happening.

No one topped this one though:

Virginia Heffernan @page88

Like “divorce” in a marriage this word @jack tweeted should not be uttered unless you’re trying to bring it into being. No one shd take investment advice from someone who sees himself as making markets. How insanely reckless to tweet this. Immoral. Jack, ban thyself.

Not everyone immediately took to yelling at Jack Dorsey though. A few people replied with anecdotes or clarifications, which Jack responded to. The first was a reminder of how bad hyperinflation can be:

The second example was around the hyperinflation experienced in Nigeria:

My absolute favorite one though is economist Steve Hanke who reminded everyone that the current measurement for true hyperinflation is absurd (50% month-over-month inflation):

Steve Hanke @steve_hanke

There have been 62 certified hyperinflations in world history. At present, no country is experiencing hyperinflation. @jack should know better than to tweet irresponsible public statements.

jack⚡️ @jack

Hyperinflation is going to change everything. It’s happening.

It doesn’t count if inflation is 49% month-over-month. It doesn’t count as hyperinflation if the people of the country literally can’t afford food to the point where they are literally willing to attempt to overthrow their governments.

Why is the number 50% month-over-month? No one knows. Just a random round number that academics came up with to prove their value. The truth is that the entire concept of hyperinflation is technically just high, runaway inflation. If you were living in a country that had 10% month-over-month inflation, you would be trying to escape immediately.

Now that we have established that the exact definition of hyperinflation is illogical and the mob is more interested in tweet dunks than facts, let’s bring this back to Jack Dorsey’s comments.

I think most people are completely missing the point on this situation. Jack Dorsey sits on top of one of the most important and accurate data sets in the world to measure true inflation.

Pomp 🌪 @APompliano

Jack Dorsey and Square sit on one of the most important and accurate data sets in the world to measure true inflation of various goods and services. They are likely materially more accurate in their measure of inflation than any data set from government organizations.

Think about this. Square has a suite of products that gives them a multidimensional view of what is happening in the economy, how the price of goods are changing, and any differences between demographics, location, or income levels.

Most people don’t realize how many products Square has:

Square Reader (physical device that allows mobile phones to process payments)
Square Register (more traditional register for merchants)
Virtual gift cards
CashApp (consumer mobile app for banking services & investing)
Square Capital (financing to merchants)
Square Payroll
Square Financial Services (bank charter)
Credit Karma Tax (acquired and integrated into CashApp)
Afterpay (Square acquired the “Buy now, Pay later” giant)

So, quite literally, Square is sitting on one of the most robust data sets in the world to measure inflation within the United States. They have direct integration with more than 100,000 merchants at the point-of-sale (Reader, Register, Afterpay, etc). They have over 30 million monthly active users on CashApp and more than 7 million people using a CashCard (gives them exact transaction data). Square also has the payroll data of many companies across industries and geographies through the Square Payroll product.

This robust, real-time data set is highly compelling when compared to the CPI data set and calculation methodology. I don’t want to divert into a takedown of CPI, but this description from Investopedia around the controversy of the index is enough to inform those of you that are unaware of the issues:

“Originally, the CPI was determined by comparing the price of a fixed basket of goods and services spanning two different periods. In this case, the CPI was a cost of goods index (COGI). However, over time, the U.S. Congress embraced the view that the CPI should reflect changes in the cost to maintain a constant standard of living. Consequently, the CPI has evolved into a cost of living index (COLI).
Over the years, the methodology used to calculate the CPI has undergone numerous revisions. According to the BLS, the changes removed biases that caused the CPI to overstate the inflation rate. The new methodology takes into account changes in the quality of goods and substitution. Substitution, the change in purchases by consumers in response to price changes, changes the relative weighting of the goods in the basket. The overall result tends to be a lower CPI. However, critics view the methodological changes and the switch from a COGI to a COLI as a purposeful manipulation that allows the U.S. government to report a lower CPI.”

My main point here is to call out the fact that Square likely has a much more robust, accurate, and real-time understanding of the true inflation numbers across the United States. There is a strong argument that the US government, the Fed, and Treasury should all ask the payment and fintech companies to help them determine the real inflation rate, rather than continuing the charade of CPI.

The CEO of a $100+ billion company that is ranked as one of the 400 largest companies in the United States has come out publicly to insinuate that his data is showing inflation significantly higher than the official numbers. Rather than ask him to explain it to us more, a bunch of the establishment puppets on the internet began attacking him. They literally don’t know what his data says, yet they attacked him relentlessly.

This is the state of dialog in 2021 though. It is easy to get conditioned to listen to the crowd. You have to fight the urge. Square has better data. They have more real-time data. It is also a much more holistic picture of the economy than anything a single government organization has.

I wish that Jack Dorsey and Square could open source the data or release it publicly. There are likely strategic and competitive reasons why they won’t do that. But it doesn’t mean that we shouldn’t hope to see it happen. As Keith Rabois told me on Twitter, Square has been building this data set for more than a decade.

Keith Rabois @rabois

@APompliano Yes. This data set was intentionally built since 2010 to be able to measure/predict this.

It is crazy to think that we could have more accurate data right under our nose but people would rather dunk on technologists on the internet. The funny thing about all this? If Jack Dorsey and Square released this data, it would become the standard almost overnight. People would stop looking at the CPI data and start looking at the real-time data sets that more accurately reflected what was occurring.

If only we could be so lucky. Hope each of you have a great start to your week. Talk to everyone tomorrow.

-Pomp

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