I have written before on some of the ways that the official inflation numbers are manipulated, and even hinted at some of the reasons why. I linked to this article back in 2004 which outlines some of the ways the numbers are gamed, and wrote this summary of Bill Fleckenstein’s analysis in 2006. For review:
- They adjust price increases of anything “new” or “improved” (including cars and computers and even hand soap and cereal).
- They don’t make the same sort of adjustments if the quality of a good or service declines.
- They arbitrarily decide that food and energy “don’t count” when calculating the so-called “core” rate.
- They assume homeowners pay themselves rent.
- They use an artificial basket of goods, and feel free to “substitute a cheaper equivalent” if a price gets out of line (because you’re totally willing to buy hamburger when you want a roast, right?).
And truly, that’s just a short list. These little games allow the government to say that inflation is “nominal”, the economy is fine, there’s no need to raise interest rates, and — most importantly — we don’t have to give a big cost-of-living-adjustment to all those people on Social Security.
But wait, there’s more.
It also allows transparent manipulation of Gross Domestic Product, or GDP.
Here’s how: Let’s say Joe and Jane Average used to spend $300 per week (that’s roughly the take home pay of someone earning $7.50 per hour) 5 years ago. They buy things like groceries and clothing and gasoline and cable TV. They set money aside for the car payment and the rent/mortgage. According to the official low, low inflation numbers, they should be spending something like $335 every week ($300 x 1.02%, compounded annually over 5 years is $331.22). However, you and I both know that’s way low: gas prices were as low as $1.639 in 2003 (personal data, I can even tell you where I bought it); groceries cost more; don’t even get started on housing prices; almost anything that had to be transported has higher costs — and that would be just about everything.
We both know Joe and Jane Average aren’t spending $335 per week, they’re spending more like $375 or even $400. But that number is too high to be accounted for by the official inflation number, so Joe and Jane must be buying more goods and services in the eyes of the economists. And, since personal spending represents more than half of GDP, that bloated number artificially inflates Real GDP Growth too.
So now what? It is clear that inflation is on the rise, even using the official government figures. It is officially on the rise at levels not seen in 16 years, and some of these inflation hiding tools weren’t in use then. And — even though this number is not adjusted for inflation, real or stated — retail sales are down. Add to that the fact that unemployment is on the rise and we have good old fashioned Stagflation. It should be no shock that the middle class is being hit hardest; they have — had — the most to lose. In short, nobody can slather enough lipstick on this pig. This comic put it well. GDP growth is clearly at risk. Since negative GDP growth means a recession, I will outright shocked if this combination of factors does not officially put us in recession.
In closing: Expert Ezra spells out exactly why mandatory health insurance won’t result in universal coverage; the Justice Department is trying to figure out exactly what “immunity” the State Department gave to Blackwater (but not necessarily how the State Department came to have the authority to give legal immunity to anybody); battery life could improve tenfold; urban schools aim to send all students to college, completely devaluing not only their own diplomas, but also some college degrees (don’t get me wrong, I’m glad they have high expectations for their students, but this is ridiculous); Peace Ambassador binLaden?; and 5 things not to do in the Emergency Room.