Is inflation underestimated?

May 3, 2008 3:24 PM

"Numbers Racket: Why the Economy is Worse than We Know" [pdf, also available as abridged html, for subscribers] discusses how the Consumer Price Index and other US economic statistics have been manipulated over time. Among other things, these changes keep Social Security checks 70% lower than they would otherwise be.

According to Barry Ritholtz of the Big Picture blog, "the longstanding official myth that [US] inflation is modest and contained is starting to be recognized for the fraud that it is." He explains how a few bad statistics give false answers to other big questions, like "are we in a recession?"

A New York Times graphic shows what's in this basket of consumer prices, which prices are going up, and which are not. To learn more about what's not counted, visit Shadow Government Statistics, which tracks (for subscribers) what inflation would be under earlier formulas. (Previously.)

posted by salvia (21 comments total)

Umm, do you have permission to host that Harper's article? While I think this is a fascinating topic, it does worry me a bit that you've posted an article that just hit the newstands and is otherwise behind a paywall.
posted by anotherpanacea at 3:43 PM on May 3

If this post stands, one notable thing from what all the charts were showing: I knew that Bush Cheney & Co. have been tweaking the statistics beyond all reasonableness, but I did not know that the Clintonians and Bush Sr. contributed so much to the un-reality until I saw the charts covering the '90s. Hmmm. But then, I probably trust Kevin Phillips more than I should, considering I trust almost nobody.
posted by wendell at 3:59 PM on May 3

To clarify, I'm not hosting that. It's being hosted by The Big Picture. Here is another abridged version, if you prefer.
posted by salvia at 4:01 PM on May 3

48% increase in fuel oil. Yowch. But TVs down 18%! Woo!
posted by DU at 4:04 PM on May 3

This is an excellent post.
posted by KokuRyu at 4:26 PM on May 3

I'd agree, excellent post, but bigpicture.typepad.com's pdf hosting is dicier than usual. Well, if Harper's do C&Ds, we've made things easier to find. My TV is down much more than 18% and everyplace I've lived for decades has been heated by nat gas.
posted by wendell at 4:32 PM on May 3

I've emailed the admins to ask about the hosting issue. Maybe we could let them decide or go discuss this in MetaTalk? Actually, I have to go running and then grocery shopping first, but I could talk about it after that. First, I have to check out this "inflation" stuff for myself. ;)
posted by salvia at 4:48 PM on May 3

I've questioned the inflation numbers ever since the government started issuing TIPS. Moral hazard.
posted by leotrotsky at 5:16 PM on May 3

I've questioned the inflation numbers ever since the government started issuing TIPS. Moral hazard.

To be fair, TIPS remove the incentive to cause actual inflation, and replace it with an incentive to just underreport inflation.
posted by thrako at 5:40 PM on May 3

TIPS?
Treasury Inflation-Protected Securities?
or Terrorism Information and Prevention System (DOJ)
or Tobacco Information and Prevention Source (CDC)
or Taxpayer Information Publications Service (IRS)
or Tactical Imagery Processing System (DOD)
or Theater Injection Point System (also DOD)
or Threat Image Projection System (FAA)
or Transatlantic Industrial Proposed Solution (NATO)
or Tax Information Phone Service (Canada)
or Turkish Institute for Police Studies (Denton, Texas???)
or Technical Information Processing System
or Trillions of Instructions Per Second
or To Insure (sic*) Proper Service (scopesed)

My love/hate relationship with acronyms.
*everybody knows it should be Ensure
posted by wendell at 5:41 PM on May 3 [1 favorite]

cf Peter Schiff, back in November.
posted by tachikaze at 5:46 PM on May 3

Wendell, in a thread about underreporting inflation numbers in the US, clearly I'm referring to this
posted by leotrotsky at 5:49 PM on May 3

This is a fantastic post (which is to say, it's also a fantastic article by Kevin Phillips). The "hedonic adjustment" described in the CPI is particularly insane. During the 1990s, in the midst of massive productivity gains that were being attributed to IT, the BLS would try to adjust for the continually increasing performance of computer processors by trying to calculate what a computer of similar technical specifications would have cost a few years ago. That essentially means that the BLS is assuming that when computer processors get twice as fast, you're getting twice as much computer per dollar, making computer hardware a massive source of deflation. These "hedonic adjustment" calculations are carried out for lots of goods, despite the fact that quantitatively calculating how much "better" computers, cars and cellphones are getting from year to year may not even be conceptually possible. This work is also subject to bias from at least two sources- they both make the current administration look good, and keep lots of BLS employees employed.
posted by gsteff at 7:44 PM on May 3

I can tell you one thing: It's not misunderestimated.
posted by Eideteker at 7:47 PM on May 3

...anymore than Credit Card bills ever have billing errors in your favor.
posted by Fupped Duck at 7:57 PM on May 3

Whoops. Here's a Coral Cache link of the .PDF.

loquacious,

I'm sorry that we're not making progress fast enough for you at Harper's Magazine, where I'm the editor in charge of the website, and that you disagree with our policy on copyright and the web. Hell, I disagree with that policy often enough except it's part of my job to enforce it. Now, on Saturday night I get to shoot off lots of emails, figure out if there's a way to get Coral to take down copyrighted material (great, their FAQ is busted), and dig up the C&D and the lawyer's address. And my long-term, steady-as-she-goes mission to bring things out from behind the paywall? Ah well. Two steps back.

Who knows, maybe it's all some big mixup with The Big Picture blog. That has happened in the past; I'd be glad if that was the case.

I don't know how that happened.

Ha ha ha ha FUCK FUCK FUCK FUCK FUCK FUCK FUCK FUCK this is why we can't have nice things. I know this should be in MetaTalk but I'm cranky NOW.
posted by ftrain at 8:36 PM on May 3 [7 favorites]

ftrain, is it also part of your job to make water not wet? I'm just trying to get a handle on how many impossible things you've agreed to do to get a paycheck.
posted by sdodd at 8:50 PM on May 3

In before the Cease & Desist.
posted by Avenger at 9:12 PM on May 3

Among other things, these changes keep Social Security checks 70% lower than they would otherwise be.

Well thank God for that. Social Security was destined from its conception to become a Ponzi scheme, and the less we have to pay to perpetuate this fraud, the better.
posted by ZenMasterThis at 9:22 PM on May 3

and ftrain? THANK YOU! Really, thanks!

Oh man, I have been a big 'inflation never went away' proponent since I was, geez, 19? It would be awesome to see a freebie site that did nothing more than chuck out the 'corrections' and publish straight up revisions to the nonsense that we've seen regurgitated into the press for my entire adult life.
posted by mwhybark at 9:40 PM on May 3

Hey, guys?

"Information wants to be free" is a stupid idea when applied to content of high creative and analytical value. It only works when applied to simple things that could be created by anyone.

Pay the money if you want to read the article.
posted by sonic meat machine at 9:44 PM on May 3