Lowering Standard of Living by Design · Dec 28, 05:48 PM
Distortions in the way inflation is calculated contributed to today’s financial mess and the 2000-02 tech crash. Unless the problem is fixed, you can count on another crisis ahead.
So says Jim Jubak. It’s all about the CPI, or Consumer Price Index and some “statistical flimflam” used by the Bureau of Labor Statistics to make inflation smaller than it really is by using “Hedonic quality adjustments” to measure changes in the value of the product over time. So, a car today might cost three times what a typical car cost in the ’60s, but it’s safer, more fuel efficient, and it generally goes where you steer it—so it has more value than a ’60s car. In the end, the government argues, a car today doesn’t really cost three times as much because its value is more. So there’s little inflation and they don’t need to raise interest rates or make bigger Social Security payments.
Of course, how much value is it to people to have a safe car if they don’t crash it? How much does extra engine efficiency add to value? Yes, people buy those idiotic SUVs because some moron is shown tearing up a desert going 130 miles per hour over the rocky and dusty roads, yet when these consumers cross that little dip in the road in front of their driveways they always slow down to less then a half mile per goddam hour because they are quaking in their boots worrying that their poorly made “car” will fall to bits if they go any faster over that quarter inch dip. So where’s all that extra “value” that they show in the tee vee? Value is subjective, you see.
The problem doesn’t end there, of course.
In the 1990s, the government also started to include substitution pricing in its inflation measure. In this adjustment, government statisticians assumed that if the price of something went up, people would use less and would substitute a less costly product or service. So when steak went up in price, consumers might buy more pork or chicken.
Yippee! There’s no inflation because we’re all eating a monomolecular coating of peanut butter on Wonder Bread instead of real food! Gosh, isn’t that sweet!
So where do we go from here?
Anyway, read the article. It’ll make you spit up a gizzard, or whatever steak substitute you’ve been gnawing on.
Fake inflation numbers masked crisis
— Guido Veloce
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