What is wrong with the US economy?

[Art]

The British Finance Minister, Alistair Darling has just given an astonishingly bad economic forecast. He believes the world economy is in it's worst state for 60 years and that Britain must ready itself for a severe economic downturn.

The full interview was given to the Guardian newspaper which has not yet made it available online though the BBC has released a version of it which although written in a more British-centric fashion than the original piece, wherein Darling blamed Britain's woes on the 'dire world credit situation' and spoke of the world being in it's worst economic state for 60 years, it still provides the general gist.

Darling warns of economic crisis

The UK is facing its worst economic crisis in 60 years, Chancellor Alistair Darling has admitted.

He told the Guardian newspaper that the economic downturn would be more "profound and long-lasting" than most people had feared.

http://news.bbc.co.uk/2/hi/business/7589291.stm

Stanley Fisher, governor of the Bank of Israel and a former IMF official, also spoke a few days ago of the worst economic conditions since WW2 and even China's growth is disappearing rapidly. http://news.yahoo.com/s/bloomberg/20080827/pl_bloomberg/a7ogrdxkxse

The feeling is with the election looming neither candidate wants to raise the potential financial disaster looming as it is a turn off for voters but analysts are very concerned at the lack of a plan from either camp to handle the crisis

 

[aquitaine]

I haven't been around too much lately so this is kind of a late responce, but here it goes:

I'm really surprised anyone here actually believes government statistics about inflation and unemployment.

First off, about inflation: The way the government calculates inflation now is not the same way it was 30 (or even 10) years ago. The new system uses something called "hedonics", Read more about it here. On top of that the official numbers don't include food and energy, which is grossly misleading because that assumes that people don't pay for food, fuel, and electricity. But those three things have a ripple effect because they make other things more expensive as well. For example, because of rising materials costs (thanks to a combination of the aforementioned inflation factors and a depreciating dollar) Dow Chemical made an across the board price hike of 20%, on top of a similar move a few months ago by the same amount.
And misleading inflation figures can also cause misleading GDP growth statements, since real growth is the leftover between growth minus inflation. So if the inflation numbers or borked (which appearently they are), then your GDP growth numbers are going to be borked as well. According to several private economists we've been in a recession since the end of last year.

As for unemployment: Here's a good article that sums up the land of make-believe that the BLS is living in, There's a great many more out of there though.

 

[russ_watters]

One of those two statements you just made is wrong. Go have a look at the data and figure out which one it is.

Let me help, though: Look at the http://www.census.gov/hhes/www/income/histinc/h01AR.html (adjusted for inflation, naturally) for the top of the fourth quintile.

You switched tables on me, Gokul. That's dishonest. The table you linked is the limit of each bracket - the dividing line. The table I linked is the average of everyone in each bracket. For the bottom 4 quintiles, you know everyone is between the dividing lines for the one below and the one above - for the people in the top quintile, you know everyone is above that dividing line --- some of them very far above.

For the upper quintile, the air is a lot thinner up there (the data is less linear), and what the data shows (it is interesting, even if you are being deceptive) is that the somewhat rich did better - only the super-rich did a lot worse. Some of those people in the top 5% must have lost a huge fraction of their income to drive the average down so far.

PS: While you're at it, also check out the (adj) http://www.census.gov/hhes/www/income/histinc/h03AR.html for the fourth fifth.

That's the table I posted and it looks like I missed that - the 4th fifth went up by .08% from 2000 to today, the only to increase among the five brackets. I got one wrong.

In any case, you're looking at the data now - Yea, good for you!

 

[russ_watters]

The British Finance Minister, Alistair Darling has just given an astonishingly bad economic forecast. He believes the world economy is in it's worst state for 60 years and that Britain must ready itself for a severe economic downturn.

That's so typical. The article makes that claim promenantly and while it is chock full of quotes, they don't have a quote to back up that primary claim! So what did he actually say?

Stanley Fisher, governor of the Bank of Israel and a former IMF official, also spoke a few days ago of the worst economic conditions since WW2 and even China's growth is disappearing rapidly. http://news.yahoo.com/s/bloomberg/20080827/pl_bloomberg/a7ogrdxkxse

The feeling is with the election looming neither candidate wants to raise the potential financial disaster looming as it is a turn off for voters but analysts are very concerned at the lack of a plan from either camp to handle the crisis

That article is, quite frankly, laughable (why do I care what a crackpot trying to sell a doomsday book thinks?). The US economy is weak right now, for sure, but where can I find stats that compare to 1992, much less the 1970s or the 1930s? With GDP growth at 3% last quarter, and unemployment under 6% you may have noticed that no one is using the word "recession" anymore. Looking back, cynical economists and pundits are going to have a hard time arguing that a recession happened, much less that we are in an economic catastrophe that is in the top five in the history of the country.

 

[aquitaine]

but where can I find stats that compare to 1992, much less the 1970s or the 1930s? With GDP growth at 3% last quarter, and unemployment under 6% you may have noticed that no one is using the word "recession" anymore

See my post above about that. The reason you can't compare them is because the measurement standards that they use now are borked.

 

[russ_watters]

I'm aware that the government keeps changing the standards, but that's necessessary and I think the fact that the different pieces of data still track against each other bears out that the adjustments in the calculations are correct.

Remember, the economic crises of the '30s and '70s manifested physically with things like gas lines and investment bankers jumping out of windows.

Yes, some things, like cars, are more expensive today as a fraction of your income than they used to be. But at the same time, things like computers haven't just gotten cheaper, they actually didn't even exist 30 years ago. What you and the writer of that article are actually arguing is that the standard of living is going down, depsite government evidence saying it is going up. But I actually argue the opposite point: the goal posts are being moved too far in the other direction and today we allow someone who owns a tv with satellite connect, an air conditioner, and a microwave to be considered "poor" despite the fact that at some time in the past, those niceties didn't even exist and at some time slightly more recently, they were so expensive only the rich could afford them.

 

[Art]

Maybe the world will avoid a major recession but the current indications do not look very good.

Fundamentally the strength of the economy is based on people's trust in the financial sector. This trust is rather shaky at this time and the collapse of a major bank could be the final straw

Slowdown in US consumer spending

US spending rose by just 0.2% in July, official figures have shown, as the effects of a government package designed to boost growth wore off.

A separate survey, also released on Friday, said US consumer sentiment was at a 5-month high but warned of tough times ahead.

Personal income fell 0.7% in July, the sharpest fall since August 2005.

Friday's data provides further evidence of the weakness of the US economy after earlier reports of strong US growth.
snip
If the impact of rising prices is factored in, spending actually fell by 0.4% in July, the weakest showing for inflation-adjusted spending in more than four years, the official figures showed.

Inflation, as measured by the rise in personal consumptions index, rose 4.5%, the sharpest rise since February 1991, the government said.

The mix of rising prices and faltering growth presents policymakers with a dilemma, making them reluctant to raise rates to combat inflation, in case the economy slows further.

http://news.bbc.co.uk/2/hi/business/7588126.stm

US bank 'to fail within months'

The global financial crisis is set to get worse, with a large US bank likely to collapse in the next few months, a former IMF chief economist has warned.

Kenneth Rogoff's comments came as shares in Fannie Mae and Freddie Mac sank on a report that the home lenders would, in effect, be nationalised.

Despite hopes that the US economy had turned the corner, Mr Rogoff claimed it was "not out of the woods".

"I would even go further to say 'the worst is to come'," he said.

"We're not just going to see mid-sized banks go under in the next few months," said Mr Rogoff, who held the IMF role between 2001 and 2004.

"We're going to see a whopper, we're going to see a big one, one of the big investment banks or big banks."

http://news.bbc.co.uk/2/hi/business/7569903.stm

US inflation fastest since 1991

US prices rose by 5.6% in the year to July, the fastest inflation rate for more than 17 years, figures show.

The rate of inflation was much greater than economists had predicted, driven higher by the 30% increase in energy prices during the period.

Food costs were 6% higher than a year earlier, the figures showed.

The price rises are squeezing consumers further. Inflation-adjusted average weekly earnings fell by 3.1% in July compared with a year earlier.

http://news.bbc.co.uk/2/hi/business/7561092.stm

 

[aquitaine]

I'm aware that the government keeps changing the standards, but that's necessessary and I think the fact that the different pieces of data still track against each other bears out that the adjustments in the calculations are correct.

Considering that it was changed in the late 90's I would hardly call it necessary. The problem is that the government can use this new method to manufacture low inflation, even when prices are going up and up and up. And still, the official inflation no longer includes food and energy, while the previous measurements from 10+ years ago did, which makes this whole thing seem like comparing apples and oranges.

Besides, it isn't just the inflation figures that are out of whack, it's also the unemployment . In addition to that I'll share some anecdotal evidence: In 2003 I left Portland (Oregon) for a couple of years. Back then once in a while you'd see a homeless person with a handmade cardboard sign standing on a street corner near an intersection, but not too often. In '05 when I came back to visit my folks before moving to China, I was shocked to see them at most of the intersections we drove past, and what was rather eyecatching was the people doing this, for the most part, were young (they looked like they were in their 20's) and were wearing clothes that were in good condition, almost like they were thrown out a few before I say them. And this was when nothing was wrong with the economy? I hate to imagine what it is now.

Remember, the economic crises of the '30s and '70s manifested physically with things like gas lines and investment bankers jumping out of windows.

Again, apples and oranges. The gas lines were caused by an embargo, caused by a political problem that had economic consequences. In 1930 our banking system had completely collapsed, and we aren't there yet. It's still too early to tell if our current crises will devolve to that state. Unlike during these previous financial crises ('30, '89, etc) that accounting system the banks use now is actually the same kind that Enron used. They hide their debts and use mark to market accounting to inflate their profits. There was supposed to be a new federal accounting standards amendment to ban this practice for good and force them to put all this in the open, but because of this crises the implementation was pushed back from january 2009 to january 2010, so we won't know for a year and a half how sick our banks really are.

What we're seeing now is a dead cat bounce, in a while it will get much worse than it is now, and then we will see the true extent of the recession.

What you and the writer of that article are actually arguing is that the standard of living is going down, depsite government evidence saying it is going up.

So you're trusting the government even though it is blatantly obvious that their statistics for the last 10 years are untrustworthy?

But at the same time, things like computers haven't just gotten cheaper, they actually didn't even exist 30 years ago.

Wrong, the Apple 2 was released in '77, 31 years ago. Even before it there were computers, although the home models at the time were targeted at the DIY type. Even so there were still plenty of mainframes and minicomputers lumbering about the corporate landscape.

But I actually argue the opposite point: the goal posts are being moved too far in the other direction and today we allow someone who owns a tv with satellite connect, an air conditioner, and a microwave

My parents were middle class and couldn't afford either an air conditioner or satellite TV. Did have a nice house though.

But really, the cost of appliances has gone down in real dollar terms. My microwave does the exact same thing as its ancestor 30 years, it just costs less. Poverty is kind of relative from place to place, with $10,000 a year you could live extremely well in China, but you'd be on food stamps in America. Why? The standards of living are much different (for now :P). This is why the definition of poverty is based on income, not whether you can afford a crappy microwave. If you save nothing you might be able get a sat TV, but then again you are only screwing yourself by having to live in a terrible neighborhood.

those niceties didn't even exist and at some time slightly more recently, they were so expensive only the rich could afford them.

Which is a nice DEflationary effect, which is included in the inflation calculations, even the old way. The problem is that costs for many other things like housing and healthcare have been more than enough to offset this.

EDIT: And here's another nice link that delves into the Labor Departments fuzzy numbers:
http://seekingalpha.com/article/71493-creative-math-from-bls-jobs-report

 

[Gokul43201]

That's the table I posted and it looks like I missed that - the 4th fifth went up by .08% from 2000 to today, the only to increase among the five brackets. I got one wrong.

From the two tables I've linked, it is clear that adjusted incomes rose a little from 2000 at the 70 percentile and the 80 percentile levels, but not at the 60 percentile or 95 percentile levels. If you do a rough linear interpolation of fractional change in adjusted incomes, you find that about 20% of households near the top saw an increase.

You switched tables on me, Gokul. That's dishonest. The table you linked is the limit of each bracket - the dividing line.
...
In any case, you're looking at the data now - Yea, good for you!

Umm...I've seen the data long before I said anything. I posted both links, switched no tables, and was dishonest at no point. Thanks.

And given the turn of events, it's funny how this went. This, from an earlier post.

In any case, Gokul, the data is easy to read and glean whatever particlar data you want out of it. Why not just look at it instead of saying thing sthat are factually wrong and easily checked?

Glad I could convince you to take your own advice.

 

[Gokul43201]

Edit: I meant 90 percentile, not 95 - previous post, line 2.

 

[wildman]

Here is an interesting website discussing bad government stats. Keep in mind the author of the website is a conservative Republican.

http://www.shadowstats.com/

 

[ramsey2879]

Three points If the ecomony is is such good shape
1) why can't we see to it that everyone even the poor get a decent education? That also means providing enough resorces so that our children can attend school without having to worry about gangs or drug pushers occupying school property, and the surrounding neighborhoods.
2) why can't the minimum wage be adjusted yearly to account for inflation just as are the pensions of federal employees?
3) why who are so many houses being forclosed every month in your own neghborhood. See http://www.foreclosure.com/ and type in your state and/or zip code.

 

[quadraphonics]

On top of that the official numbers don't include food and energy, which is grossly misleading because that assumes that people don't pay for food, fuel, and electricity. But those three things have a ripple effect because they make other things more expensive as well.

It's exactly because of said ripple effect that it is NOT misleading to remove food and energy prices from inflation figures. It is not based on the assumption that people don't pay for food or energy, but on the assumption that *everyone* pays for them *all the time*, and so any sustained change in their prices will show up in the cost of all other goods. The reason for removing them from the calculation is that they are both highly volatile, and so would result in meaningless inflation numbers (it would be up 20% one month, then down 15% the next, and so on, making it useless as a basis for policy). It is far better to have their effects "dampened" through the pressure they exert on the price of everything else.

 

[turbo]

It's exactly because of said ripple effect that it is NOT misleading to remove food and energy prices from inflation figures. It is not based on the assumption that people don't pay for food or energy, but on the assumption that *everyone* pays for them *all the time*, and so any sustained change in their prices will show up in the cost of all other goods.

I disagree, because the prices of food and energy fall disproportionately on the lower-paid people. Unless the wealthy WANT to spend a whole lot on food and energy, it doesn't cost a wealthy person any more in absolute dollars to eat a healthy diet than a poor person, nor does is cost them significantly more for gasoline to commute to work, etc. Removing price-volatile necessities from the mix is just another way of saying "everything's OK, so quit complaining".

 

[quadraphonics]

I disagree, because the prices of food and energy fall disproportionately on the lower-paid people.

Which has what to do with inflation? This is not a question of social policy, but of basic economics and statistics. Volatile indicators are effectively useless as guides to what's actually happening in the economy, and so as bases for policy. A monetary policy based on such an indicator would be grossly inefficient, and so increase unemployment substantially, which would certainly hurt the poor (and everyone else).

As an example, due to the big drops in fuel prices over the past month, an inflation indicator that included them would say that inflation is down by a huge margin right now and so, by your logic, the poor are enjoying a huge benefit.

 

[turbo]

The point is that inflation hits people with low incomes or fixed incomes MUCH harder than the wealthy or the middle-class. Inflation numbers that are adjusted to remove this discrepancy are inaccurate because they do not reflect the effects of inflation of the portion of the population least likely to be able to absorb the pain. People whose wages have stagnated or fallen over the years in terms of inflation-adjusted dollars are taking it in the neck. Likewise, people who are on fixed incomes and whose cost of living adjustments are suppressed by dishonest inflation reporting are taking an additional hit, because COLA's are cumulative.

 

[quadraphonics]

The point is that inflation hits people with low incomes or fixed incomes MUCH harder than the wealthy or the middle-class.

That is simply the definition of "poor." It has nothing to do with inflation as such.

Inflation numbers that are adjusted to remove this discrepancy are inaccurate because they do not reflect the effects of inflation of the portion of the population least likely to be able to absorb the pain.

First of all, the removal of food and energy prices does not in any way mask the effects of poverty. It may be that in some months the food and energy bills go up by more than the CPI, and in other months by less, but in the long run they match up, and that is the point. A functional monetary policy needs to be based on long-term, systemic factors, not the weekly fluctuation in the price of a load of bread. Keeping people fed during volatile periods is a question of social policy, not accounting. Second of all, the point of an inflation indictor is exactly that: to indicate how much inflation has occurred. It is emphatically not a political instrument for spotlighting the social conditions of the poor, nor should it be.

And, again, including food and energy costs would have resulted in a negative inflation number for recent months, and so, under your logic, their removal is actually *hiding* the fact that the poor have it much *easier* lately. You seem committed to the idea that there is some systemic underestimation of cost-of-living increases, which is not the case. There is simply reduced volatility, and delay.

People whose wages have stagnated or fallen over the years in terms of inflation-adjusted dollars are taking it in the neck.

Yes, and using a volatile measure of inflation won't change that. It will simply make it impossible to pursue a functional monetary policy, and so cause *everyone* to take it in the neck, especially the poor.

Likewise, people who are on fixed incomes and whose cost of living adjustments are suppressed by dishonest inflation reporting are taking an additional hit, because COLA's are cumulative.

It's not dishonest, it's simply lagged. All filters exhibit latency; it is the price of their functioning. In this case, the function is important, as it results in a useful measure of inflation, which in turn is crucial to functional monetary policy. The downside is not that the overall, long-run inflation figures are wrong (far from it), but that a given person's monthly expenses are necessarily more volatile than the CPI, as they obviously include food and energy. And, of course, the poorer you are, the larger a portion of your expenses food and energy represent, and the fewer reserves you have to get through volatile periods. But the answer to that is not to break the CPI by making it volatile (and in the process imposing partisan social ideology onto government accounting, not to mention boosting unemployment), but to pursue social policies that enable people to deal with said volatility, or reduce it in the first place. A separate, volatile deflator that does include food and energy prices could well be useful here, but it should never replace the CPI, which is a cornerstone of monetary policy.

 

[turbo]

But the answer to that is not to break the CPI by making it volatile (and in the process imposing partisan social ideology onto government accounting, not to mention boosting unemployment), but to pursue social policies that enable people to deal with said volatility, or reduce it in the first place. A separate, volatile deflator that does include food and energy prices could well be useful here, but it should never replace the CPI, which is a cornerstone of monetary policy.

You miss the point. Removing staples with volatile prices from the inflation numbers inserts right-wing (not conservative - there IS a big difference) ideology into economic reporting to suit the regressive fiscal policies of the wealthiest. People who have presided over the transfer of money from the lower classes to the wealthy for decades.

 

[quadraphonics]

You miss the point. Removing staples with volatile prices from the inflation numbers inserts right-wing ideology into economic reporting to suit the regressive fiscal policies of the wealthiest.

This is quackery.

 

[turbo]

This is quackery.

Please give specifics, not cheerleading. If you can show how deleting the inflationary pressures of staples with volatile prices HELPS the lower classes and hinders the wealthy, I'll kiss your *** in front of town hall at noon and give you an hour to draw a crowd. Cheerleading for neo-cons is pretty popular these days, but it doesn't pay too much unless you are pulling down in the high 6-figures or more. Economics is not a zero-sum game, and nobody but the most ill-informed or dishonest will present economic arguments as such.

 

[quadraphonics]

Please give specifics, not cheerleading. If you can show how deleting the inflationary pressures of staples with volatile prices HELPS the lower classes and hinders the wealthy,

I've already twice pointed out that the CPI is currently dramatically overstating the growth in monthly expenses for poor households, because energy prices are currently dropping, even as the CPI remains positive. I've also pointed out that a volatile CPI would render monetary policy inefficient, and so increase both unemployment and inflation, which would hurt the poor most of all. I suggest that you respond to these salient point before issuing calls for specifics. Your failure to do so thus far has me convinced that you don't have much idea what you're talking about, or interest in discussing it honestly.

Furthermore, I never said that the current composition of the CPI is structurally biased towards the poor. The point is that it is not structurally biased towards any socioeconomic group *at all*. In the long run, it does reflect any sustained increases in food or energy costs. Your response has been to allege some vague, unsubstantiated conspiracy to systematically underreport inflation as a means of reducing support for socialist policies. Please don't insult me by pretending that the fact deficit is on my side of the debate.

I'll kiss your *** in front of town hall at noon and give you an hour to draw a crowd. Cheerleading for neo-cons is pretty popular these days, but it doesn't pay too much unless you are pulling down in the high 6-figures or more. Economics is not a zero-sum game, and nobody but the most ill-informed or dishonest will present economic arguments as such.

Sorry, was this supposed to disuade me that you're a quack?

 

[turbo]

OK, anybody that suggests that current economic reporting is inaccurate is a quack, with NO substantiation on you part. That kind of argumentation falls into the Peewee Herman "neener, neener, neener" category. Can you refute anything that I have posted?

 

[quadraphonics]

OK, anybody that suggests that current economic reporting is inaccurate is a quack,

No, just people who suggest that it is a conspiracy to undermine socialism, without any substantiation at all. Most people who complain about the composition of the CPI are simply ignorant of how it works. Anyway, there is no shortage of economics reporting that emphasizes the plight of poor, or blue-collar families. Indeed, this is pretty much the entirety of economic reporting in many mass media. The CPI is a technical measure for use by people trained in economics; that it could potentially be abused by oligarchy-friendly propagandists in certain transient circumstances (i.e., when food and fuel are increasing faster than the CPI) is not a problem with the CPI. It's a problem with freedom of speech. Fortunately, there are no shortage of middle-class-friendly propagandists reminding us about food and energy bills and so counteract their influence.

with NO substantiation on you part.

Seems plenty substantiative to me. Exactly what does it take to substantiate a charge of conspiracy theory, besides demonstrating a willful obliviousness to relevant facts and conflicting explanations?

That kind of argumentation falls into the Peewee Herman "neener, neener, neener" category.

You mean, like calling someone a neocon cheerleader because they don't subscribe to your conspiracy theories?

Can you refute anything that I have posted?

I've already amply refuted the few factual elements of your posts, and reiterated these points repeatedly in the face of your continuing ignorance of them. Feel free to respond to them in a substantiative way, or to persist in ignoring them and issuing childish "you can't make me admit I'm wrong" challenges. But be aware that I have no particular interest in getting you to admit that you're wrong. It's sufficient for me to present a vastly more compelling argument.

 

[Art]

A key measure of a gov'ts aptitude is it's ability to manage inflation. It does not take a wild leap of imagination to think that the gov't just might want to portray figures that show it in the best light.

CPI stand for consumer price index. It is supposed to show how the average consumer's spending bill changes each month against a reference month. As the average consumer buys food, gas and electricity it seems remiss to leave them out.

 

[quadraphonics]

A key measure of a gov'ts aptitude is it's ability to manage inflation. It does not take a wild leap of imagination to think that the gov't just might want to portray figures that show it in the best light.

No it doesn't, and any number of banana republics have been caught doing so. But another key measure of a government's aptitude is its ability to maintain public confidence and so the ability to govern effectively. It does not take a wild leap of imagination to think that a government might not want to take such an illegal, easily-detected step.

CPI stand for consumer price index. It is supposed to show how the average consumer's spending bill changes each month against a reference month. As the average consumer buys food, gas and electricity it seems remiss to leave them out.

Actually, I've been using the wrong acronym: the CPI does include food and energy. It's the PCE (which is used by the Fed) that excludes them. But it makes little difference when you consider that the cost of food and energy is already factored into the price of everything else that they buy, in the long run. It takes energy to produce and distribute things, and labor to do it, who in turn demand wages that will cover their food and energy bills.

 

[wildman]

No it doesn't, and any number of banana republics have been caught doing so. But another key measure of a government's aptitude is its ability to maintain public confidence and so the ability to govern effectively. It does not take a wild leap of imagination to think that a government might not want to take such an illegal, easily-detected step.



Actually, I've been using the wrong acronym: the CPI does include food and energy. It's the PCE (which is used by the Fed) that excludes them. But it makes little difference when you consider that the cost of food and energy is already factored into the price of everything else that they buy, in the long run. It takes energy to produce and distribute things, and labor to do it, who in turn demand wages that will cover their food and energy bills.

The inflation figures have been low ever since Clinton changed the way they are reported. If one figured it in the same manner as it was figured during the Carter years, the yearly inflation rate would be about 12%.

 

[Art]

No it doesn't, and any number of banana republics have been caught doing so. But another key measure of a government's aptitude is its ability to maintain public confidence and so the ability to govern effectively. It does not take a wild leap of imagination to think that a government might not want to take such an illegal, easily-detected step.
Actually, I've been using the wrong acronym: the CPI does include food and energy. It's the PCE (which is used by the Fed) that excludes them. But it makes little difference when you consider that the cost of food and energy is already factored into the price of everything else that they buy, in the long run. It takes energy to produce and distribute things, and labor to do it, who in turn demand wages that will cover their food and energy bills.

So you should apologise to Turbo for your statement

you don't have much idea what you're talking about

when it now transpires everybody else was talking about apples whilst you were talking about oranges whilst calling them apples Your argument re volatility is especially confusing now as the published inflation figures are from the CPI index (or CPI-U to be pedantic) and also because although the PCE does not include your volatile elements it runs at a steady 1/3% point less than the CPI.

And please drop the hyperbole. Nobody is suggesting the gov't is doing anything illegal. They are perfectly entitled to construct their metrics any way they like but if people think they are doing so as a smoke screen then they are perfectly entitled to call them on it.

 

[mheslep]

The inflation figures have been low ever since Clinton changed the way they are reported. If one figured it in the same manner as it was figured during the Carter years, the yearly inflation rate would be about 12%.

Source? Rather, if you take some time to run that down you'll find otherwise.

 

[quadraphonics]

The inflation figures have been low ever since Clinton changed the way they are reported. If one figured it in the same manner as it was figured during the Carter years, the yearly inflation rate would be about 12%.

The estimated numbers I've heard run closer to 7%, but the point is that there are good reasons that the way inflation is accounted was changed. You're free to disagree with them, of course, but presumptions that they are necessarily invalid, absent some substantiating argument, are not particularly impressive.

 

[quadraphonics]

So you should apologise to Turbo for your statement when it now transpires everybody else was talking about apples whilst you were talking about oranges whilst calling them apples

That I used the wrong acronym does not have any bearing on my observation that turbo doesn't know what he's talking about.

Your argument re volatility is especially confusing now as the published inflation figures are from the CPI index (or CPI-U to be pedantic)

The CPI and PCE are both "published." Nowhere did anyone say they were referring to the CPI; the complaint was that "the inflation numbers" don't include food and energy. My arguments apply exactly to those numbers (i.e., the PCE). To the extent that complainers are referring to the CPI, they're simply mistaken. Either way, there is no basis for the complaints.

and also because although the PCE does not include your volatile elements it runs at a steady 1/3% point less than the CPI.

That difference has nothing to do with the volatile elements, and everything to do with differences in methodology. You can remove the volatile elements from *both* measures, and the difference remains:

http://www.bea.gov/papers/pdf/Moyer_NABE.pdf

They are perfectly entitled to construct their metrics any way they like but if people think they are doing so as a smoke screen then they are perfectly entitled to call them on it.

And I am perfectly entitled to call them on their total lack of substance in said charges, as well as the transparent political bias that motivates them. But go ahead and continue attempting to condescend to me if it makes you feel better.

 

[Jimmy Snyder]

The inflation figures have been low ever since Clinton changed the way they are reported. If one figured it in the same manner as it was figured during the Carter years, the yearly inflation rate would be about 12%.

Carter's Presidency ended in 1981. If the yearly inflation rate had been 12%, then prices would have risen more than 20 times. Did they? How much was a gallon of gas in 1981? How much was an ipod?

 

[Art]

That I used the wrong acronym does not have any bearing on my observation that turbo doesn't know what he's talking about.

You were talking about a different metric entirely. It isn't that you referred to the wrong acronym, your statements referred to an entirely different index created through an entirely different methodology and then you have the cheek to say other people don't know what they are talking about. You crack me up

You should note your attempts at obfuscation do nothing for your credibility.

The CPI and PCE are both "published." Nowhere did anyone say they were referring to the CPI; the complaint was that "the inflation numbers" don't include food and energy. My arguments apply exactly to those numbers (i.e., the PCE). To the extent that complainers are referring to the CPI, they're simply mistaken. Either way, there is no basis for the complaints.

The inflation figures published each month for the public's information and quoted far and wide are taken from the CPI index and in several of your posts above you yourself referred specifically to the CPI and no amount of weasel wording by you will change that simple fact. Showing other folk also made errors doesn't negate yours and I would quite happily take them to task for it too if I wasn't spending so much time trying to persuade you to admit you were wrong

That difference has nothing to do with the volatile elements, and everything to do with differences in methodology. You can remove the volatile elements from *both* measures, and the difference remains:

YOU are the one who said the volatile factors are removed from the CPI inflation figures to negate wild swings. Now that you know the CPI contains these volatile elements where are the wild swings you spoke of?? Your core argument re the gov't removing volatile elements from the widely published CPI inflation figures for the sake of stability has now been proven to be just plain nonsense.

And I am perfectly entitled to call them on their total lack of substance in said charges, as well as the transparent political bias that motivates them. But go ahead and continue attempting to condescend to me if it makes you feel better.

Asking you to refrain from creating strawmen through hyperbole is not condescending to you. And you are indeed entitled to call people on their mistakes but not by using erroneous information to refute their arguments and then complaining when you are called on it.

 

[Art]

Source? Rather, if you take some time to run that down you'll find otherwise.

The Boskin commission which made the recommendations to change how the CPI was formulated proceeded from the premise that the CPI at the time overstated inflation by between 1.1% and 1.6%. It seems reasonable to assume that the reformulated metric reduced reported inflation by that amount.

I have no opinion on the validity of their assertion that inflation was being over stated other than to note lower inflation figures help companies, as wage demands are based on the CPI (affecting 80 million people whose wage income is directly linked to the CPI) and the gov't, as pensions and social service payments are geared to the CPI (another 52 million people). It is fair to say that the adjustments made were to the serious detriment (due to the compound effect) of the less well-off and that no other major economic power copied their changes.

 

[quadraphonics]

You were talking about a different metric entirely.

Nonsense. I responded to complaints about "inflation numbers that don't include food and energy" by explaining why such items are excluded. I mistakenly referred to this index as the CPI, rather than the PCE. If the complainers were referring to the CPI, then they are simply wrong about exclusion of food and energy. If they're referring to the PCE, then my explanation applies. It's simply a matter of using an incorrect acronym and, in either case, the complaints are unfounded.

The inflation figures published each month for the public's information and quoted far and wide are taken from the CPI index and in several of your posts above you yourself referred specifically to the CPI and no amount of weasel wording by you will change that simple fact.

Which is why I came out and honestly admitted that I was using the wrong name. The only reason you are even aware of the different indices is because I have the integrity to double-check my statements and admit when I make an error. In this case the error is insignificant. Your attempts to exploit my honesty as a means of attacking me are both unimpressive and petty.

Showing other folk also made errors doesn't negate yours and I would quite happily take them to task for it too if I wasn't spending so much time trying to persuade you to admit you were wrong

Again, the only reason you are even aware of the trivial error I made is because I proactively found and admitted it. What you're doing is trying to exaggerate the magnitude of this error and mischaracterize my statements.

YOU are the one who said the volatile factors are removed from the CPI inflation figures to negate wild swings. Now that you know the CPI contains these volatile elements where are the wild swings you spoke of??

See page 6 of http://www.bls.gov/cpi/cpid0807.pdf

Your core argument re the gov't removing volatile elements from the widely published CPI inflation figures for the sake of stability has now been proven to be just plain nonsense.

No, it is exactly what is done with the PCE, which is also widely published, as it is one of the two bases for monetary policy. For that matter, there is a version of the CPI with the food and energy removed, for the exact same reasons. The only mistake was the name of the acronym used. The argument was presented in reference to complaints about "inflation numbers with food and energy removed," and it applies to any such numbers exactly, whether they are the PCE, or the food-and-energy-discounted-CPI (which is also widely published).

And you are indeed entitled to call people on their mistakes but not by using erroneous information to refute their arguments and then complaining when you are called on it.

Nobody called me on erroneous information. I located my own errors, and proactively admitted to them. Why wouldn't I, when it was a trivial error of using the wrong acronym? None of the substance of my argument is erroneous;

 

[quadraphonics]

The Boskin commission which made the recommendations to change how the CPI was formulated proceeded from the premise that the CPI at the time overstated inflation by between 1.1% and 1.6%. It seems reasonable to assume that the reformulated metric reduced reported inflation by that amount.

It is not necessary to assume anything when one has access to Google and a few minutes of time:

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=910843

Recent research at the NBER indicates that the changes stemming from the Boskin commission reduced reported inflation by around 0.6%, and that there is still around 1% overestimation of inflation in the CPI-U.

I have no opinion on the validity of their assertion that inflation was being over stated other than to note lower inflation figures help companies, as wage demands are based on the CPI (affecting 80 million people whose wage income is directly linked to the CPI) and the gov't, as pensions and social service payments are geared to the CPI (another 52 million people).

There is no meaningful causal link between the CPI and the wages paid by private companies. Wage demands are linked to how much workers are making, how far that money is going, and how much more they think they can get out of their employers. If the CPI is underestimating inflation, then it is also underestimating worker pressure for wage increases. It is only a small subset of workers with contractual cost-of-living increases that are directly affected by the CPI. Even if wages are kept artificially low (something you have not provided any evidence for), this does not necessarily help companies at the expense of "workers," in that, in a competitive environment, the savings in wages are passed on to consumers in the form of lower prices. Which is to say that, to the extent that wages are lower, they also go farther. Said another way, systematic increases in wages result directly in compensatory inflation.

Likewise, monkeying with the CPI has little effect on popular support for economic policies for the exact same reason: people know exactly how their monthly expenses change over time, and no pronouncements from the BLS or NBER are going to change their minds about that.

Moreover, there are numerous ways in which underestimation of inflation (were it occurring) would help workers, the poor, etc. Specifically, systematic underestimation of inflation would lead to systematic under-setting of interest rates, which would in turn systematically decrease unemployment, make it easier to purchase houses, etc.

It is fair to say that the adjustments made were to the serious detriment (due to the compound effect) of the less well-off

Hardly. The only group whose income can be directly tied to the CPI are retirees, which are hardly synonymous with "the less well-off."

and that no other major economic power copied their changes.

That's because most other major economic powers already had mechanisms included in their inflation accounting to adjust for the types of bias discussed in the Boskin report. Those that did not, we should note, tend to make up the difference by systematically setting lower inflation targets than are used in the United States.