Economist John Williams is interviewed [site declined to let Mises.org link on grounds of copyright, or something -- ed.] [and the same for the PDF that was once linked here -- ed.] about his research (available on his web site, [which is also no longer linked because the site manager refused to grant permission for "several weeks" -- ed.] Shadow Government Statistics.
The basis of his research is the tracking of government statistics using their earlier definitions before politically convenient modifications were introduced. The headline CPI, to take one example, has been redefined a number of times, always to produce a lower measured rate of inflation. Some of the modifications included accounting for the substitution of lower-priced goods when some goods increase in price, removal of food and energy, the use of imputed owner-equivalent rents rather than home prices, geometric weighting rather than arithmetic weighting, and “hedonic” price adjustments to account for improvements in quality. Williams explains these changes in more detail and why they produce a lower number.
While the central bank debases the currency, it is certainly in their interest to lie about the extent to which they are doing it. One frequently reads speeches by central bankers stating that “inflation is contained”, “we have won the fight against inflation”, etc. But according to Williams’ measure, the CPI-as-measured-during-the-Carter-administration is now around 8%. If the stock, bond, or real estate markets believed that inflation was now 8%, there would be serious dislocations.
[this post was once continued but no longer is at the request of the site link, pending "several weeks"-- ed.]
{ 13 comments }
Government inflation statistics really tick me off. Why can’t they just say “the inflation rate is [number of bills we printed divided by existing bills]?” Oh, that’s right, because then people might wise up.
They can’t say how many bills they have printed because they have no idea. The banks create the money for them, then later come to collect bills as they are needed.
What ticks me off ‘hedonic’ adjustments is that the government dishonestly negates the effects of its monetary inflation by imputing the additional value added by the entrepreneur’s efforts, as if the government was responsible for that added value.
What I find confounding is that investors (e.g. bond traders) seem to rely on the bogus CPI numbers instead of incorporating the less-bogus numbers cited in this entry. Certainly professional investors are known for going to great time and expense to acquire better information.
Is this a demonstration of the sales prices being driven by the buyers who have the rosiest view of things or is there something else going on?
Saul,
I don’t think you can put all bond traders into one lump group. I also believe that trading reactions on a short-term basis for any economic numbers are really just an opportunity by pro-traders to wipe amateurs out of the markets.
Further, remember that when the Fed keeps short rates lower than long rates, there is tremendous temptation for arbitrage between long rates and short rates which results in downward pressure on long rates–regardless of what CPI measure is used.
site declined to let Mises.org link on grounds of copyright, or something
I find it strange that anyone can deny a link- rather like insisting that no one tell anyone else that you exist. Sort of out of your hands, isn’t it?
The interview is to be found readily by using this link to Google’s cached copy. That’s how it goes, I suppose.
It was very strange indeed. I certainly had the feeling that I was dealing with someone very confused or inexperienced in web matters. Actually the whole thing was so ridiculous that it was laughable.
What is the $%^& point of having something published if you aren’t allowed to recognize its very existence, let alone read it?!?!
Ugh, publishers are lawyers in disguise. Time for a ‘good start’ (following a joke on the subject).
CPI inflation sends a limited message to the market, which combined with other factors, may help investors. … It’s like politicians telling you they reduced delinquency last year: You may know that in your neighbourhood it’s still not safe to send grandma alone to do the groceries but it’s still useful because you figure that in some (other) areas you better not speed on the highway like you did before else you’ll get a ticket. Adding apples and oranges, that’s the fundamentals of inflation index anyhow.
Any update on when this will be back?
I meant to read it later, and now I come and it’s not here?
Tracy
I was never confident about the statistics presented by the government.
Not everyone is going to believe what government says.
Ola:
Most Americans cannot identify the ground under their feet nor their status on that ground.
Amerika , is ruled under military occupation, with War and Emergency Powers
http://www.atgpress.com/inform/wep033.htm
America is still a British Coloney
http://www.atgpress.com/kifap/indexjm.htm
I reccon, dats why THEY created public schooling, ta keep em dumb.
Ignorance and appathy, are the real enemys, Ok
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