March 22, 2008...7:42 am
THE REAL INFLATION RATE
Ever wonder why the government keeps telling us there’s no inflation out there yet your eyes tell you that prices are rising at an incredible rate?
Jerome Corsi tells us it’s because the government is lying to us. Surprise, surprise. It’s the old saw: “Who are you going to believe? Me or your own eyes?”
Why is it that the federal government says the U.S. has virtually no inflation – less that 2 percent – but everything keeps getting more expensive, especially food and gasoline?
Today, gasoline is well above $3.00 a gallon. “Sticker shock” comes not just from the cost of buying a new car, but from the $50.00 or more it costs to fill up the gas tank, even if you don’t own an SUV.
You’re lucky if $100 buys two bags of groceries at the supermarket, even if you avoid the filet mignon.
Take a family of four to a movie theater to see a first-run film and it can cost $75 even in the Midwest. You will shell out somewhere between $6 and $9 just for one adult ticket, and you can end up spending somewhere between $65 to $75 total if all you do is spring for the luxury of popcorn and sodas.
Still, the U.S. Department of Labor’s Bureau of Labor Statistics reported in August 2007 a remarkably low inflation rate of only 1.7 percent.
Solving this riddle – that is, why everything costs so much when the government tells us inflation rates are low – is simple:
The Bureau of Labor Statistics lies.
Inflation numbers are intentionally manipulated to keep cost-of-living numbers low.
Why is the government lying? Two reasons. First, if the BLS reported the real inflation statistics, it would be forced to raise interest rates to levels that Alan Greenspan, former chairman of the Federal Reserve, says haven’t been seen since the days of Jimmy Carter. Second, it’s saving the government money in cost-of-living payments to recipients of Social Security.
In other words, the government is cheating senior citizens out of necessary COLAs, all the while cooking the books to hide the inflation that makes Grandma and Grandpa’s Social Security check not go as far as it should.
As Corsi says:
As a result, retirees quietly lose billions of dollars that should have been paid out, had the cost of living numbers been reported honestly. But the government saves the expense.
And just how does the government cook the books to hide the real inflation? Simple: it lies about the Consumer Price Index. The CPI was put into place in the 1920s to monitor the cost of goods and services. During the Carter administration, the decision was made to remove high-cost items like food and fuel prices that would drive the CPI higher.
Now, when the Federal Reserve sets interest rates, it bases interest rates on the core inflation rate; in other words, inflation without including the cost of food and fuel. That’s how the government can tell you the inflation rate is low all the while your eyes can check the prices at the supermarket and at the gas pump and can tell you there is inflation.
According to the Forbes “Investopedia,” core inflation excludes items such as food and energy because food and energy “face volatile price movements.”
In other words, since food and energy prices can spike upwards, as they have this year, the Bureau of Labor Statistics calculates “core inflation” without food and energy prices, under the rationale that food and energy price spikes are merely temporary price shocks that would distort the measurement of underlying long-term inflation.
To a family faced with paying rising food costs to feed the kids and skyrocketing gas costs just get to work, the definition of “core inflation” at 2 percent is a joke, not at all reflective of the increased dollars the family has to shovel out just to get by.
Even more disturbing, the Bureau of Labor Statistics’ calculation of “core inflation” is not limited merely to throwing food and energy prices out of the CPI.
The price of any good or service in the CPI market basket prone to spiking can be thrown out, under the rationale that the items with the largest price changes reflect passing market disequilibrium that would distort the measurement of long-term trends.
When removing expensive items from the CPI market basket of goods and services was not enough to depress inflation numbers, the Bureau of Labor Statistics innovated even more, changing the “weighted factors” used in calculating CPI statistics, so the results end up under-reporting the true inflation people experience in everyday living.
This is Enron-style book-cooking. But the government isn’t held to the same standards as it holds the rest of us. It’s the same mentality that allowed Congress in the 1960s to pour Social Security receipts into the general revenue fund and use them to fund domestic spending projects and replace the Social Security money with an IOU. And now use the surplus in Social Security to mask the real size of the federal budget deficit.
Just remind yourself when you go to the grocery store or to the gas station that the government says there’s no inflation out there.
Yeah right. And the check’s in the mail. And the dog ate my homework.
11 Comments
March 22, 2008 at 10:39 am
Don’t forget Chairman Al’s “substitution” theory.
Briefly, it means this:
5 years ago you bought 1Gig of RAM for $500.00
This year you buy 1Gig of RAM for $200.00
See!! The price of RAM went down–thus, negative inflation.
Another example: when butter goes to $5./lb., you will buy margarine for $3./lb. SEE!! The cost of food went down.
BTW, Clinton re-jiggered COL data, too.
March 22, 2008 at 11:48 am
I know … the BLS has been playing footsy with the truth on the CPI since the 1970s.
And yes, Greenspan was a huge part of the deceit. Corsi goes into more details than I did.
All of these bastards should be forced to go do their own grocery shopping and fill up their own cars to see what “low inflation” really is. Problem is the rising costs don’t really affect them since between salaries, perks, bonuses and outright graft and bribes they never actually feel the pain real Americans do.
And that goes for both the D’s and the R’s.
March 22, 2008 at 12:16 pm
You’ve been suckered by someone who is really, really confused. The BLS publishes dozens of consumer price indexes, including an index that the Fed calls “the core”. Social security checks are linked to the all-items CPI-W, which most definitely contains food and energy. The sentence “The price of any good or service in the CPI market basket prone to spiking can be thrown out” refers to yet another index created by the Cleveland Fed (http://www.clevelandfed.org/Research/Inflation/US-Inflation/mcpi_QA.cfm). It isn’t created by the BLS.
Dad29: Substitution wasn’t created Alan Greenspan. It is described in every introductory econ textbook in the world. Search inside here, for example. http://www.amazon.com/Complete-Idiots-Guide-Economics/dp/0028644921
For a more detailed explanation, see here http://atbozzo.blogspot.com/2008/03/actual-economics-post-why-shadow.html
March 22, 2008 at 12:22 pm
You still haven’t dealt with the claim by the federal government that inflation is low or non-existent when clearly we have inflation.
Been to a grocery store or supermarket lately? The prices are jumping by the week. How about a gas station? You can get dizzy watching the prices go up.
March 22, 2008 at 1:06 pm
Yes, I do shop.
The BLS has dairy up 13%, cereal up almost 7%, gasoline up 33%. Yup, that’s roughly consistent with what I’m seeing.
http://www.bls.gov/news.release/cpi.t01.htm
On the other hand, I just bought a 50″ TV for $1500 that was more than $2000 at the beginning of the year, and I can’t believe how cheap computers are. Peter, have looked at prices of electronics recently?
Most economists who have examined the issue believe that the BLS is overestimating inflation. Specific issues include the fact that the BLS never realized that Walmart has lower prices. See http://ideas.repec.org/p/nbr/nberwo/10712.html. and the handling of durable goods. See http://www.econ.rochester.edu/Faculty/BilsPapers/growth_1105.pdf. For an overview of all the issues, see
http://cafehayek.typepad.com/hayek/2005/09/the_numbers_are.html
http://cafehayek.typepad.com/hayek/2006/09/cpi_bias.html
http://cafehayek.typepad.com/hayek/2006/10/cpi_bias_ii.html
http://cafehayek.typepad.com/hayek/2006/02/does_the_cpi_ov.html
March 22, 2008 at 1:12 pm
I don’t care about the cost of a new computer or a big screen TV. I am using my Gateway that I bought in 2000 because I cannot afford a new computer, and I probably will never be able to buy a big screen TV. Who cares about the cost of products most of us cannot afford? Who gives a shit if the cost of a big screen TV went down $500? It’s still $1,500 I don’t have and most likely never will have.
I do care about food and fuel because I deal with them every day. The rising cost of both is killing the average American. Government policy is driving both to skyrocket (think the obsession with ethanol and the refusal to increase domestic oil production).
But government benefits from those skyrocketing prices because it produces more in sales taxes.
March 22, 2008 at 4:17 pm
Note: I deleted a comment and banned the previous commenter by IP address for (1) personally attacking the blogger and (2) lecturing me on how to run my blog.
Blogger/Blogspot and WordPress have free blogs if you want to run your own and run it however you choose. You do not have the right to come in here conduct yourself in such a manner.
Arrogant, elitist pricks are not welcome here.
March 23, 2008 at 12:22 pm
Who cares about the cost of products most of us cannot afford?
Businesses. My first employer spent around $2500 per employee on workstations, my current employer can’t be spending more than $500, with a ten-fold increase in speed in and performance. Doesn’t directly affect you, but businesses do pay taxes and salaries and stuff.
(I almost said “schools” but they don’t care how much money they spend on flat-screen TVs. Heh. Small private schools are probably happy to see the price of electronics drop, though.)
April 3, 2008 at 9:45 am
If what the BLS reports is accurate, then computers, TVs, phone services, and other products falling in price should have no bearing on the CPI anymore. The BLS maintains a price index for each category in the CPI. Computers, communications services, etc. have been dropping so much over time that their price indexes have repeatedly dropped from the original benchmark value of 100 to below 10, a drop of 90 percent or more. Yet their relative weight in the CPI remains the same because the BLS keeps resetting the index for each of the falling product categories to 100 when their index values become too small to measure. Despite their fall in price, the BLS assumes you continue to spend the same percentage of your budget on these items.
See for yourself.
http://www.bls.gov/news.release/cpi.t01.htm
May 14, 2008 at 8:35 pm
[...] The saving grace is ironically, inflation and the declining dollar. Inflation is bad for people who save money, but good for people who owe money, because the amount they owe lessens each year with no other action. Because of double taxation, for example on Inflation Index Bonds the goverment comes out ahead even further. Theoretically, inflation index bonds just preserve the value of your money. However, you are taxed capital gains tax on the numerical increase of the value of your bond, although the value didn’t actually go up. So even bonds that pay inflation lose money, the difference of which goes to the government. The goverment also understates inflation - actual inflation rates may be between 5% to 10%. [...]
July 1, 2008 at 4:07 am
Its all fine and dandy that the cost of electronics is down, but am I buying a TV every month? I’m still using the TV I got from my ex-GF as a birthday present 15 years ago.
Gas, food, electric - those are things I use/need on a daily basis, so gasoline up 33%, dairy up 13%, cereal up 7%, has a *far* higher impact on ones daily life than does the cost of a computer you might buy one of every 5 years.
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