Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24
US House Prices Trend Forecast 2024 to 2026 - 11th Oct 24
US Housing Market Analysis - Immigration Drives House Prices Higher - 30th Sep 24
Stock Market October Correction - 30th Sep 24
The Folly of Tariffs and Trade Wars - 30th Sep 24
Gold: 5 principles to help you stay ahead of price turns - 30th Sep 24
The Everything Rally will Spark multi year Bull Market - 30th Sep 24
US FIXED MORTGAGES LIMITING SUPPLY - 23rd Sep 24
US Housing Market Free Equity - 23rd Sep 24
US Rate Cut FOMO In Stock Market Correction Window - 22nd Sep 24
US State Demographics - 22nd Sep 24
Gold and Silver Shine as the Fed Cuts Rates: What’s Next? - 22nd Sep 24
Stock Market Sentiment Speaks:Nothing Can Topple This Market - 22nd Sep 24
US Population Growth Rate - 17th Sep 24
Are Stocks Overheating? - 17th Sep 24
Sentiment Speaks: Silver Is At A Major Turning Point - 17th Sep 24
If The Stock Market Turn Quickly, How Bad Can Things Get? - 17th Sep 24
IMMIGRATION DRIVES HOUSE PRICES HIGHER - 12th Sep 24
Global Debt Bubble - 12th Sep 24
Gold’s Outlook CPI Data - 12th Sep 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Inflation Asides

Economics / Inflation Jun 27, 2011 - 06:18 AM GMT

By: Fred_Sheehan

Economics

A note from a reader: In 1977 I accidentally ran into a high school friend of mine who had taken an advanced degree in mathematics and statistical analysis. He was working for [Federal Reserve Chairman Arthur] Burn's Fed. He informed me that he was working on a new methodology of calculating the inflation rate. When I asked what it was based on he demurred saying it was "Classified Secret." I was truly stunned. He did imply that, when done, the new methodology would greatly reduce the reported value. Sure enough, during the Volcker Fed, the new methodology was introduced and has been modified since then to greatly reduce the reported numbers. It made the Volcker effort at controlling inflation seem much more effective than it actually was.


However, if one takes 1965 as the starting year for the present acceleration of inflation it can be shown that, on average, the cost of living has gone up about 1400%. And, the total money supply has also grown - up to 2008 - about the same. So, a person willing to do the research can always by-pass short-term obfuscation and see the truth through widely available published costs of living.

Furthermore, there is qualitative inflation on top of the quantitative. Now, the Fed constantly claims that a rise in costs is offset by a rise in quality and so cancels out. This has been true in the field of micro-electronics. However, in key areas of food and housing this is not so. In particular many food costs have been hidden by a reduction in amount and quality of the item. Just look at the reduction in the size of a can of tuna fish since 1965. The best tuna has gone down from 8.5 to 5.0 oz while rising over 1600% in price while the quality has suffered so that producers use every trick in the book to make lesser cuts of the fish look like albacore. So the actual rise in price is much, much more than the nominal rise.

Another thoughtful note from a reader:

Thanks for your good work. I just read your piece "Sick Minds" on Safe Haven and it occurs to me that a price index should only measure price changes of a fixed basket of goods. A consumer price index should be based on how the median household spends its income at time A and how those prices change going forward. That includes taxes! Another price index should be generated for the median household of seniors.

The current gov't approved methods are for a subsistence price index (SPI).

Clearly the government can't be trusted to provide meaningful statistics and this should be farmed out to universities. Government meddling into how the statistics are generated should be outlawed. The universities should face peer review on whatever series they are charged with generating. Get rid of the BLS and the other government statistics generators and fund the universities for this work.

My reply:

Thanks, I agree with what you write with one reservation: whether the academics could be trusted. Celebrity economists - the Fedheads, Nobels, CNBC heroes - would be the go-to "experts" who would fashion the peer structure. These supercilious windbags already live off government money that funds their economic departments, academic chairs funded by Interests (the Alan Greenspan Chair in Economics at New York University, funded by hedge-fund manager John Paulson, who made his fortune off the mortgage collapse), their web of memberships on corporate boards, their insatiable appetite for continual exposure on CNBC, the money they receive to write studies for vested interests (e.g., the Stiglitz, Orzag(s) thumbs-up for Fannie Mae; Mishkin's celebration of Iceland's banking system) - I hope that someday this scandal is seen for what it is, at which point the academics could be trusted to establish such a peer review.

If we reached that point, we might also be able to trust the BLS, but I'm with you in trashing it. I think Sir John Cowperthwaithe, Britain's financial secretary to Hong Kong in the 1950s, was on to something. He did not allow his government to collect statistics for fear the statistics themselves would define policy. In the U.S., this is seen in our infatuation with "growth" no matter the human and material wreckage choking in the gutter, a sure sign of our government's and of the economic establishment's senility.

By Frederick Sheehan

See his blog at www.aucontrarian.com

Frederick Sheehan is the author of Panderer to Power: The Untold Story of How Alan Greenspan Enriched Wall Street and Left a Legacy of Recession (McGraw-Hill, November 2009).

© 2011 Copyright Frederick Sheehan - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in