Comments on: Exposing Government Scamflation

By: Jennifer Barry

Jennifer Barry — Sat, 19 Jun 2010 19:20:49 +0000

Hi Bret, I think you’re right that most citizens don’t really comprehend how bad the problem is. I read an excellent book on this subject about 5 years ago called “The Coming Generational Storm: What You Need to Know about America’s Economic Future.” I tried to get friends and family to read it but I heard a lot of “too scary” and “that won’t be my problem for a few decades.” I think when you get to numbers this big, it’s hard for people to truly understand them.

PS- I linked to this from my Facebook page.
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By: Bret

Bret — Fri, 18 Jun 2010 16:57:39 +0000

Jennifer,

Not only do politicans lack the political will to tackle the budget deficit, I often wonder if most citizens understand the scope of the problem. As long as the government is allowed to deceive everyone, this won’t likely change. Unfortunately, it may take a crisis before anyone starts to take action. I certainly hope not.

By: Jennifer Barry

Jennifer Barry — Fri, 18 Jun 2010 05:25:00 +0000

@Bret: I basically agree with everything you say here. Seniors would be getting Social Security checks twice as big as they are now if Clinton and Bush hadn’t messed with the inflation numbers. The Fed is pushing us over the cliff to hyperinflation with their money printing. I think the central bank duties should be folded back into Treasury so the people have some control/insight over monetary policy. Last time I checked, the unfunded liabilities were over $108 trillion (not a typo). Sadly, governments around the world see the riots in Greece and decide it’s easier to let the next generation solve things rather than try austerity.

@George: Love the shout out to John Williams at Shadow Stats. He’s doing great work.
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By: Bret

Bret — Thu, 17 Jun 2010 23:39:29 +0000

The Shadow Stats website is awesome. It pegs the inflation and unemployment rates about where I figured they were. It’s no big newsflash that politicians are dishonest. What’s amazing to me is how many people believe them.

By: Bret

Bret — Thu, 17 Jun 2010 23:19:58 +0000

George,

Thanks for filling in the technical details for everyone.

When I think about the real cost of living in my lifetime, it seems like inflation averages about 4-5%. I was around back in the ’70s to see 20% mortgages, Nixon’s price freeze and the oil embargo. And, I don’t buy the 1-2% inflation rates being posted by the BLS.

The government definitely has a better handle on inflation, since Volker stepped in to run the Fed. But, they do a much better job of camouflaging inflation than in controlling it. Hopefully, our deficits will never get to a point where we return to the high inflation rates of the past.

Bret

By: George

George — Thu, 17 Jun 2010 14:20:02 +0000

Hi Bret,

Great post. There are at least 3 major ways that the government reduces the CPI and hides inflation.

The first (and silliest) way is that the government and press draws attention to the “core CPI”. Conveniently, this number excludes food and energy, the two things that we cannot live without!

The second is in the way that the housing component is generated. Instead of using the prices of houses (or mortgage payments), they use the average rent of a comparable house. So what happens? During the housing bubble, housing prices went up, but rents went down. So, the cost of housing in the CPI went down as housing prices went up!

The third way is in the method that the government calculates productivity increases. If a computer is twice as powerful as the previous year’s model, then the government says that it is twice as productive. Therefore, the relative cost has dropped by half. This is clearly untrue, because even if a computer is twice as powerful it does not radically increase the amount of work that we can do with it.

Here’s a link to the most popular alternative measures of government indicators: http://www.shadowstats.com/ .

Thanks for the link!

George
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