Lies, Damnable Lies, and the CPI

[Submitted/published State Journal-Register]

There have been several letters lately from senior citizens questioning the government’s assertion of no inflation, which has resulted in no Social Security increases for two years.

The confusion is understandable, given that food costs are rising, gasoline is 25 percent higher than last year, gold and silver have jumped 30-plus percent, while commodities are going even higher.

The answer, however, isn’t particularly difficult. You just have to understand economists. (Not “economics.”  That’s another subject.)

Understand this:

More than half of all economists work for the government. Although there are competing schools of economic thought, the government doesn’t hire — and you’re not likely to hear from — economists from schools that teach concepts like “you can’t solve a debt crisis by borrowing and printing money.”

Government economists don’t really talk about inflation — the measurement of growth in overall prices. They talk about the Consumer Price Index.  It used to be the same thing, but that gets a little expensive if you’ve made commitments to, for instance, match Social Security payments to real inflation.

So the government economists have fixed the CPI formula a few times since 1990. One improvement is they now adjust for “substitution.” They assume that when the price of steak jumps, you’ll buy hamburger instead. Therefore, your cost of living didn’t really go up. If you already switched to hamburger last year, think “Alpo.”

Another adjustment is the CPI model assumes you make completely new living arrangements every year. So with the collapse of housing prices, your shelter costs have obviously dropped.

The latest strategy is to constantly refer to “core inflation” for official pronouncements. That’s the CPI, less food and energy increases. Very useful information, as long as you don’t eat, heat your house or have to drive anywhere.

Hope this helps. Welcome to the recovery!

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