What Inflation?

As the Dowbrigade has been noting for some time now, it is clear that the Federal Office of Management and Budget has been cooking the nation’s books for years.

We noted almost four years ago that prices at the pumps, checkout counters, showrooms and e-Sites have been going up a lot faster than the officially recognized 3-4% per year. We wrote then,

Although we don’t have an advanced degree in economics, it is obvious to any fool with half a brain and less than a million dollars to spend that prices in the US are rising faster than the officially reported 1.1%. Gasoline is almost two dollars a gallon, the T just went up 25%, we spend more at the supermarket every week (when did milk get so expensive?) and the hidden surcharges and stealth fees in our bills are gutting our budget every month. (Dowbrigade, March 2004)

Now, although we still don’t have an advanced degree in economics, we DID take courses in the field as an undergrad AND as a grad student, as we have long been convinced that no one can really hope to understand what’s going on in the modern world without a sound understanding of basic economic principles.

Despite that fact, and the intuitive certainty that some statistical prestidigitation was taking place, we didn’t have a clue as to the actual mechanisms being employed until we read Kevin Phillips article Hard Numbers: The Economy is Worse than you Think, from the current issue of Harper’s Magazine. He explains, in language anyone with a sound understanding of basic economic principles can understand, the different statistical scams that successive administrations have instituted to downplay inflation and unemployment, both of which, according to a number of neutral economists, are actually hovering between 8 and 10%.

Ever since the 1960s, Washington has gulled its citizens and creditors by debasing official statistics, the vital instruments with which the vigor and muscle of the American economy are measured.

The effect has been to create a false sense of economic achievement and rectitude, allowing us to maintain artificially low interest rates, massive government borrowing, and a dangerous reliance on mortgage and financial debt even as real economic growth has been slower than claimed.

St Petersburg Times

The scams range from computing the value of homes by asking homeowners to estimate how much rent they could charge rather than taking real estate market rates (rents rose half as fast as house prices over the past decade) to leaving people who had “given up looking for work” from the unemployment statistics.

Meanwhile, the current elephant in the living room is credit card debt. As Americans absorb the increases at the gas station and in the supermarkets, they are not adjusting their spending accordingly – they are accumulating the resulting monthly deficits on their credit cards. The limits on these cards, lifted regularly during the boom times, will eventually be reached, and the resultant insolvencies will be a devastating one-two punch to ordinary citizens already reeling from depreciation and or loss of homes and investment portfolios.

Most of those affected are still in denial, or hoping that the empty bank accounts at the end of the months are temporary abberrations soon to disappear. But they have a nagging feeling bogging down their brains which is reflected in the historically low consumer confidence numbers being reported in the past few weeks. What happens when millions of cards start popping back out of ATM’s or being refused at Wal-Mart or Piggly Wiggly is anybody’s guess, but it isn’t going to be pretty.

About dowbrigade

Semi-retired academic from Harvard, Boston University, Fulbright Commission, Universidad Laica Eloy Alfaro de Manta, currently columnist for El Diario de Portoviejo and La Marea de Manta.
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2 Responses to What Inflation?

  1. Thanks for the great article. The graph illustrates what some people to be ‘unemployment’ perfectly. I wonder where they got there figures for the ‘discouraged’ workers though?

  2. It’s sad to see the amount of unemployment. They have so many different ways to figure out statistics such as the discouraged workers.

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