Interesting article on inflation being double what we're being told:
newsmax.com
The U.S. Energy Information Administration has reported that retail
gas prices, for example, are up over 60 percent from last year?s
levels.
Despite these increases, and the enormous role played by oil and its
by-products in the economy, the CPI still is almost flatline.
In Europe, governments and the European Union have reported a
sudden rise in inflation due to oil price increases ? but the federal
government claims oil prices have had little effect on inflation.
In December 1999 the annualized rate of inflation was at 2.7
percent. By January 2000, the annualized change in CPI had
remained at 2.7 percent ? despite the fact that "energy" sector
forms the second largest part of the U.S. GDP, just after health
care costs.
Media Myth: "New Economy" Stopped Inflation
Rather than inquire into just how the government is compiling these
highly suspicious numbers, the major financial media has been
spinning for the administration.
Stories that appeared in the Wall Street Journal and the New York
Times business sections in December 1999 took the apologist line.
Both stories emphasized this theme: the "New Economy" and the
Internet had so dramatically structured the U.S. economy that oil
prices were just not such an important component of CPI.
It is true that the Internet and computers are restructuring economy,
but not dramatically enough to lessen the importance of oil. Just
look at the numbers.
Consider that total internet consumer spending amounted to a tiny
$5.3 billion in the fourth quarter of last year. Total U.S. retail sales
during the same period was a gigantic $771.7 billion. Internet
spending was simply a drop in the bucket.
The Internet is growing, but the old-fashioned mail order catalogue
business does a brisk $100 billion in sales a year ? five times the
spending made on the Web.
Amazon.com, the most celebrated e-tailer, sold almost a $1 billion
worth of goods last year over the Internet. Most of it books. Still,
Internet book sales represent only 5 percent of the total U.S. book
market.
And though the economy is changing radically, it is still unclear how
the new economy will impact the demand for oil.
Oil is still needed to give electric power to computers on the Web,
to heat the warehouses used by companies like Amazon and fuel
the planes, trains, postal and UPS trucks that have been busy
delivering Internet orders.
Common sense indicates that a dramatic rise in oil prices, as we
have seen, leads to large increases in CPI.
Federal Government Fixed Numbers
Since the early 1990s, the federal government has been gradually
altering the way CPI is computed by making various adjustments
According to economist John Williams, who directs the Shadow
Bureau of Government Statistics, a private firm that monitors
government number crunching, the federal government has been
using several clever and questionable techniques to keep the stated
inflation rate low.
Mr. Williams estimates that the current annualized CPI is above 5
percent ? more than double the 2.4 percent annual rate reported by
the federal government.
To create a false and artificially low rate, Mr. Williams reveals,
government economists use the technique of "geometric weighting."
Mr. Williams states that geometric weighting "gives a lower
weighting over time to goods that are increasing in price." The first
year that geometric weighting was fully implemented was in 1999.
The thinking behind geometric weighting goes like this: if prices rise
on a brand name product, consumers just move to generic brands,
or use other types of products.
It?s a nice theory, but consider why such thinking might not apply
to real people. Gas prices have increased dramatically. Have
motorists stopped driving cars? Have they begun using buses?
Bicycles? Walking instead? The answers are likely no.
Quality adjustments are another way the government keeps the
stated inflation number low.
For example when the government required that an additive be put
into gasoline to make it cleaner, the CPI was adjusted to not reflect
the price increase that was directly related to the additive.
In other words, the end consumer saw higher prices, but because
the government thought they were getting a better product, they
shouldn?t think of this as inflation!
Other quality adjustments include government-mandated changes to
auto production such as the addition of catalytic converters. Mr.
Williams says these adjustments are "not legitimate if the buyer
doesn?t have any alternative. The buyers are stuck paying the
higher price." |
