The idea that inflation is much higher than the CPI shows now making its way into the mainstream. And this article does not even consider hedonic adjustments and using owner equivalent rent instead of home prices.
Statistics Lie On The True Cost Of Living
By Robert Kuttner
The Boston Globe
Thursday, March 18, 2004
boston.com
03/1
7/statistics_lie_on_the_true_cost_of_living/
What is the matter with the whiny American voters?
They keep telling pollsters that they think America is
on the "wrong path." But don't they read the
statistics? Don't they know that unemployment is at a
comfortable 5.6 percent, that inflation is almost
nonexistent, that the economy is growing smartly at
around 4 percent?
These happy statistics, alas, don't accurately capture
the economic reality of ordinary people.
Take inflation. It's true that MEASURED inflation is very
low, but look at all that's left out.
In the case of health care, the government's consumer
price index tracks the cost of medical services. But
it is less precise about tracking who pays for them.
If your employer's health plan is increasing your
share of premiums and cutting the company's
contribution or if the plan is increasing out-of-pocket
charges or reducing what drugs it will cover, this shift
is accounted for indirectly, after a lag of two years.
But it hits your pocketbook immediately. And if rising
medical costs deter you from seeing the doctor, that
doesn't show up in the index at all.
Or consider housing. There are parts of the country
where housing prices have been declining for a decade
because few people want to move there. Statistically,
these declines get averaged with astronomical housing
costs in major metropolitan areas to show only modest
average housing inflation. Around big cities, prices
have plateaued at very high levels that are plainly
outstripping incomes. Try telling a young person in
Greater Boston or New York or Los Angeles that there's
no serious housing inflation or that rents have not
increased faster than earnings.
Another case of hidden inflation: A great many people
in late middle age find themselves subsidizing their
newly launched young. The causes of this trend are
multiple: low starting salaries, skyrocketing rents,
and the high cost of college tuitions and health
insurance. Is this a dent in the cost of living for the
middle-aged? You bet. Does it show up in government
statistics? Nope.
The inflation numbers also fail to capture pocketbook
realities for retired Americans. A low official inflation
rate plays a cruel trick on seniors. For starters, it means
that cost-of-living adjustments in Security Security
checks are mere pocket change. One new prescription
can more than eat up this year's Social Security
increase.
Further, a low rate of inflation translates into a low
interest rate on savings accounts, Treasury
securities, and other prudent investments for the
elderly. Moreover, older people on fixed incomes who
are not homeowners are also at the mercy of rising
rents.
And the same deficiencies in the consumer price index
that fail to capture cost shifting in health care particularly
affect the elderly, who spend a disproportionate share of
their income on doctor's bills, hospital costs, and drugs.
Or take energy costs. Gasoline is near an all-time high.
That doesn't affect the overall index much because energy
costs are a relatively small share of average total consumer
spending. But if you need your car for your business, you
certainly feel it.
Then we have the unemployment numbers. Nominally,
unemployment is a nice, manageable 5.6 percent --
about where it was during much of the booming 1990s.
But that statistic leaves out all the people who left
the labor force because they gave up on ever finding a
job. If you include those, the real unemployment
number is more like 7.7 percent. The proof of the soft
job market is that earnings have not kept up with
inflation. In 2003 the official inflation rate was 2.3
percent. The median wage increase was just 2 percent.
And the 2004 statistics are likely to be worse.
The "average" voter got a tax decrease that the
administration likes to put at around $1,000. But that
artful statistic averages Joe Sixpack with Bill Gates.
The typical voter got a federal income tax cut of more
like $300, and in many cases that small federal tax
cut was overwhelmed by local property tax increases
that were caused by declining federal aid to states
and cities.
President Bush may have gotten away with telling the
voters things about Iraq that just aren't true. But
he'd better watch out when the evidence against his
rosy statistics is right in voters' pocketbooks.
Ordinary people may not be professional statisticians,
but they are not fools. America's voters know better
than the experts whether their own personal economy is
thriving. Bogus economic optimism only reinforces the
growing sense that this president speaks with a forked
tongue.
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Robert Kuttner is co-editor of The American Prospect.
His column appears regularly in the Globe. |
