By the 1969 fiscal year, Lyndon Johnson orchestrated a "unified budget" that combined Social Security with the rest of the federal outlays. This innovation allowed the surplus receipts in the former to mask the emerging deficit in the latter.
I wouldn't call that a deception, or even honest but false information. We have one federal government. Its real deficit is the amount ALL of it spends minus the amount ALL of it brings in.
But why the real deficit pretty much is the reported deficit, the current set up is such that spending will be a lot higher in the future if we don't do something about entitlements. That's an important message to get out, but inflating the current deficit numbers doesn't do much to get that message out.
Core inflation could be spotlighted when the headline number was embarrassing, as it was in 1973 and 1974. (The economic commentator Barry Ritholtz has joked that core inflation is better called "inflation ex-inflation" — i.e., inflation after the inflation has been excluded.)
1 - And the total CPI (and other measures of inflation like the GDP deflater, the PPI, etc.) are released and play a more important role in most government actions
2 - Core inflation is a somewhat useful concept. Energy and food are particularly viable, and if say a war in the middle east causes oil prices to spike, that shouldn't be a good reason to hike interest rates.
In 1983, under the Reagan administration, inflation was further finagled when the Bureau of Labor Statistics (BLS) decided that housing, too, was overstating the Consumer Price Index; the BLS substituted an entirely different "Owner Equivalent Rent" measurement, based on what a homeowner might get for renting his or her house. This methodology, controversial at the time but still in place today, simply sidestepped what was happening in the real world of homeowner costs.
This was controversial then, and still somewhat controversial now, and I think it should be controversial. Obviously people don't pay "rent equivilences", they make mortage payments. So I can definitly see a case for reversing this part of the inflation estimate. I would not oppose going back to the old way here
But there is some justification for the current method. When you buy a house its is in effect both a consumer purchase, and an investment. We don't generally consider rise of investments as inflation. The "rent equivalence" calculation is an attempt to break down the consumer, and investor parts of the price increase, and only count the consumer part. It makes some sense, even if it is artificial and questionable.
Also if we switch now the reported inflation rate would go DOWN, because right now house prices are going down while rents are to an extent going up.
In 1994, the Bureau of Labor Statistics redefined the work force to include only that small percentage of "discouraged workers" who had been seeking work for less than a year. The longer-term discouraged — some 4-million U.S. adults — fell out of the main monthly tally. Some now call them the "hidden unemployed."
Many of the people who have not been employed for a long time are not really in the labor force or seeking jobs. To get a full measure of the situation you can't just have any single unemployment rate. Perhaps a percentage of all people who are working, a percentage of all people of working age who are working, a percentage of each group that is seeking a job but doesn't have one, and a percentage of each group that is not working (although if you have the percentage working, you have the percentage not working, its not like you really need a separate stat)
If you want to make international comparisons our unemployment rate isn't a bad rate to use, as many other countries use similarly calculated rates.
Federal economists used the Gross National Product until 1991, when rising U.S. international debt costs made the narrower GDP assessment more palatable.
The figures for GNP and GDP are very similar. Also the world standard is pretty much GDP, so by switching with that we went along with the rest of the world. I wouldn't have any problem with going back to GNP, or to a dual system using both, but I don't see any need to do so, or any reason to consider this change in any way deceptive.
Moreover, since the 1990s, the CPI has been subjected to three other adjustments, all downward and all dubious: product substitution (if flank steak gets too expensive, people are assumed to shift to hamburger, but nobody is assumed to move up to filet mignon), geometric weighting (goods and services in which costs are rising most rapidly get a lower weighting for a presumed reduction in consumption), and, most bizarrely, hedonic adjustment, an unusual computation by which additional quality is attributed to a product or service.
Product substitution does include moving up to higher quality products.
Geometric weighting is a form of product substitution, although this particular method is dubious. Dubious, but not a total croc. Its not just a shift from more expensive to less expensive goods, but a shift back and forth as relative prices change. If hamburger goes up relative to steak, than hamburger will get a lower weighting compared to steak. That roughly follows the real world where people do shift what they buy as the relative prices of different goods change. But the real adjustment in purchases does not of course precisely follow the pattern of this adjustment, which is why I say its dubious. OTOH not adjusting at all would also be dubious.
Hedonic adjustment is necessary to accurately measure inflation (if it can be accurately measured at all, which is itself an open question). If the price of a good goes up, but the quality goes up as well, that doesn't necessarily represent any inflation, at the least it is less inflation than the simple increase in price. The exact amount of adjustment is always questionable, but its questionable in both directions, and there is some reason to think that over the long run the adjustments may have been too small.
If quality improvements are to be counted, that count should have begun in the 1950s and 1960s
Or before that. But failing to make the adjustments earlier isn't a reason to not make them now.
when such products and services as air-conditioning, air travel, and automatic transmissions — and these are just the A's! — improved consumer satisfaction to a comparable or greater degree than have more recent innovations
That's a rather questionable assertion. Also the issue isn't just brand new types of things (automatic transmissions vs. manual only), but improvements in those things (a modern automatic transmission, is smoother, has more gears, is more reliable, etc. than the original Hydramatic.
"if you were to peel back changes that were made in the CPI going back to the Carter years, you'd see that the CPI would now be 3.5 percent to 4 percent higher"
But at least part, and possibly all of that 3.5 to 4 percent higher, would represent increasing inaccuracy rather than decreasing it.
government officials invariably bring up "core" inflation, which excludes precisely the two categories — food and energy — now verging on another 1970s-style price surge.
Or when these prices drop they ignore the "core rate", and talk about the total rate (unless they are trying to make a political point based on the argument that inflation is bad and/or getting worse).
But politicians are known to blather and distort and spin, that's a weakness in the politicians not in the basic statistics. |
